HYBE Co., Ltd. (A352820) Earnings Call Transcript & Summary

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

Greetings. Thank you for joining us for HYBE's 2026 Q2 Earnings Call. This is [ Oh Youngmin, ] Director of IR. I'll moderate today's conference call, which will proceed through consecutive interpretation. Today, CEO, Lee Jaesang, will present Q2 highlights and future plans; and CFO, Lee Kyung-Jun, will present earnings highlights, followed by a Q&A session. Please note that today's earnings call is based on preliminary consolidated estimates under K-IFRS and subject to change during external review.

Good afternoon. This is Lee Jaesang, CEO of HYBE. Thank you for joining today's earnings call. In Q2, HYBE clearly demonstrated the expansion of its global influence and its entertainment ecosystem. On the back of BTS World Tour ARIRANG that caught the attention of the world and the overall growth of the entire artist portfolio, HYBE posted KRW 1.450 trillion in consolidated revenue and KRW 170.9 billion in operating profit, both breaking record high quarterly results. Furthermore, the company posted a double-digit operating profit margin of 11.8%, which represents a significant improvement in profitability. As a result, the cumulative revenue in the first half of 2026 came in at KRW 2.1483 trillion with KRW 229.4 billion in adjusted operating profit, thereby demonstrating that HYBE has solidified its earnings base by leading global entertainment trends and producing exceptional results. ARIRANG, the fifth regular album released by BTS on March 20, drove the global music market growth. According to Luminate's 2026 midyear report, ARIRANG served as a key driver behind the revival of the physical album market with record high sales of the vinyl record and CD edition of the album in the U.S. as well as outstanding streaming performance. Thanks to ARIRANG's success, Korea's ranking in terms of music exports rose from the fourth place last year to the third following the U.S. and the U.K., proving the group's direct contribution to elevating the nation's brand and music exports. A new term called BTS-nomics was sparked to describe the ongoing ARIRANG World Tour after witnessing the massive economic benefits the tour brings to every city it visits. The ripple effects of the tour continue to extend well beyond the concert itself, creating a broader cultural phenomenon. Furthermore, BTS reaffirmed their status and influence as global icons by performing in the first ever halftime show at the World Cup finals last week. In the first half of the year, all HYBE artists released albums, resumed activities, posting impressive results not only in Korea but around the world. In particular, 5 of the top 10 artists with the highest physical album sales in the U.S. during first half were HYBE artists, proving the effectiveness of HYBE's multi-label strategy. First, CORTIS is producing unprecedented results in the K-pop scene and the global market with their single REDRED released on April 20 and the second mini album GREENGREEN released on May 4. GREENGREEN attracted massive attention with 2.31 million copies sold in the first week, and its merch album editions continue to enjoy popularity with the sales expected to continue until the end of the year. As a result, the album has sold more than 3 million copies cumulatively, and CORTIS has sold a staggering 5.25 million copies in total in just 11 months after debut. With the release of the new album, the number of monthly Spotify listeners of CORTIS began to increase, surpassing 12.7 million. The title track REDRED surpassed 100 million streams on Spotify in just 57 days and 150 million streams in 90 days of release, which are exceptional accomplishments as a new act. The album is charted for 11 consecutive weeks on Billboard 200 after charting in as #3. And given that the most streams on Spotify are coming from the U.S., the group has attracted a more diversified and solid global fan base compared to other rookie groups. Moreover, in a bold move, CORTIS embarked on a world tour after less than a year of debut, starting with a concert in Incheon in July and their performance at the Lollapalooza Chicago at the end of this week as well as planning to meet with their fans in major cities in North America and Japan. The Boy Band has been successfully pioneering a new growth trajectory in the global entertainment market that breaks away from the traditional glamour of K-pop's growth. We ask for your continued support for CORTIS as the group plans to offer their unique color and energy through diverse activities. On June 12, Le Sserafim, Illit and Katseye released their collaboration digital single ICONIC BY MISTAKE. The song entered the Billboard Hot 100 at #38 by immediately capturing the hearts of global fans. It has shown remarkable staying power remaining on Billboard and Spotify Global charts for more than a month. The collaboration created synergy among the 3 acts with their own unique appeals and fandoms and despite a short promotional period, generated significant buzz through the widespread circulation and amplification of short-form content, including dance challenge videos. Moreover, the project led to a significant crossover among the 3 fan bases as well as new fan acquisition, thanks to the buzz created by the project. This case is illustrative of HYBE's advantage with a multi-label structure that allows complementarity and synergy between labels and generation of differentiated content. We will continue to create synergies through unique collaborations among artists across geographies and fan bases. Le Sserafim came back with their second regular album Pureflow Part 1 on May 22. The title track Boompala enjoyed much popularity, thanks to its infectious beat, rhythm-driven lyrics and the catchy intro that went viral. The group is currently on a world tour scheduled to entertain fans in major cities in Japan, North America, Europe and Asia until the end of the year. The first regular album released by BoyNextDoor on June 8 sold more than 1.08 million copies in its debut week, making it the fourth consecutive million seller. They kicked off their first large-scale world tour on July 19 with 35 concerts scheduled for 24 cities in Japan, North America and Asia, starting with shows in Seoul and Busan. Enhypen started their world tour Blood Saga in Seoul in May, which includes 35 performances in 22 cities. The band performed for the first time in Latin America during this tour. Their stadium concert with more than 40,000 seats in Sao Paulo, Brazil was quickly sold out, demonstrating their global popularity. In addition, their performance at Campo Marte 26, the festival held in Mexico City, along with HYBE's Latin group Santos Bravos was met with an overwhelming response from local audiences. Recent unit and solo projects by HYBE artists also produced significant results. On June 22, Evan made its solo debut with a digital single album Ride or Die in which he took part in songwriting composition and production, showcasing his unique music style and artistic direction. The8, a unit of SEVENTEEN consisting of Vernon and The8, released their first mini album on June 29 with a title track singasong offering experimental electronic sounds that are different from typical K-pop music styles. TXT's Yeonjun released its second mini album, no Labels Part 2 on July 10, which landed at #16 on the Billboard 200. Following last year's debut solo album, this new album entered the charts as well, which became the best-performing release by a Korean solo artist this year. As a group formed through HYBE's first localization project, Katseye has demonstrated a unique growth model in the global market with outstanding success across major music charts and award shows. They emerged as a new global pop icon as they received 3 awards, including the prestigious New Artist of the Year at the American Music Awards in May. Riding this momentum, they expanded their musical spectrum with a new digital single Animal released on July 24 to build anticipation for their upcoming third mini album Wild. Katseye achieved their highest ever ranking with Animal, ranking the fourth and the ninth on Spotify Daily Top Songs USA and Global, respectively, on the release day. And the music video surpassed 10 million views on YouTube in just a day, demonstrating their prowess. The group is scheduled to embark on their North American and European tour the Wild World Tour in September. The tour sold out just 48 hours after tickets went sale, demonstrating the immense support of their fans around the world. As a result, 4 performances were added to the tour, resulting in a total of 31 concerts in 27 cities in 10 countries. To celebrate the second anniversary of their debut, the group's first documentary film titled Katseye: Wild Hearts will be released in theaters around the world on August 12 to share with their fans the story of Katseye transformation into global Pub Group. The new label ABD launched in May announced the name of its first girl group, Tuide on July 20. The new group has 7 members whose faces and profiles have not been revealed yet. They will showcase performances of every track under debut album for the first time at the Tuide's exclusive preview playground. As suggested by the meaning of the group's name Tune the Tide, they will offer new entertainment by tuning diverse tides around the world. We ask for your continued interest in and support for Tuide. Finally, on Weverse. Weverse has continued to evolve as a platform that connects artists with their fans by introducing new services for fans since its launch in 2019. In addition to K-pop artists, the global artist lineup has expanded as many global artists have joined Weverse, including representative K-pop groups such as BINI, a Filipino Girl Group and SB19, a Filipino boy group, who opened fan communities on the platform in the first half of 2026. As a result, the number of Weverse communities surpassed 200 in the second quarter this year with an 8% growth in MAU Q-o-Q to 14.43 million. Successfully positioned as an all-in-one global superfan platform that supports communication between artists and fans, album and merch purchases, concert viewing, music streaming and off-line events, Weverse has reached a critical point where it needs to grow to the next level. Against this backdrop, Yang Zooil was appointed as new CEO of Weverse, who is a platform business expert with extensive experience across the IT platform and content industries. Under the new leadership, Weverse aims to focus on further improving its services and strengthening business execution capabilities as a leading brand in the field of fandom platform business. The first half of the year was a significant period as the efforts we have made over many years translated into tangible results. BTS historic comeback, which fans had long awaited, drove the growth of the global music market and reaffirmed the power and status of K-Pop and BTS. Iconic by Mistake, a collaboration project featuring 3 girl groups created an opportunity to scale up the unique appeal of each group while maintaining creative independence and originality of the HYBE Music Group labels involved, thereby enjoying tremendous popularity across regions. Debuted less than a year ago, CORTIS is writing a new history in terms of album sales and music streaming by applying a completely different grama from other traditional K-pop idle groups to attract fans from around the world. These achievements are the result of HYBE's relentless execution of a strategy to redefine the familiar and maturing market and pioneer into completely new territories. Guided by a clear vision of becoming a global entertainment lifestyle platform company based on music and technology, HYBE is selflessly pursuing new ambitious initiatives. We ask for your continued interest as we continue to push boundaries and deliver even greater growth. Now I will hand over to CFO, Lee Kyung-Jun, who will report on the financial results for Q2.

Good afternoon. This is CFO Lee Kyung-Jun. Let me report on HYBE's consolidated financial results for the second quarter. We posted KRW 1.450 trillion in consolidated revenue, which is a record high quarterly result. Revenue with direct artist involvement, including recorded music, concerts, advertisement and appearances was KRW 1,039.9 billion, accounting for 72% of the total revenue, while revenue with indirect artist involvement, including merchandising, licensing, content and fan club sales was KRW 410.1 billion, taking up the remaining 28%. HYBE also posted the highest quarterly operating profit of KRW 170.9 billion, demonstrating solid profitability. Q2 saw a significant growth in revenue with Direct Artist involvement on the back of combat by major HYBE artists and the beginning of a large-scale world tour by BTS. As our artists are actively promoting their music and several teams are conducting world tours, a revenue growth trend is expected to continue well into the second half of the year. Let me give you more details by revenue category. In Q2, recorded music sales posted KRW 326.8 billion, a record high quarterly result. Most artists under HYBE Music Group made a comeback and 7 teams recorded million sellers in the first half of the year according to Circle charts. HYBE artists accounted for 41.3% of the combined album sales of the top 100 artists. Outstanding streaming performance of our artists also drove the overall revenue growth. In Q2, streaming accounted for 30% of the recorded music sales, thanks to HYBE artists, including BTS and Katseye entering global charts. Concert sales also reached a record high of KRW 647.7 billion, thanks to the recognition of sales from BTS World Tour. The tour drove revenue growth by expanding touch points with fans around the world through online streaming and live viewing in addition to off-line concerts in Korea, Japan, North America, Mexico and Spain. Furthermore, SEVENTEEN Fan meetings and concerts by [indiscernible] TOMORROW X TOGETHER and ENHYPEN also contributed to record high concert revenue. Within the category of revenue with Indirect Artist involvement, merchandising and licensing revenue reached an all-time high of KRW 310.6 billion. In Q2, BTS tour-related merch items were logged by fans online and offline and licensing revenue from The City projects in cities that hosted concerts also contributed to the revenue. In addition, tour merch and character items of HYBE Music Group artists such as SEVENTEEN, TOMORROW X TOGETHER and ENHYPEN recorded steady sales. Content sales in Q2 fell year-over-year to KRW 41.6 billion, mainly due to the absence of new large-scale events, even though Artists YouTube and DVD content as well as existing published games generated steady sales. Diverse content offerings are scheduled for the second half, including Katseye's documentary film and Artist Seasons greetings. Moving on to the KPIs of Weverse, average MAU in Q2 broke the record again following Q1 with 14.43 million, up 8% quarter-over-quarter. Total paying amount and monthly ARPPU increased by 12% and 24% Q-o-Q, respectively, showing a solid growth trend. More fans have visited the platform more frequently, thanks to a wide range of activities by HYBE Music Group artists and their time spent on the platform led to an increase in membership subscriptions and paid content purchases, creating a virtuous cycle. Furthermore, along with the increase in tours, we're actively promoting a service where fans can purchase merchandise online and pick it up at the concert venue, which improves the fan experience while also enhancing profitability. In the second half of the year, Weverse will continue to improve its services and strengthen business execution capabilities to further drive profitability. The first half of 2026 showcased tangible results for HYBE's ecosystem with the start of whole group activities of BTS. To ensure continuation of positive results into the second half of the year, HYBE will deliver unique entertainment that fans have never seen before. We ask for your unwavering support as we strive to stay one step ahead of changing times in generations and create new next-level experiences.

Thank you. Now we would like to have a Q&A session.

[Operator Instructions]. The first question will be provided by Eric Cha from Goldman Sachs Securities.

I'm Eric Cha from Goldman Sachs Securities. I'd like to ask you 2 questions. First of all, I appreciate that the company has posted revenue, which has exceeded the expectation by a big margin, but we saw a decline on a quarter-over-quarter basis in terms of GP margin, and this has led to a dilution of the leverage to a certain extent. So I'd like to understand the drivers behind the decline in the GP margin quarter-over-quarter. And what is your outlook for GP margin in the second half of the year? The second question has to do with your profitability outlook. In the second quarter, as you mentioned, your operating profit margin recorded a double-digit figure, which seems to have finally normalized in terms of its level. But going into the second half of the year as well as 2027, do you believe that this double-digit operating profit margin will be sustained? And what will enable for that to happen? And I'd also like to understand the company's mid- to long-term goal for your operating profit margin.

Thank you for your question. Let me address your first question regarding the quarter-over-quarter decline in our gross profit margin. Compared to the first quarter where we had a smaller share of concert revenue, we have seen an increase in the concert revenue in the second quarter, which is about threefold. You may see that there is a higher percentage of costs related to concert activities, including the paid cost for the revenue, the concert venue as well as the sharing of revenue with artists because it is -- it falls under the category of revenue with Direct Artist involvement. As a result, we have seen an increase in the cost percentage in the total revenue. However, when we look at the overall GP margin across different business models, we can see a steady trend. Therefore, please understand that the quarter-over-quarter decline in the second quarter for the GP margin is mainly because of the increase in concert revenue in the second quarter. And moving on to your question on the profitability in the second half and going forward. As I mentioned, we are maintaining stable level of profitability across different business models. Of course, depending on the mix of these business models in our entire revenue structure, profitability may vary slightly. However, we are taking efforts in order to maintain the level of profitability that we posted in the second quarter. In particular, we may not be able to dramatically change the mix of the business models in our business portfolio, but we're trying to continue to reduce the percentage of cost in each of these revenue categories. In particular, when it comes to concerts and merge production, we continue to increase profitability by reaching the economies of scale. And I'd like to also comment on our outlook on operating profit margin into the second half of the year as well as 2027. We're making a lot of effort to continue to improve the operating profit margin, in particular, as the growth of the Young Artists, including CORTIS and Katseye continue to materialize and as we continue to diversify our portfolio, we expect our operating profit margin to continue to improve.

The following question will be presented by Ki-hoon Lee from Hana Securities.

I'm Lee Ki-hoon from Hana Securities. I'd like to ask 2 questions that are quite similar in line with the previous questions. First of all, when we look at the fact sheet, especially the labor costs, even though we exclude KRW 250 billion of one-off labor costs that incurred in the first quarter, we can see that there's an increase of the labor cost by about KRW 30 billion in the second quarter. I'd like to understand whether this has to do with any one-off factors such as incentive payments or whether this increase is a recurring phenomenon. And I'd also like to understand if there are any cost that were recognized in the second quarter that we need to be aware of. And moving on to business risks, that was -- it was reported in the media about your business in the U.S. as well as issues with Supertone. So going into the second half of the year as well as 2027, I'd like to know if there are any risks to your businesses that are other than the core business in your portfolio, whether there's any caution that we need to take. I believe that most of the risks have been addressed, but if there's any risk that we need to be aware of, please share with us.