Netmarble Corporation (A251270) Earnings Call Transcript & Summary

[Interpreted] Good afternoon. This is [ Kim Minjae ] from Netmarble's IR team. I thank investors and analysts for attending the Q3 earnings release session of Netmarble, despite your busy schedules. Here with us is CEOs, Young-Sig Kwon and Seungwon Lee; CBO, Young-Hoon Paek; CFO, Gi-Wook Do; and Head of Investments and Strategy, ChanSeok Choi. They will address your questions after the results presentation. Please note that the contents presented today have yet to undergo an independent auditor's review and therefore could be subject to future changes. With that, Mr. ChanSeok Choi will deliver the results presentation.

[Interpreted] Good afternoon. I will present the overall Q3 results first. Please refer to Page 3. The revenue in Q3 increased 3.6% Y-o-Y and decreased 6.3% Q-on-Q, at KRW 642.3 billion. EBITDA decreased 3.8% Y-o-Y and increased 4.5% Q-o-Q, at KRW 114.4 billion. Operating profit increased 3.6% Y-o-Y and 7.0% Q-o-Q, at KRW 87.4 billion. With normalization of marketing costs, that saw a temporary increase in North America and Europe in Q2, our operating profit rate increased 1.7 percentage points over the previous quarter. Next page is on net profit. The net profit in Q3 was at KRW 92.5 billion, with controlling shareholders net profit of KRW 83.7 billion. With increase in equity method gains, nonoperating income increased KRW 25.7 billion over the previous quarter. Next page is on overseas revenue contribution. Overseas revenue at KRW 478.7 billion, accounted for 75% of overall revenue in the third quarter and remains unchanged from the previous ones. The geographic breakdown is as follows: North America, 38%; Korea, 25%; Europe, 12%; Japan, 9%; Southeast Asia, 9%; and others at 7%. Next page is on games portfolio mix in Q3. RPG, 40%; Casual, 25%; MMORPG, 23%; and others, 12%. The portfolio remains diversified. The top revenue contributors at the end of Q3 was spread out with Seven Deadly Sins: Grand Cross, 17%; Marvel Contest of Champions, 15%; Lineage 2 Revolution, 9%; Blade & Soul Revolution, 8%; and Harry Potter, 5%. Next page is on cost structure. The operating expense for the third quarter rose 3.6% over the previous year and decreased 8.1% Q-o-Q at KRW 554.9 billion. Page fees at KRW 263.8 billion, decreased 2.6% Y-o-Y and 8.3% Q-o-Q, with decrease in revenue. Labor cost was at KRW 137.8 billion, which is a 14.5% Y-o-Y increase and 5.0% increase Q-o-Q with increased headcounts in North America subsidiary and one-off incentive payments. Marketing costs recorded KRW 85.7 billion. The second quarter marketing cost increase in North America and Europe came back to normalized levels. And, in fact, marketing costs increased 18.5% Y-o-Y and decreased 31.4% Q-o-Q. Now on our new title lineup. Netmarble has launched its first console game, Seven Knights-Time Wanderer on November 5. And just yesterday, on November 10, A3: Still Alive was released in the global market with the exception of Korea, China and Vietnam. Seven Knights2 will be released into the Korea market on November 18. And Marvel Realm of Champions will be introduced to the global audience on December 17, with the exception of China. The company plans to release various titles in 2021, including Blade & Soul Revolution global in the first quarter, and Ni no Kuni and Seven Knights Revolution in the first half. This concludes the results presentation. Should you have any questions, we'd be glad to entertain them.

[Foreign Language] [Operator Instructions] The first question will be provided by Jingu Kim from KTB Investment & Securities.

[Interpreted] Yes, I have 2 questions. First is related to your mobile titles. I believe that you have an active line of schedule for next year. And I would like to get more color on the game characters and also your expectations for the titles to be launched for the mobile platform? And can you also specify just the number of mobile titles in your pipeline that will be released in year 2021. And now on to the second question, which is related to the expansion of platforms. Yes, you've recently released the Time Wanderer, that's your first console title. And what about your mid- to long-term trends in expanding Time Wanderer console and PCs? I would like to know about this strategy on platform expansion.

[Interpreted] Yes, this is CEO, Kwon, addressing your first question. Yes, your question was quite vast in its scope. So I don't think I would be able to cover every element that goes into that question. But if I may talk about the number of titles to be newly released in 2021, well, it's really difficult to give you an exact number because once we release a title in a certain geography, then we go on to expand and release these same titles in other regions. But if I may talk about the purely new titles to be introduced next year, well, I think that number is somewhere around 5 to 6, very new titles. And I've given you 3 names today, too. And we have very high expectations for our Blade & Soul Revolution global and Ni no Kuni, Seven Knights Revolution and Marvel Future Realm. So as was mentioned, the new -- purely new titles that we're planning for the introduction next year is somewhere around 5 to 6, and we'll be well balancing as to quarterly timely releases and also the geography, and also to the genre of the titles to be released.

[Interpreted] Yes, CBO, Paek, will be addressing the second part of your question. You've asked about our initial response, the audience's initial response to Seven Knights-Time Wanderer. It's only been released for a few days, but the initial response that we are getting from the players is quite enthusiastic. They are receiving it well to organize that to be well interpreted at the Seven Knights IP. So the Seven Knights IP fans, they are enthusiastic and particularly responding to our first castle bound title. Of course, there are things that we could improve on. But having said that, overall, the response is quite enthusiastic. And well, we will continue our nonmobile platform works as well. We will go on to develop a title through PC and console, and also to expand on mobile titles to other platforms as well. Currently, we are in the midst of development. And if time allows in the future, at the right opportunity, we will be releasing the news to you.

[Foreign Language] The next question will be provided by Dong-hee Kim from Meritz Securities.

[Interpreted] Yes. I have 2 questions. You're soon to release your Seven Knights2 title. So could you give us some color on your revenue expectation and the number [indiscernible]? And my second question is related to the larger titles that are to be introduced in Q4. Could you give us some guidance as to your marketing expenses or marketing execution costs?

[Interpreted] Yes, the CEO, Kwon, will address both the questions. Well, we are preparing ourselves for the launch of Seven Knights2 on November 18. And pre-subscription is quite promising, and we have put in our hearts to the development of this title. So we have big expectations from -- for the results. And as to our guidance related to title marketing, well, we do expect to launch A3: Still Alive to -- for the global audience, and we also do expect we will be launching Seven Knights2. And with that, we will be seeing some increases when it comes to our marketing execution.

[Foreign Language] The next question will be provided by Stanley Yang from JPMorgan.

[Interpreted] I have 2 questions. First question is related to your Time Wanderer title. What is your revenue expectation from this platform? Well, you could give us the expected number of box sales. So could you give us more guidance or color as to revenue expectation from the console title? And my second question is related to your expectation for the Marvel Realm of Champions. So could you please give us some more color on it? And I know that your IP contract with NCSoft is nearing its end. So will you be renewing this? And if so, when is the timing of that renewal?

[Interpreted] So CEO, Lee, will be addressing both of your questions. Well, when it comes to Marvel Realm of Champions, it's one of the most anticipated titles that we have in the pipeline. And the release date will be December 16 or 17, depending on where you are. And just like Marvel Contest of Champions, it's a title that could give us a sustained revenue with updates of its contents. And as for the results from our Time Wanderer, well, as was mentioned before in our previous answer, we will be giving you the information at another time. And as to our negotiation or contract or the IP Lineage2, well, we're in the discussion with our partner when it comes to this contract. So please understand that we are not at liberty to disclose the details.