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. This conference will start with a presentation followed by a Q&A session. [Operator Instructions] Now we will begin the presentation on Netmarble's Third Quarter of Fiscal Year 2025 Earnings Results.

Good afternoon. This is [indiscernible], Head of the company's IR team. Thank you sincerely to all investors and analysts who have taken the time to attend our 2025 Q3 earnings conference call amidst your busy schedule. Present with us today are CEO, Byeonggyu Kim; CFO, Gi-Wook Do; and other members who will be available to answer questions following the earnings presentation. Please note that this presentation is prepared prior to the completion of our external audit. Therefore, some details may be subject to change based on the audit results. Now I will hand it over to our CFO, Gi-Wook Do, to proceed with the earnings presentation.

Hello. This is Gi-Wook Do. Let me begin by presenting our business results for the third quarter of 2025. Please refer to Page 2. Q3 revenue came in at KRW 696 billion, down 3% Q-o-Q and up 7.5% Y-o-Y. EBITDA was KRW 122.4 billion, down 6.6% Q-o-Q and up 19.1% Y-o-Y. EBITDA margin was 17.6%. Revenue and EBITDA increased year-on-year, driven by the domestic performance of the new title, and the global launch of the Seven Knights Re-BIRTH. Next, operating profit and net income. In Q3, operating profit was KRW 90.9 billion. Net income was KRW 40.6 billion and net income attributable to controlling shareholders was KRW 37.5 billion. The operating margin came in at 13.1%, supported by solid revenue and a continued decline in commission rates. Net income decreased quarter-on-quarter due to factors such as valuation gains and losses on held assets. The following page provides an overview of our game portfolio. As of the end of Q3, revenue contribution by major titles was as follows: Seven Knights Re:BIRTH, 12%; Vampire, 9%; Marvel Contest of Champions, Jackpot World, Lotsa Slot, Cash Frenzy, each accounting for 7% and RF Online Next, 5% continue to drive diversification of the game portfolio. Seven Knights Re:BIRTH, which has continued to account for the largest share of our portfolio since the previous quarter, was launched globally on September 18 and has shown strong performance. We plan to secure additional momentum through regular updates going forward. In addition, Vampire released on August 26, reached #1 on both major domestic app markets immediately after launch and has maintained solid performance since then. Next is a breakdown of revenue by region and genre. Q3 regional revenue breakdown was as follows: North America 34%; Korea 32%; Europe 11%; Southeast Asia 8%; Japan, 8%; and others, 7%. The share of overseas sales rose by 2 percentage points to a Q2 68%. By genre, Casual Games accounted for 34% of revenue; RPG 34%; MMORPG 22%; and others 10%. The next page outlines our key cost structure. Operating expenses in Q3 amounted to KRW 605.1 billion, down 1.8% Q-o-Q and up 4% Y-o-Y. Marketing expenses rose to KRW 145.3 billion, up 7.3% Q-o-Q and up 38.9% Y-o-Y, driven by new title launches and the global expansion of existing titles. Labor expenses was down 2.6% Q-o-Q and down 4.9% Y-o-Y. Lastly, the commission rate decreased by 1.5 percentage points to 32.3% as sales of self-developed IP titles increased. Next, I'd like to discuss our upcoming game lineup. We plan to launch Solo Leveling:ARISE OVERDRIVE In the fourth quarter of 2025. In the first half of 2026, we will sequentially release multiple new titles, starting with 6 games, including The Seven Deadly Sins:Origin, [indiscernible] and MONGIL: STAR DIVE. Additional titles not listed in the materials will be announced at a later date. In addition, at the upcoming G-STAR event next week, we plan to showcase 5 new titles, The Seven Deadly Sins:Origin, MONGIL: STAR DIVE, Solo Leveling:KARMA, EvilBane and Solo Leveling: KARMA to further build anticipation for our next lineup. In the fourth quarter, we expect solid earnings performance to continue, driven by full quarter contribution from NP and Seven Knights Re:BIRTH with global launches as well as global expansion and seasonal updates of our existing titles. Looking ahead to 2026, we are meticulously preparing a lineup of high-quality, well-made new titles across a variety of platforms and genres, and we kindly ask for your continued interest and support. That concludes our earnings presentation. We'd 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 am Ui Hoon Jeong, and I would like to ask you 3 questions. My first question is related to the recent announcement between Google and Epic Games of their agreement related to the app commission. And in respect to the fact that Net Marle has a high sales portion for the United States, I would like to share from the company what effect that could be for Netmarble, exactly when such effect will come into force? And if so, by how much? My next question is that along with this earnings disclosure, you've also disclosed the issuance of the EB. And thus, could the company provide an update in respect to your borrowing position and as well as your debt service plan for next year. Moving to my third question is related to the slide in which you show the new pipeline and your future release plans. And I'm just wondering because in terms of the titles and the orders they are showing at this current earnings presentation, it differs from what we saw previously. And so I would just like to better understand if the order that is actually shown on this presentation deck is also very much the order that you will be releasing these titles.

This is Byeonggyu, and thank you very much for your question. I will be answering your first and third question. Going to your first question related to the agreement that was reached between Google and Epic Games, we've also heard about this. But as you know, this is not a final agreement that has been made in the United States. And for Netmarble, the way we are planning for the United States is really that we want to continue to drive PC payment and drive the overall top line growth by enhancing the user convenience as well. And so when we design our plan, it's not just specifically tied to, for example, the recent set agreement between Google and Epic Games. So I do have to be very cautious in commenting about exactly what effect that this would have on our earnings performance and by how much. And moving to your third question, I appreciate the question. And in respect to the order that you are currently seeing in the presentation deck, I would like to clarify that this is not the order that these titles will be released. As you know, for the company, we will be basing our decision to release specific titles depending on the readiness of the game and also the market situation. And so to clarify, I would like to say that the current order that you're seeing in the presentation deck has no correlation with the order that we will be releasing these titles.

This is Gi-Wook Do, and I will be answering your question related to the EV issuance. As was disclosed by the company earlier, we have been -- we have stated that we are going to use the proceeds of this EV issuance to repay our debt. And this is in line with the company's aim to continue to improve its financial structure. But in respect to the specific plans related to the repayment of our debt going forward, you have to please understand that this is very much tied to how we plan to monetize our health assets. And when we make a decision to undertake certain actions, we have to factor in not only the market situation but at the same time, other factors as well. So for the time being, we don't have any near-term specific plans to share with you on this.

Currently, there are no participants with questions. [Operator Instructions] The following question will be presented by Junhyun Kim from HSBC.

This is Junhyun Kim from HSBC. I have one question that's related to your expenses, specifically your labor expenses. If we think -- if we look at the recent performance of the company on your labor expense side, I can say that it has actually continued to stabilize somewhat and that the company has been able to well manage this stabilization process, not only on a Q-o-Q level but also on a Y-o-Y level. And so I'm curious to know -- and of course, I already know that the company has been maintaining a very conservative approach in new hires as well. But I'm just wondering whether or not such contribution has also come from possibly using AI in your development process, which led to efficiency gains in terms of the work that's being carried out. So I'm just wondering if there are other factors that is contributing to the overall well management of your labor expenses. And one more, I would like to also ask about the commission expenses as well. As we look to your future pipeline and for next year, you are also going to be launching external IPs such as The Seven Deadly Sins. And so I think I wonder for the company, whether or not when you make decisions and you decide on the -- how you allocate the new title launches, for example, on a yearly basis, do you also factor in the commission rate that you are going to have to pay for licensed IPs as well?

Let me first talk about the labor cost. This is Gi-Wook Do. And just to talk to you about the basic direction for the company is that what we aim to do is to drive efficiency of our workforce, maintaining the current headcount. So our aim is not to actually do restructuring or reduce the headcount for the company but there is going to be a continuous increase in the work carried out by our employees. And the aim is to continue to drive efficiency so that we will be able to have our employees take on more work but work more efficiently, and that would not require the company to have additional increase in the total headcount. And so as we continue to add efficiency and we have more performance generated from our existing workforce, as the company continues to have revenue gains, the portion of the labor costs will become more efficient and will actually have a doubling impact in how we actually better manage the overall labor cost. And moving to your second question related to the commission expenses. There are 2 main components related to commission expenses. One is the market commission and the other is IP commission. And I can say that the market commission actually has a greater impact between the 2. But in respect to how we are driving the improvement and increase in the PC users, we're also driving more positive impact on how we are managing the market commission side. Moving to the IP commission and in terms of how we actually determine the title releases, we don't actually basically make the decision because of how we have to actually pay out the license IP. The main driving force for the company is to be able to build up a very competitive title lineup. And so if we look at it from a more big picture side that as we continue to have more share of original IP, then naturally, the share of licensed IPs will go down. And ultimately, this will also allow us to have a better utilization of how we pay commission going forward because with the growth of our original IPs, that overall share of the licensed IPs will naturally go down.