KRAFTON, Inc. (A259960) Earnings Call Transcript & Summary

Hello. Thank you for joining us today. We will now begin KRAFTON's earnings results call for the fourth quarter of 2021. The presentation will be given by KRAFTON first, followed by a Q&A session. [Operator Instructions] And now we will begin the presentation by KRAFTON.

Good morning and good evening. This is [ Claire ] from the KRAFTON IR team. I'd like to thank all our investors and analysts joining us from home and abroad in today's earnings results call for the fourth quarter and fiscal year 2021. Today, we are joined by KRAFTON Chairman, Byung-Gyu Chang; CEO, Changhan Kim; and CFO, Dong-geun Bae. Please note that the earnings results are based on consolidated estimates under the K-IFRS and are subject to change upon review by external auditors. Now CEO, Kim will present KRAFTON's strategic direction for 2022, followed by CFO, Bae, who will be presenting the key financial results. Chairman Chang will be participating in the Q&A session.

Thank you for attending KRAFTON's annual performance call. This is Changhan Kim, CEO of KRAFTON. As this is the first conference call of 2022, I'll be presenting KRAFTON's strategic direction for the year. KRAFTON's quest continues in 2022. KRAFTON is a company that produces and publishes games. During the IPO process last year, I had said that KRAFTON's core value is an unwavering period of challenge taking to create and expand upon original creative leveraging our core capabilities of world building, interactive design and entertainment. In 2022, we aim to improve efficiency and expand our core businesses while extending our core capabilities, beyond gaming by defining strategic business areas and setting up new processes to realize such goals. First, we have 3 main products that are based on the PUBG IP currently in live service. KRAFTON understands the power of original creative and have emphasized the importance of continued recreation and challenge-taking. This will forever remain our core value. On top of that, this year, we will strive to improve efficiency of live service products and work towards sustainable growth. PUBG PC console has successfully transitioned into a free-to-play title this January 12 and is performing beyond expectations. Many new users started playing PUBG while a great number of lapsed users returned. As a result, the games MAU has once again surpassed 20 million. Our efforts last year to improve revenue efficiency have resulted in a significantly higher figure compared to 2020. This year, we will further advance such efforts to not only grow our revenue, but also make PC and console versions of PUBG into a game that's lost for a long time. PUBG: New State, New State Mobile developed and globally published by KRAFTON, brought over the unique fun of PUBG PC on the mobile device. We take pride that at both top level quality in terms of art in tech. However, we were met with an underwhelming initial outcome in terms of offering the core fun of New State as an intuitive and quick experience. We still believe that the fund of New States VR play holds a unique position. The plan is to further polish the game play to reposition New States, create core fans and expand on. In January, the 20-minute long extreme VR mode was updated and was met with a favorable response. We are repositioning New States via monthly updates. By end -- by quarter 2, once the new map is rolled out, we'll maximize the unique traits of New State and solidify its position in the market through mass marketing. The rest of the year, we're focused on expanding into a larger user base. PUBG Mobile and Battlegrounds Mobile India are also key products. We will continue to push our collaborative content with global brands and add various game modes to grow both titles as a living service and a globally beloved product. Improving operational affinity of live service naturally results in strengthening publishing capabilities. We especially plan to boost capabilities in terms of live ops and monetization. This area was not a key strategic focus for KRAFTON as much as nurturing development teams. As such, highlighting its importance and strengthening publishing teams this year will lead to a much higher level of business efficiency. Next are 2 upcoming products that KRAFTON has in its new game lineup. First is Project M, a new title developed by Unknown Worlds, a studio KRAFTON acquired last year. Project M cannot be simply explained. At first glance, it may look like a turn-based strategy title, but it actually combines a variety of elements to make up a completely new genre. It is characterized by an easy-to-learn, hard-to-master formula and allows for a long-term live service through seasonal updates. Creativity to make new gameplay is what Unknown Worlds had always pursued, and this value aligns with KRAFTON's own core values. KRAFTON will leverage its extensive global service experience to grow Project M into a refreshing new game. Just like how PUBG defined Battle Royale and started a new genre, Project M will come to define another new genre that the world has never seen before. The Callisto Protocol aims at a next-gen horror game IP of the highest quality and is being developed by Striking Distance studios. The production is going smoothly despite difficulties posed by the COVID pandemic and talk with console platform holders are ongoing to determine the best launch time line. In addition, KRAFTON is preparing a variety of game lineups. Dream Motion, which was acquired last year, is preparing the sequel title Road to Valor: Empires. Rising Wings is working on Defense Derby, a fresh take on the power defense genre. At KRAFTON HQ, the open-world PVP shooter, [indiscernible] is in the works. This is a genre we are skilled at. Meanwhile, PUBG studio kicks off the looter shooter projects based on realistic gun play, which will be developed by the dev team in Europe, who worked on the signature PUBG gameplay. PUBG -- Global Studios is developing a high-quality Hero Collector RPG title, leveraging RPG production experience. The Bird That Drinks Tears finished the visual R&D and will start expanding into games and other media content based on resulting visual Bible. KRAFTON's quest into areas other than traditional gaming, where we can leverage our skills continues this year as well. While there are areas where we have a clear competitive advantage, there are also areas where everyone is on equal footing. This is when new tech or new environment is brought on by such new tech opens a new markets. In such cases, it is important to create new opportunities through small and quick trials. There are 3 areas we can expand into leveraging our capabilities of world-building, interactive design and fun content, team learning as well as VR and Web3/NFTs. Deep learning is an area KRAFTON has been continuously researching. Key tech pillars are open [indiscernible] conversations, TTS and animation generation. The goal this year is to create businesses and launch the services of 2 out of the 3 key areas. The VR market is still small. However, the installed base of Oculus Quest 2 has exceeded 10 million globally, and its usage increased due to the COVID pandemic. A market this size must be approached by small and quick trials to prepare for when the market becomes mainstream. KRAFTON views Web3 in 2 ways from a tech perspective: first is that it is an open API that allows assets to be transferred via coins and token economics based on a decentralized blockchain technology, second is that ownership rights are given to creators. It is true that the current Web3 ecosystem is driven by capital against a small user count. However, this bubble is formed because of expectations the technological change will bring. Also, it is in its infancy. So we believe there are bigger opportunities there. KRAFTON does not intend to depend on this bubble as a basis for business and will not pursue a pre-term model. We believe making fun games is the essence and most important priority. We have done our research on how to apply our strength to the new Web3 NFT environment and concluded that create to earn is the right direction for us. Create to earn means establishing an environment with decentralized tech and platform to give creators more rights and more profit. As a result, we decided to create an NFT-based metaverse platform in partnership with NAVER Z. This will be a user-generated interactive virtual world platform based on NFT. We believe this is the right direction to leverage our game production technology to enter the Web3 arena. Finally, KRAFTON is introducing a new program called the potential to encourage new change taking in a fast-moving world. The potential allows up to 20 members to form a team and develop a game for 1 year and then receive support gathering feedback through user testing. The program is not just limited to traditional forms of games, but also can be based on new expanded areas of gaming. KRAFTON's vision remains the same as what was shared in last year's IPO IR session. We believe games will become the world's most powerful medium and will continue to challenge ourselves in the pursuit of original creatives. Thank you very much. That concludes the presentation and KRAFTON's strategy for 2022. Now moving on to the financial results of Q4 and fiscal year 2021.

Hello. This is KRAFTON's CFO, Dong-geun Bae. In 2021, KRAFTON carried out efforts with a focus on expanding KRAFTON's mega IP PUBG. Plenty of live content was provided to a total average MAU of 180 million users across services based on the PUBG IP and set the ground for the PUBG lovers by activities such as webtoons based on the PUBG universe. With such evolutions in game services, revenue based on the PUBG IP had grown more than 25% and overall consolidated revenue had grown by 13%, reaching KRW 1,886.3 billion, which is a new record high. Overseas revenue accounted for 94% of annual revenue as KRAFTON continued to expand in influence as a global gaming company. In 2022, we expect not only growth based on PUBG, but also the growth of the KRAFTON ecosystem through unique new IPs by independent studios under the KRAFTON umbrella. Next are further details of financial results in Q4 and fiscal year 2021. KRAFTON's annual consolidated revenue in 2021 recorded KRW 1,886.3 billion, a 13% growth from the previous year. KRAFTON's consolidated revenue in Q4 recorded KRW 444 billion, a 15% -- of 26% growth year-on-year. First, the consolidated revenue on PC in Q4 recorded KRW 114.9 billion, which is a 92% growth year-on-year. The annual revenue recorded KRW 399 billion, a 51% growth from the previous year. In -- 2021 was the year that sent live service and released a variety of premium products. As a result, the PC and game ARPU had jumped more than 4x from the previous year. The title amounted 6.5 million new users during the first week after PUBG PC console went free to play. In January, which is the highest influx of new users in the history of the title service, in 2022, further growth will be continued based on this expanded traffic. The consolidated revenue on mobile in Q4 recorded KRW 303.7 billion, which is a 10% growth year-on-year. The annual revenue recorded KRW 1,417.2 billion, a 6% growth from the previous year and a new record high for the mobile business. In 2021, PUBG Mobile recorded continued growth by collaborating more with various brands, updated new modes to both user engagement and conducted efforts -- carried out efforts to increase the par. Battleground Mobile India solidified itself as the #1 game in the country based on the loyal user base after its relaunch. KRAFTON had made an investment of around KRW 100 billion in the fast-growing Indian market last year alone and plans going forward are to strengthening ties with local businesses based on partnership secured through investments. New State Mobile introduced a fast-paced Battle Royale Battlefield suitable for the mobile device, starting with the update of the extreme BRO mode this January and is currently repositioning itself with a focus on core communities in the first world markets. Afterwards, an improved live service structure will expand revenue contribution. The consolidated revenue on console in Q4 recorded KRW 6.1 billion. The annual revenue recorded KRW 19.4 billion, a 34% decrease from the previous year. But the traffic has increased significantly since to transition to FTP and showing a high par, so revenue growth is expected in 2022. Finally, other consolidated revenues in Q4 stand at KRW 19.3 billion, a 110% growth year-on-year and recorded KRW 50.7 billion annually, which is a 46% growth from the previous year. Next is the consolidated operating expenses and profits. In terms of personnel costs, recorded KRW 94.8 billion, a KRW 14 billion increase quarter-on-quarter. This is due to reflecting the onetime expense of confirming the annual incentive budget and the inclusion of Unknown Worlds as a consolidated subsidiary. This is a KRW 13.4 billion decrease year-on-year and is attributed to the performance incentives being partially reflected to the equity-linked compensation from Q3. The platform fees and cost of revenue recorded KRW 57.7 billion, which is a KRW 1.9 billion decrease quarter-on-quarter due to the decline in PUBG PC revenue. It increased by KRW 26.3 billion -- KRW 23.6 billion year-on-year as the revenue portion of KRAFTON's direct service, including PUBG PC had expanded. In terms of pay commissions, e-sports-related investments still production of creative content, game development-related vendor costs and server costs are included. Q4 saw an increase in server cost with the launches of Battlegrounds Mobile India and New State Mobile cost of hosting the PUBG Global Championship and an increase in vendor expenses and recorded KRW 118.1 billion, which is a KRW 48 billion increase quarter-on-quarter and a KRW 37.1 billion increase year-on-year. The marketing cost recorded KRW 46.4 billion, which is a KRW 25.9 billion increase quarter-on-quarter. The share-based payment cost recorded KRW 59 billion, which is KRW 11.7 billion decrease quarter-on-quarter and KRW 52.2 billion increase year-on-year. The largest portion was a onetime expense of KRW 60.9 billion relating to the share gifting by the largest shareholder. This is an individual decision made by the largest shareholder prior to the IPO to give the portion of his own shares to all employees as a way to motivate employees. The onetime expense relating to this gifting is recognized as an accounting cost and not a cash expense. It is an expense that does not impact net assets since the corresponding account is a capital item. As a result, the operating profit in Q4 recorded KRW 47 billion due to the impact of the cyclical off-season and onetime share-based expense. The operating margin stands at 10%. The annual operating profit in 2021 recorded KRW 639.6 billion and operating margin of [ 35.4% ]. The adjusted EBITDA of Q4, reflecting the share compensation costs had increased to KRW 126.6 billion, a 7.7% increase year-on-year. The 2020 annual adjusted EBITDA is KRW 874.2 billion. Finally, the consolidated net profit in Q4 recorded KRW 6.2 billion and annually recorded KRW 519.9 billion. This concludes the overview of KRAFTON's earnings results for the fourth quarter and 2021. We will now move on to questions and answers.

[Operator Instructions] The first question will be presented by [indiscernible] from Macquarie.

[Foreign Language] I'd like to ask 2 questions. The first question is about PUBG: New States. Compared against the initial traffic, it seems that PUBG: New State is showing an underwhelming performance. I'm curious what is the reason behind this? What is the traffic of PUBG: New State right now? And what is your strategy and plans to further grow the sales or revenue of PUBG: New State going forward? The second question is on new titles. You have presented about plans and moving into the NFT arena and also other lineups by Unknown Worlds as well as The Callisto Protocol by Striking Distance studios. I would like to know the strategy for PCP as well as the development status and also the target release dates. I would also appreciate further explanation about the plans regarding NFTs and also the new title from Unknown Worlds.

[Foreign Language] Hello. This is CH Kim, CEO of KRAFTON. I'll be answering your question. Because New States had shown a very high quality in terms of the graphics and the technology and it was leveraging the IP power of PUBG, we had a very large number of pre-registrations and also the test response from reusers was very positive. So it is true that we had high expectations for New State Mobile. However, after the game went into live service, it was proven that the unique gameplay that New State had to offer was actually available once you played a certain length of the game. It's not something that you are able to experience when you jumped right into the game. And we're planning to improve upon this point and to make sure that the retention, which is currently pretty low, that is -- so it could be improved. And the second point is, although we did try to optimize the game for lower-spec devices, it seems a lot more users were using lower-spec device than we thought. And we're going to continue to improve upon this and to make sure to reposition New State in the market. However, one positive thing is that many of the users are -- that are enjoying New State are in first world markets such as North America, Japan and Korea. And these markets are where the core communities and core fans are being formed for PUBG: New State, and these users are currently enjoying the unique gameplay that New State has to offer. And in January, we updated the extreme VR mode to allow users to quickly jump into the exciting gameplay that New State has to offer. And also, we are going to be introducing an onboarding mode for our new-coming users coming March. And in April, we also have plans to update a smaller map, and we call this our repositioning strategy for PUBG: New State. And from April onward, we're going to be conducting mass marketing to make sure that New State really finds its position within the vast mobile market. Here is one example that I would like to share with you. So there is a title game called DOTA 2 and also League of Legends. A lot of LoL fans say that DOTA 2 is too difficult to play, whereas DOTA 2 players say that League of Legends does not have any depth. So this proves that both of these successful titles have a position that they hold within the market. And the same goes for PUBG: New State as well. There's going to be PUBG Mobile and also Free Fire that will cater to more casual players like arcade games. And PUBG: New State will be able to appeal to Battle Royale mobile players who actually enjoy a more in-depth Battle Royale gameplay. [Foreign Language] And moving on to answer your second question. The Callisto Protocol is slated to be released by the second half of this year. And it's targeting to be a next-gen console title because currently, there are not a lot of titles that are aiming at the next-generation devices. And we're currently talking with platform holders to decide the best time line and timing for the title to be launched into the market. In terms of Project M, it will be released in early access within the year. And Unknown Worlds has been growing the community around the title. And currently, there is a small group of community already formed. And regular testing of the game is conducted to gather feedback from the community. Also, a publishing team from KRAFTON as well as KRAFTON's subsidiary in North America has been put together to research and also develop the right business model for Project M. Moving on to answering your question about NFT projects, actually, an article was released yesterday that KRAFTON will be establishing a JV with NAVER Z. And currently, within KRAFTON, a development team who will be moving over to this JV are being -- is being gathered at this moment. Platform services are different from games. In terms of games, you need to create at least a version that works properly before you launch it into the market. But when it comes to a platform, you can create a minimum version first and then continue to upgrade it. As such, we plan to create a platform as quickly as we can and showcase it to the market.

[Foreign Language] This is Byung-Gyu Chang, Chairman of KRAFTON. I'd like to add some additional answers in regards to Project M. I understand that it's very difficult to analyze -- for analysts to predict the success of a game. And that is very much the same for us, too. How can we predict the success of a title? We do our best to make projections. Our expectations for Project M is that management members from Unknown Worlds as well as KRAFTON are trying their best to create the projects and to becoming a mainstream success. This is the overall direction that we are pursuing for the project. And on the second point, the Project M is going to be released as an early access launch. So we do not have very, very high expectations in terms of the initial numbers. But if you look at the case of PUBG, which is also released in early access, we did not really have high expectations that it was going to succeed. However, these days, many consumers consume media at a more faster pace than before. So it may be realistic to expect a bigger success than we may have anticipated before. So I do understand it's difficult to anticipate the outcomes going forward, but this was some of my additional explanation as to what to project.

The next question will be presented by Stanley Yang from JPMorgan.

[Foreign Language] I have 2 questions. First, it seems like the earnings results of Q4 has declined compared to Q3 of last year, there was the launch of New States, and we did expect the increase in revenue coming from India to be reflected to the performance this quarter. So I'm curious how was that reflected? And also how much did New State contribute? And also, it will be very helpful if you can give us a breakdown per region and also some explanations about Peacekeeper Elite. My second question is some guidance for this year. How much external growth are you expecting? And also, can you give us a breakdown per title, as in titles based on the PUBG IP, PUBG: New State and also the other new titles as well? You mentioned about New State repositioning. After the repositioning is done, how much do you think it will be contributing to the revenue going forward?

[Foreign Language] This is CFO, Dong-geun Bae. Let me explain this in separate parts. If you look at our past financial results, Q4 has always been a cyclical off season. And as for the Q4 in 2021, we had the free-to-play transition in January. We also launched PUBG: New State and also BGMI came into service as well, so the Q4 this year was utilized in terms of stabilizing our services overall. And also, we took this time not to focus on short-term returns, but rather to catch longer-term opportunities in terms of our businesses. [Foreign Language] Starting with PUBG PC, we made preparations in Q4 to transition the title into a free-to-play game, and although there was a decline quarter-on-quarter, if you look at the year-on-year performance, there was a 51% growth. And thanks to the preparation we carried out in Q4, we successfully made the transition to free-to-play in January. And as a result, we were able to see a record high influx of new users into the game. The MAU for PC and console PUBG stands at 20 million -- exceeds 20 million. And we believe that although there was a decline in revenue in Q4, it was the right decision for us in terms of our strategy and long-term plan. Moving on to mobile. On mobile, Q4 is also traditionally off-season due to the vacation days of students as well as schools. And PUBG Mobile was able to achieve revenue growth. So we still believe that this is a reasonable outcome. In terms of BGMI, after it was relaunched into the Indian market, we carried out and hosted e-sports events. And through this, we were able to solidify a loyal base of users. In 2022, which is the first year that BGMI will be serviced for 1 full year, we believe that we'll be able to pursue further efficiency and revenue with this solidified user base. [Foreign Language] To answer your question about the contribution level of PUBG: New State, in the first month of its release, the MAU had reached 30 million, but the traffic has since been in a decline. And the MAU for the fourth quarter was exceeding 20 million. And although we do not provide detailed numbers in terms of individual titles, I think I will be able to answer that the contribution of PUBG: New State to the revenue of the mobile business in Q4 is in the single-digit range -- mid-single-digit range. [Foreign Language] In terms of the external growth we expect for this year, I will not be able to provide any detailed numbers in terms of the guidance. However, if you look back at KRAFTON's history, we have PUBG Mobile, PUBG PC and console, BGMI and also is receiving technology service fees. And this structure was established in 2019, and I will refer to these business as existing businesses. And year-over-year, we were able to achieve dramatic growth. From 2019 moving into 2020, we were able to achieve an explosive 60% growth and also achieved significant growth from 2020 moving into 2021. We believe that the businesses based on the PUBG IP, have solidified its position. And also, we'll be continuing to improve our revenue efficiency as well as securing new users going forward. As such, we believe and project that the revenue for 2022 will be exceeding that of the year -- the previous year. And the reason for this is because we will continue and carry out our existing businesses as well as launch new projects and titles into the market this year. As our Chairman, Byung-Gyu Chang, has said, it's very difficult to predict any success when it comes to the gaming market. However, since KRAFTON's core value is to focus on creativity and also focusing on creating new gaming genres and new gaming experiences, if our efforts indeed do appeal to global users, I think we can expect a result that exceeds our expectations. [Foreign Language] And I believe your third question is about PUBG: New State repositioning and how it will be contributing to our figures going forward. I believe this was touched upon by our CEO, CH Kim, that the changes and the repositioning will be done in a step-by-step gradual manner. But we have high hopes because as the many reasons that was explained before, we were suffering from lower retention. However, after the update that was rolled out in January, that had improved somewhat. And also the user's time spent on the title has increased as well. So we believe that this proves that users who have gathered to the title are now able to enjoy the game as it can offer. We are planning to further improve upon this and then carry out mass marketing coming April. PUBG: New States leverages the original Battle Royale and the creativity that original PUBG has to offer and also it has very high-quality technology technically as well. And once we continue our efforts in terms of the repositioning carrying out until the end of the year, we believe that the MAU level will recover as much as the level as it was in November and December of last year when the title first launched.

The next question will be presented by Soyun Shin from Credit Suisse.

[Foreign Language] I have 2 questions. First actually is in connection with the question that was asked previously. It is about the Mobile revenue in Q4. Even considering the seasonal off-season of the period, the revenue around Q4 in 2021 was lower than we expected compared to the previous year. Do you think this is due to cannibalization effects with PUBG: New State? Or is it because there was a decline in the popularity of the Battle Royale genre in 2021 Q4? Or do you think this is just a natural decay due to the product seen out in the market for a longer time now? And my second question is about the New State repositioning. After the repositioning has been concluded, how would you -- how do you expect the number of users as well as paying users compared against PUBG Mobile?

[Foreign Language] You had commented that revenue of PUBG Mobile is lower than the previous year. If you look at the figures, it does seem like so. However, this is not due to the cannibalization effect with PUBG: New State. As mentioned before, PUBG: New State targets a different user base and also there are issues in terms of catering to lower-spec device holders. And as a result, we do not believe there was any cannibalization effect between PUBG: New State and PUBG Mobile. However, it seems that the collaboration content that was carried out in PUBG Mobile was not as popular as the previous year. On the other hand, the retention or play time did not drop on PUBG Mobile this year. [Foreign Language] And also to add on to that, now some time has passed as we have -- as January has passed and we are in February. And if you look at the traffic trend in January, it seems the number has recovered and improved, which we believe is a positive effect. [Foreign Language] The next portion of the question is to compare revenue with PUBG Mobile after the repositioning of PUBG: New State is concluded. And this is a very hard question for me to answer because if you take a look at the user group and also the key markets of PUBG: New State, it is quite different from PUBG Mobile. PUBG: New State is enjoyed by a large chunk of users in high ARPU countries, mainly North America, Japan, Korea and Hong Kong. These countries actually make a 40% of the user base of PUBG: New State. And yes, ARPU efficiency is very high as a fact due to the popularity of New State in such markets. And it's very difficult to compare PUBG: New State with PUBG Mobile. But if we were to compare figures of PUBG Mobile when it was just launched with PUBG: New State in terms of the ARPU, PUBG: New State has a much higher ARPU than PUBG Mobile. Once the repositioning efforts have concluded, we will have gathered a larger number of users. And although it is very difficult how this will pan out eventually, compared against the same number of users with PUBG Mobile, in that case, we believe that PUBG: New State will show more improved and better revenue efficiency figures as well as metrics.

The next question will be presented by [indiscernible] from Merge Securities.

[Foreign Language] I have 2 questions. Right now, KRAFTON's stock prices are quite lower than the original IPO pricing. So I'm kind of curious what kind of strategies KRAFTON has in mind in terms of defending and improving the stock prices, for example, any buyback strategies? Second, there seems to be an increase in operational costs such as personnel costs as well as paid commissions. I'm kind of -- I would like to understand a guidance for this year in terms of the company's costs.

[Foreign Language] Right now, I believe most companies are suffering a decline in share prices. However, it is true that KRAFTON has been suffering a lot more compared to how the situation is in the current stock market. We are preparing and taking steps in terms of shareholder and investor payback. It has been 6 months since KRAFTON had carried out the IPO, and we have made a promise to our investors that we will continue to pursue growth with the IPO proceedings. And we are doing just that at this moment. We plan to utilize the IPO proceedings to make sure to boost and improve the corporate value of KRAFTON. [Foreign Language] As we are a listed company, improving the corporate value of KRAFTON is indeed something we will be carrying out. But also, we are having internal discussions on establishing ways to provide a direct return or direct payback to investors as well. As you know, share prices had plummeted in a short period of time, but looking back, actually, KRAFTON has an unusual history. KRAFTON has a history of receiving investments under the ICPF standards. But in 2018, the accounting standards has shifted to IFRS, and such investments were recategorized as deficits. So as a result, KRAFTON does not have any profits that are available for distribution, and a simple buyback strategy is not something that we can pursue either. [Foreign Language] The ordinary meeting of shareholders is planned to be hosted next month. And we will be making preparations to take the first steps to pursue a more proactive payback plan. Right now, the plan is to recover deficit and also capitalize our reserves into retained earnings as the first step. [Foreign Language] Once these initial steps have been taken, we will more actively discuss dividend policies as well as buyback plan. However, this is not something that is to be decided on the go, rather, we need to take a more long-term approach and take a stabilized path for the company in the long run. So we will be making preparations in the meantime. However, further in-depth discussions will be conducted with the Board of Directors at KRAFTON. And if there are any updates, we will make sure to share this with our investors. [Foreign Language] Moving on to your second question, it was about the increase in cost in Q4 and also the cost guidance for 2022. There were some exceptional cases that contributed to the increase in the overall cost. This was also introduced in the overview, but a volume of KRW 60.9 billion was used by the largest shareholder to gift shares to employees of KRAFTON. On a personal level, I don't think this should be considered a cost from the company. However, in accordance to accounting standards, this is recognized as a cost, and therefore, contributed to the decline of operating profit. In terms of paid commission, we held and hosted a large-scale e-sports event in the month of December, and this led to an increase of the cost. In terms of the marketing costs, it had increased during the quarter due to the release of PUBG: New State. Traditionally, KRAFTON does not rely too much on marketing activities, but rather try to appeal to the market based on a sturdier gameplay of the game product itself. However, because PUBG: New State was a highly expectant new title, we had allocated more cost into the marketing of the title. And therefore, this -- these reasons have led to an overall increased cost in the quarter. [Foreign Language] Our esports plans involve posting a large-scale event once a year. However, at the end of 2020 due to the COVID pandemic, the year-end global event was delayed and hosted in 2021. And then following that, at the end of 2021, the year-end event was also hosted. So it may seem that a lot of cost and activities were happening in the esports space for KRAFTON last year, however, this is largely due to an adjustment in the event schedule because of the COVID pandemic. [Foreign Language] When you compare KRAFTON with other global gaming companies, we have always had shown and boasted a high operating margin of over 30%. And in 2022, we also have projections and expectations in terms of revenue growth. In terms of the cost, in early 2021, there was a large increase in base salaries of KRAFTON employees, which contributed to an increase in personnel-related costs. And also because we were gearing up for the production of new lineup titles, we scaled up teams and hired many talents within the industry. Because of this reason, we do not expect personnel costs to jump as much as last year. Of course, we'll continue to hire top talent within the market. However, we do not expand -- we expect the cost to expand as dramatically as the previous year. [Foreign Language] The paid commissions item includes game production vendors, esports fees as well as server hosting fees. And if you look at our past history compared against our revenue, the paid commission percentage had always maintained a stable level, and we expect this to continue in 2022 as well. In terms of marketing, as explained before, KRAFTON does not really conduct a lot of marketing, allocate -- use a lot of marketing costs. However, in Q4, we did spend a lot more marketing cost than usual. However, if you annualize it, it stands at 4%. In 2022, we will continue our efforts to reposition PUBG: New State. And also marketing cost is expected for the 2 new projects, Project M and TCP. So we expect this to increase this year compared to the previous year.

[Foreign Language] The last question will be presented by Eric Cha from Goldman Sachs.

[Foreign Language] I'd like to ask a simple question because most of the questions I had was covered by other participants before. First, you had said that you're expecting a slight increase in the marketing cost in 2022, is this again in comparison to the revenue? Or is this an absolute increase in the actual marketing cost itself? So that is the first question. And second question, you had explained that mobile titles based on the PUBG IP have recovered in Q1. I'd like to know does this apply to all the mobile titles, including Peacekeeper and PUBG: New State? And also, was there a rebound in revenue and users for all the mobile titles? I am asking this because you had explained that Q4 is a cyclical down season due to vacation times and holidays during the quarter. However, there are vacation and holidays in January as well.

[Foreign Language] First, to answer your question on the marketing cost, when compared against the revenue, we believe that the figures will remain at a similar level or increase. And the absolute cost of the marketing, we believe, will be elevated this year. And in terms of Q4 down season and also the recovery in Q1, I did not cite the holidays or vacations as a reason because Q4 is still an in school in semester season, and vacations are taken in January. And it is true that the figures of mobile games have recovered in terms of PUBG Mobile. For PUBG: New State, however, I had explained that the retention as well as time spent has increased and recovered in Q1. In terms of Peacekeeper Elite, this is not something that KRAFTON can provide an answer to as this is a game that is serviced by Tencent. I believe that Tencent will be able to provide a guidance on this question. And in terms of BGMI, it is on a recovery track in terms of revenue.

[Foreign Language] Hello. This is Byung-Gyu Chang. I'd like to offer a quick word before we close the call. Recent uncertainties in the global macro economy has significantly impacted the stock market. As a newly listed company, KRAFTON has been influenced as well. Considering KRAFTON's plans to take on various new initiatives and a subsequent business expansion, I have high expectations on the growth of KRAFTON corporate value. This, I can see with absolute confidence. I personally think that KRAFTON's recent stock prices are undervalued from a mid- to long-term perspective, so as KRAFTON's largest shareholder and Chairman of the Board of Directors, I'm planning a buyback of a certain number of shares, and this decision will soon be publicly announced in accordance to the process that has been set. [Foreign Language] But the key message I'd like to convey is to ask our shareholders who trusted and invested in KRAFTON as well as KRAFTON members to take a mid- to long-term perspective and place their trust in our management team. We are committed to pursue continued growth. Thank you.

[Foreign Language] This concludes the earnings results for the fourth quarter and fiscal year 2021. Thank you very much for joining us today. [Statements in English on this transcript were spoken by an interpreter present on the live call.]