Netmarble Corporation (251270.KS) Earnings Call Transcript & Summary

Good morning and good evening. Thank you all for joining the conference call for the Netmarble earnings results. [Operator Instructions] Now we will begin the presentation on Netmarble's Second Quarter of Fiscal Year 2025 earnings results.

Hello, this is [indiscernible], Head of Netmarble's IR team. Thank you sincerely to all investors and analysts who have taken the time to attend our 2025 Q2 earnings conference call amidst their busy schedule. Present with us today are CEO, Byeonggyu Kim; CFO, Gi-Wook Do and other members who will also be available to answer key questions following the earnings presentation. Please note that this presentation is prepared prior to the completion of our external audit. Therefore, some details may change based on the audit results. Now I'll hand it over to our CFO, Gi-Wook Do, to proceed with the earnings presentation.

Good afternoon, this is Gi-Wook Do. Let me begin by presenting our business results for the second quarter of 2025. Please refer to Page 2. Q2 revenue came in at KRW 717.6 billion, up 15% Q-o-Q and down 8.2% Y-o-Y. EBITDA was KRW 131.1 billion, up 60.7% Q-o-Q and down 13.2% Y-o-Y. EBITDA margin was 18.3%. Both revenue and EBITDA saw a significant increase in the previous quarter, driven by the full quarter revenue recognition from RF ONLINE NEXT and the successful launch of Seven Knights Re:BIRTH. The next page covers operating profit and net income. In Q2, operating profit was KRW 101.1 billion, net income was KRW 160.2 billion and net income attributable to controlling shareholders was KRW 160.3 billion. The following page provides an overview of our game portfolio. As of the end of Q2, revenue contribution by major titles was as follows: Seven Knights Re:BIRTH 13%, RF ONLINE NEXT 9%; and Marvel Contest of Champions 9%, demonstrating continued diversification of our game portfolio. Notably, Seven Knights Re:BIRTH and RF ONLINE NEXT both ranked #1 on the two major app markets within six days and five days of launch, respectively, and have continued to deliver solid performance to date. We plan to maintain this momentum through ongoing updates and regional expansion to drive long-term results. Next is a breakdown of revenue by region and genre. In Q2, the full quarter contribution from RF ONLINE NEXT, which was first launched in Korea along with the release of Seven Knights Re:BIRTH led to a 16 percentage point increase in domestic revenue share compared to the previous quarter. Revenue contribution from the MMORPG and RPG genre also rose by 4 percentage points and 6 percentage points, respectively, Q-o-Q. For your reference, Q2 regional revenue breakdown was as follows: North America, 35%; Korea, 34%; Europe, 12%; Southeast Asia, 7%; Japan, 6%; and other 6%. By genre, RPG accounted for 42% of revenue, Casual Games for 33%, MMORPG for 18% and others for 7%. The next page outlines our key cost structure. Operating expenses in Q2 amounted to KRW 616.5 billion, up 7.4% Q-o-Q and down 8.1% Y-o-Y. Marketing expenses rose to KRW 135.4 billion due to the launch of new titles. However, marketing spend as a percentage of revenue remained at 18.9%, a level similar to the previous quarter, reflecting continued execution efficiency. Labor expenses was up 1.6% Q-o-Q, largely due to wage increases, but was down 4.3% Y-o-Y. Lastly, commission fees rose 10.6% Q-o-Q from increases in revenue, but the commission rate decreased by 1.3 percentage points to 33.8% as sales of self-developed IP titles increased. Next, let me walk you through our upcoming game lineup. In the second half of the year, we plan to launch a total of 7 new titles, including the The King of Fighters AFK, Vampir and StoneAge: Pet World. Among them, Vampir, which features a vampire concept, is scheduled for release on August 26. In addition to these new releases, we also plan to expand the regional availability of existing titles such as RF ONLINE NEXT and Seven Knights Re:BIRTH in the second half. Thanks to the consecutive success of new titles launched in the first half and the leverage effect from improved cost structure, we achieved solid results in the second quarter with both top line and profitability growth. In the second half, we will continue to manage the product life cycle through operational capabilities based on user communication and global expansion. At the same time, we aim to maintain stable performance momentum by launching competitive new titles that reflect our unique success know-how. That concludes our earnings presentation. We'll be happy to take any questions you may have. Thank you.

[Operator Instructions] The first question will be provided by Ui Hoon Jeong from Eugene Investment & Securities.

I would like to ask two questions. You have been able to post very favorable Q2 results. And that is why I am very much interested whether or not the company has any plans to change its posture related to how you will manage its cost structure in the second half. Would there be any implications on the labor expenses or marketing expenses? If so, please elaborate. My second question is related to debt repayment. There is also talk about asset monetization and further our divestitures that may be possible. If you can further elaborate on any plans related to debt repayment, that would be very helpful.

This is CFO, Do. Let me first answer your first question. You asked whether or not there could be any possible change to how the company manages its cost structure. In respect to this, we have continuously been communicating with the market that we aim to continue making our cost structure more efficient. That stand remains unchanged, and we'll continue to manage the labor expenses and marketing expenses. I think what's important is for you to actually look at the percentage of these expenses to our overall revenue rather than looking at the absolute amount of these respective items. And on your second question related to debt repayment, basically, when we're talking about debt repayment, this is very much tied to asset monetization and we are very much mindful of the fact that we have to continue to look at the overall situation in this area. We not only have to look at the global metrics such as interest rate trends, but at the same time, we have to also monitor closely the trends in the capital market. And so whether or not we actually execute any monetization efforts and how we actually time it, this is going to be something that we'll continue to monitor to identify what would be the appropriate timing for the company. But at the present time, we do not have any specific plans related to any asset divestiture.

We'll move on to the next question. Currently, there are no participants with questions. [Operator Instructions] The following question will be presented by Seyon Park from Morgan Stanley.

I have two questions. My first question is related to the recent performance of your titles, Seven Knights Re:BIRTH and RF ONLINE NEXT, which have majorly contributed to the improved performance in Q2. But as we move into Q3, we actually can see that the revenue of these titles may actually decline. And so I would like to hear from the company whether there could be a turnaround, and you can actually provide additional opportunities to see revenue pick up again? Are you planning any specific updates that will be conducive to this? Moving to my second question, it's related to your earnings. And assuming that nonoperating profit have contributed also significantly to the performance that you are stating today. Can you be more specific as to exactly what was the nonoperating profit factor that contributed to the overall improved profitability?

Hello. This is the CEO, Byeonggyu Kim. In respect to your first question, we first look at the RF ONLINE NEXT performance. This is something that we actually see it becoming very stable in terms of the user uptake because it not only is based on the exchange, but we actually see that the overall economic system is well rooted now with the game users. And so in terms of the revenue performance, it has interest, we believe, in a more stable fate. But as you know, the genre MMORPG specifically in the Korean market, anything on that genre is very fiercely competitive. And thus, some of the existing titles performance will be impacted by potential new game releases as well as new titles that are scheduled to be released. Nonetheless, we not only are planning to continue to provide updates. But at the same time, for Q4, we also have regional expansion path in place. So there will be additional game availability in markets such as Taiwan, Hong Kong, Macau as well as Japan that's going to actually continue to drive upwards the performance of RF ONLINE NEXT. Moving to our outlook for Seven Knights Re:BIRTH. As you know, Seven Knights, this is a remake of a well-known title. And there is always going to be a familiarity with the game users in respect to the legacy titles, but that's not always something that we can actually see as a boon or an upside because as you have a very strong user base, there is also a heightened expectation that you continue to have to satisfy as a game provider. And so we not only will be planning various updates to continue to engage users for Seven Knights Re:BIRTH, but more importantly, in the fourth quarter, we will have also the global launch, which is going to help to drive in the future, the success of this title by being able to reach up to expand outside -- expand in various other regions as well.