DoubleUGames Co., Ltd. ($A192080)

[Interpreted] Good morning, and good evening. Thank you all for joining the conference call for the DoubleUGames earnings results. This conference will start with a presentation followed by a Q&A session. Now we will begin the presentation on DoubleUGames' First Quarter of Fiscal Year 2026 earnings results.

[Interpreted] Greetings to everyone. I would like to thank all analysts and investors from home and abroad for attending the DoubleUGames' 2026 Q1 Earnings Conference Call. This earnings presentation has been prepared for the convenience of investors based on provisional financial statements for Q1 2026. Although this material has been prepared with reference to objective standards and other relevant criteria, it may contain certain statements based on estimates, forecasts or subjective assessments. Please note that due to future changes in the business environment or differences in data aggregation standards, figures and interpretations may be derived that differ from those presented in this material. Today's earnings presentation will be led by Mr. Jaeyoung Choi, CFO, who will cover our Q1 highlights and then the Q&A session, while the main presentation will be delivered by Mr. Young-Joo Shin, the Head of the IR team.

[Interpreted] Greetings. I am Jaeyoung Choi from WU Games. Today's presentation will cover Q1 highlights, Q1 performance, revenue for different businesses, consolidated costs, social casino status and then casual iGaming update. After the presentation, we will hold a Q&A session. Let me begin with the highlights for Q1 2026. 2026 Q1 marked the first time in our company's history that quarterly revenue exceeded KRW 200 billion, KRW 205 billion of consolidated revenue, KRW 75.1 billion of EBITDA and KRW 68.5 billion of operating profit all reached record high quarterly levels. There are 2 key factors behind our record high revenue and operating profit this quarter. First is the qualitative transformation of our revenue structure through increased share of DTC. The share of social casino DTC revenue expanded to 38.7%, increasing by approximately 4x over the past year with the adoption of in-app alternative payments serving as the key driver. Platform fees were structurally reduced and the variable cost ratio improved by 6 percentage points from 31% in the same period last year to 25%. We believe that a highly profitable structure has now taken hold where margins expand in tandem with revenue growth. Second is that all business segments achieved profitability. With our core business social casino continually generating a stable cash flow, casual and iGaming drove revenue growth, and they all turned profitable at the operating profit level this quarter. As a result, we have completed a structure in which all 3 of our business segments independently contribute to profitability. As a result, we believe that now we have established a portfolio where there is a balance between the stability of social casino, growth of casual and market expansion of iGaming. In addition, on April 28, we submitted a nonbinding offer for DoubleDown Interactive or DDI, thereby initiating the process to resolve the issue of duplicate listings. Our objective is to simplify the group's governance structure and enhance the efficiency of capital allocation, and we will provide transparent updates on the progress through public disclosures. This concludes the key highlights for Q1, and now we will share a more detailed presentation of our financial results.

[Interpreted] Greetings. I am Young-Joo Shin, Head of the IR team. Let me now walk you through Q1 consolidated results. First, our consolidated operating revenue for Q1 reached KRW 205 billion, marking the highest quarterly revenue in our history. This represents an increase of 2.6% Q-o-Q and 26.6% Y-o-Y growth, respectively. On the stable revenue base of our social casino, growth was driven by casual and iGaming, while the revenue contribution from casual and iGaming expanded to 24.3%. Second, in terms of profitability, EBITDA reached KRW 75.1 billion, also a record high on a quarterly basis, while the EBITDA margin posted 36.6%, a 1.3 percentage point Q-o-Q increase. The key drivers of margin improvement were the enhanced variable cost structure resulting from the increased contribution of DTC as well as the turnaround of casual and iGaming to profitability. Operating profit posted KRW 68.5 billion, a 7.1% Q-o-Q and 25.1% growth Y-o-Y, respectively, reaching a quarterly record high. Operating profit margin recorded approximately 33.4% and net profit posted KRW 73.5 billion with a net profit margin of 35.9%, and it exceeded operating profit, reflecting foreign currency translation gains resulting from the rise in the war exchange rate. Next, let me walk you through our revenue trends by business segment. Social casino revenue posted KRW 155.1 billion, a 1.4% drop Q-o-Q, but increased 8.6% Y-o-Y, maintaining a stable basis of mid KRW 150 billion level. We believe that the acquisition effect from WOW Games is being reflected in this portfolio. iGaming revenue posted KRW 25.2 billion, an 8.1% Q-o-Q and 31.1% Y-o-Y increase, respectively. SuprNation successfully established their fourth brand, Las Vegas, and the multi-brand strategy is translating into revenue growth. Casual game revenue posted KRW 24.7 billion, a 28.8% increase Q-o-Q, recording the highest growth trend. A major key success factor was our expansion from the existing merged genre-focused portfolio into a broader range of casual genres, including puzzles by utilizing AI Lab. With the revenue contribution from AI-based games expanding to 70%, AI Lab game development capabilities are being validated through financial performance. As of Q1, the revenue contribution from casual and iGaming increased to 24.3%, and we believe that a revenue structure has now been established in which the stability of social casino is complemented by growth from the 2 business divisions. Next, let me cover consolidated expenses for Q1. The most noteworthy aspect of the cost structure of this quarter is the structural improvement in variable costs. Variable costs amounted to KRW 51.8 billion, a 5.4% drop Q-o-Q, and the ratio to revenue improved by 6 percentage points to 25% compared with 31% in the same period last year. Platform fees were KRW 36.5 billion, decreasing 11.0% Q-o-Q and 10.8% Y-o-Y, respectively. This reflects a structural easing of the platform fee burden driven by the increased revenue contribution from DTC and IAA. Marketing expenses were KRW 46.2 billion, a 3.3% increase Q-o-Q, and it accounted for 23% of revenue, and we are managing profitability while continuing growth investments in the casual segment. The structure in which investment costs are rapidly recovered is now being validated in our results as demonstrated by the fact that Legal Escape, which we made concentrated investments in Q4, reached cumulative BP this quarter and turned profitable and labor costs amounted to KRW 24.1 billion, a 14.8% increase Q-o-Q and 2% increase Y-o-Y. And this was attributable to the reduction effect from a one-off valuation of share-based compensation expenses in Q4 and is similar to the same period last year. As of the end of Q1, the consolidated headcount stood at approximately 685. Depreciation and amortization expenses of tangible and intangible assets were KRW 6.6 billion, remaining at a similar level to the previous quarter. This is a noncash expense that includes depreciation of lease assets and PPA amortization related to acquired companies. Next, I will walk you through our status of social casino. In Q1, social casino revenue posted KRW 155.1 billion, declining slightly Q-o-Q, but growing 8.6% Y-o-Y, confirming a stabilization at the KRW 150 billion level. The effect of the acquisition of WOW Games is being steadily reflected, while the marketing expense ratio also remains efficiently managed at 11.1%. The most notable achievement this quarter was the sharp increase in the revenue contribution from DTC. Q1 social casino DTC revenue ratio posted 38.7%, a 12.1 percentage point Q-o-Q and 28.3% increase Y-o-Y. This is approximately a fourfold increase in just 1 year and shows that there was rapid acceleration of profit structure improvement. The main background of DTC ratio expansion is the adoption of in-app alternative payment. Starting in January this year, we began applying third-party in-app payment options on Google and Apple platforms. And once users select this payment method, it is automatically applied going forward, resulting in a very high retention rate after the conversion. Considering that the share of DTC among leading global social casino companies is around 40%, we believe that we have also entered a similar range with ample room for further expansion. I will now update you on casual and iGaming. First, let me discuss the casual segment. Casual revenue centered on proxy games posted KRW 24.7 billion, increasing by 28.8% Q-o-Q and is continuing its high growth trajectory. The revenue contribution from AI-based games expanded to 70%, confirming that AI games have become fully established as the core revenue driver of the casual segment. What is particularly notable is that through AI Lab, we successfully expanded from our previous focus on the existing merged genres into a wide range of casual puzzle genres. By establishing an AI-based development framework, we have secured a structure that enables the development of multiple titles, achieving both genre diversification and faster launch execution. Marketing investments made in the game launched in Q4 of 2025 were recovered through the revenue this quarter, leading to profit generation and confirming our structure in which investment to recovery cycle is operating very quickly. The casual segment went through its initial investment phase in the first half of 2025, followed by an AI-based scale up in Q4 of 2025. In Q1 of 2026, it even achieved a turnaround to profitability, demonstrating that we have executed our planned growth road map without any disruption. Next is iGaming. SuprNation recorded revenue of KRW 25.2 billion, up 8.1% Q-o-Q. As our fourth brand, Las Vegas has been successfully established, the revenue contribution from our multi-brand strategy is expanding. In addition, economies of scale from operating 4 brands enabled the segment to turn around and be profitable this quarter. And with both business divisions achieving a turnaround to profitability, we have secured not only growth potential but also profitability. Last but not least, I will cover our casual games. As of the end of April 2026, Paxie Game/casual game portfolio secured more than 55 game lineup with cumulative downloads reaching 57.1 million. It represents an increase of 35% in approximately 7 months compared to October 2025, indicating continued solid growth. In terms of major titles by download, Merge Studio recorded the highest number of downloads at 38.7 million. Notably, downloads are evenly distributed across various genres, including Merge and Polo games, helping reduce dependence on any single title while building a more stable portfolio structure. Meanwhile, the new games currently being developed by AI Lab are being designed to reflect the latest market trends and user preferences. In addition, through an AI-based development process, we are improving development time lines and cost efficiency while establishing a structure that enables rapid market validation. That is our covering of our financial results for Q1. And now I would like to invite you to a Q&A session.

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

[Interpreted] I have actually one question related to the steep increase in growth of your casual games. Can you give us some color on the direction for casual games going forward and also your AI strategy?

[Interpreted] Yes. Thank you very much for your question. And I would like to cover what we have been doing so far. After we acquired Paxie in April of 2025 last year, it is true that casual games has been working as our main driver and has been actually working to increase our top line. And we are seeing AI development, which is actually giving birth to multi-titles. And we are seeing a very fast validation as well, and we are able to have selective investment and recovery. So there is a very positive cycle as well. And for our casual games as well, as I have mentioned, of KRW 24.7 billion, which was a Q-o-Q of 28.3% increase. And in Merge, we are seeing many titles. We are seeing Arrow, and we are also seeing cap shifts and wiggle escape as well as other [indiscernible]. So we are seeing an expansion into puzzle games as well. And even within the genre, we are seeing different types such as sport and Arrow that are increasing as well. Also, we are putting more focus on these types of puzzle games because I think that things have changed because in the past, we had the users that actually played game for 30 minutes or for a longer period of time and have very high loyalty to a single title. However, it seems that we are seeing more users who are now used to more shorts or TikTok. So although they tend to play the game to a shorter amount of time, what is becoming more important is their frequencies into playing games for different cycles. So this has become a very important factor. And we are utilizing AI in a very important way because in the past, we had to have more than 10 people that were invested into making a game. We have the producers, the designers and QA staff. So we had more than 10 people who needed to communicate well to make a game. However, now we have these producers who know A to Z and who can actually quickly test to see what will be catching on in the market and what will not. So that is why we had more than 40 titles by Paxie Games 2026 and DoubleUGames more than 10 or so. And we are seeing more synergy between Pepi games through this AI as well. Also, we are seeing a very fast increase in the revenue from casual games as well, and we are now being able to recover a lot of the investment and is leading to our profit as well. So with our AI lab, we are seeing fast launching, expansion, monetization. So all of this is leading to more of our revenues and our profits.

[Interpreted] The following question will be presented by Joon-Hyuk Lee from Hana Securities.

[Interpreted] I have 2 questions. First, I would like to know what is the background behind casual and iGame all becoming profitable? Do you think this will be sustainable in the next quarter as well? And my second is with the DDI going private, with the cash, what -- do you have plans going forward with it when it becomes different from the current structure?

[Interpreted] Thank you for your questions. Let me answer the first question and then quickly answer the second one. The reason why casual and iGaming all turned profitable this quarter is because of the following. Well, as you probably know, in both casual and iGaming, economy of scale is very important to secure a margin. So for both of them, we had about KRW 25 billion that was actually generated this quarter, and this led to operating profit as well. We believe that this will also be possible for Q2 of 2026 as well. So our goal is to actually, of course, maintain, improve and also to make both of these predictable going forward.

[Interpreted] Let me answer the second question as well. Well, regarding the taking pot of DDI, well, I think we just started our first step. And there needs to be different processes that need to be undertaken. For example, there needs to be reviewed, negotiations, review by the U.S. SEC. All of this needs to be completed for us to have the taking private or the delisting. So we will need to actually go through those processes going forward. And regarding the cash that is actually held by DoubleUGames and DDI, it's about KRW 900 billion in total and about KRW 600 billion is with the U.S. So with the taking private of DDI, we believe that we can resolve the dual listing issue and also utilize the cash in DDI U.S. for different purposes. They can be used for M&A purposes to grow and also, we believe, flexibly utilized to give more back to our shareholders in terms of shareholder return. However, this all has the assumption that the DDI taking private will be completed. So we will need to keep an eye on what is ongoing. And we will, of course, make sure to let the market know upon the completion of this so that we can give you our plans going forward at that juncture as well. We will take the next question.

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

[Interpreted] I have a question about your DTC because it seems that it really went up this quarter. So does your company have a particular strategy that made this possible? And can you give us your target DTC if you do have a goal going forward?

[Interpreted] Let me answer the first part of your question. So regarding our DTC, well, I think this is what the company basically thinks. First, we are seeing more flexibility in the U.S. market that is actually allowing this type of in-app alternative payment. So we are actually in line with this atmosphere. And secondly, we are doing a lot to optimize because with the VIP users and to have more clear-cut focus on different players, especially VIP users, so they can gain more trust in DTC. So we are doing our best to optimize UI and UX so that they can actually feel that it is entrusted method. So we believe that through this, we will be able to have more DTC conversion and maintenance. And I think that regarding our target DTC going forward, let's look at our current status. For DoubleDown Casino, it's already surpassing 40%. For WOW, we started off with the web, so it's about 50%. But for DUC, it's about 25%. And it seems that compared to others, DUC is a little bit behind. So we are currently utilizing the different DTC know-how that we have gained in DUC and WOW so that it can be implemented for DUC as well. So our short-term goal is to have more -- about a 10% increase in this number for that as well. And we are going to -- we believe if we see more IAP revenue going up for casual as well, we believe that we are going to have more opportunities to have increase in DTC in that area as well. We will take the next question.

[Interpreted] The following question will be presented by Hyeyoung Kim from DAOL Investment & Securities.

[Interpreted] My first question is about your record high revenues for Q1. So can you give us what was your growth driver behind that? And secondly, can you also give us a take more color on what were the changes in your cost structure as well? -- let me answer the first question. And regarding our highest ever record top line for this quarter, when we look at back, it seems that for social games, we have been maintaining about KRW 150 billion to KRW 155 billion or so. But with the acquisition of WOW, we were able to add to the top line as well. And casual games also worked as a great driver as well because in 2025, Q2, it was about KRW 12 billion. But in this quarter, we had more than double of that increase to KRW 24.7 billion. And in casual games, now we have a structure in which we can have recovery by in just 2 to 3 months. So we believe that continuously, we will have opportunities to grow our top line...

[Interpreted] Yes. Let me answer your question regarding the different costs. And I think that we can actually divide the different costs into variable costs and fixed costs. So for variable cost for DTC, you can see that we're seeing more of the casual, and we are seeing more the revenues in in-app advertisements or IP as well as the in-app payments that we have mentioned. So compared to revenues, we have seen a 6% improvement from 31% to 25%. And for fixed cost, well, it's quite simple fixed cost structure that we have. I think we can look at both marketing and labor costs. And for marketing for social casino, although there has been long-term royalty, well, after the investment, it took more time for us to have recovery. So compared to casual games, it had a longer time period. But I think that with more of the casual games going forward, well, it can be reflected in our revenues, well, even sometimes in the same quarter or in the first part of next quarter. So this refers to, of course, marketing. And if we don't see the ROI in a certain area, then we won't make further investments. So we are seeing -- paying very much attention to conversion and seeing its relationship to revenues as well. So this can add to this as well. And regarding our headcount and our labor cost for Q1 on a consolidated basis for this quarter, it's about 670 to 680. And we are seeing AI tools such as quad that are adding not only to the productivity of our work, but also are playing a big role, even working -- we can actually consider them as sometimes our work colleagues, and we are seeing more of their roles like AI agents that are going up. And we believe that actually this can be improved and this can play a bigger role going forward. It seems that we have no further questions in the queue, and I believe that we can conclude our earnings conference call on this note. Once again, thank you for your attention despite your very busy schedules.