Netmarble Corporation (A251270) Earnings Call Transcript & Summary
February 10, 2021
Earnings Call Speaker Segments
Unknown Executive
executive[Foreign Language]
Unknown Executive
executive[Interpreted] Good morning, and good evening. First of all, thank you all for joining this conference call. And now we will begin the conference call of the fiscal year 2020 fourth quarter earnings results by Netmarble. This conference call will start with a presentation, followed by a divisional Q&A session. [Operator Instructions] Now we shall commence the presentation on the fiscal year 2020 fourth quarter earnings results by Netmarble.
Unknown Executive
executive[Foreign Language]
Unknown Executive
executive[Interpreted] Good afternoon. This is [ Minjae Kim ] from Netmarble's IR team. First of all, I thank the investors and analysts for taking part in our Q4 earnings release session despite your busy schedules. Here with us are CEOs, Young-Sig Kwon and Seungwon Lee; CBO, Young-Hoon Paek; and CFO, Gi-Wook Do. They will be addressing 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 upon such review. With that, CFO, Gi-Wook Do, will give us the results presentation.
Gi-Wook Do
executive[Foreign Language]
Unknown Executive
executive[Interpreted] Good afternoon. I will first tell about the results for year 2020. Please refer to Page 3. 2020 yearly revenues grew 14% Y-o-Y with KRW 2.4848 trillion. OP grew 34.2% Y-o-Y at KRW 272.0 billion. Our total revenue overseas portion stood at KRW 1.7909 trillion, which is a contribution of 72% to overall revenue. This number has grown 5 percentage points over the previous year. In 2020, service regions for existing titles such as Seven Deadly Sins and Blade & Soul Revolution Asia expanded, and there were also successful launches of new titles, including A3 and Seven Knights2. With that, the company saw growth in both revenue and operating profit.
Gi-Wook Do
executive[Foreign Language]
Unknown Executive
executive[Interpreted] Now onto the overall Q4 results. Please refer to Page 4.
Gi-Wook Do
executive[Foreign Language]
Unknown Executive
executive[Interpreted] The fourth quarter revenue grew 12.4% Y-o-Y and decreased 2.9% Q-o-Q at KRW 623.9 billion. EBITDA increased 40.8% Y-o-Y and decreased 2.5% Q-o-Q at KRW 111.5 billion. Operating profit increased 61.4% Y-o-Y and decreased 5.6% at KRW 82.5 billion. With the successful launch of Seven Knights2, domestic revenue increased. But due to decrease in overseas revenue, our operating profit saw a slight decrease.
Gi-Wook Do
executive[Foreign Language]
Unknown Executive
executive[Interpreted] Next page is on net profit. Q4 net profit was at KRW 103.3 billion and controlling shareholders' profit at KRW 100.5 billion. The increase in nonoperating profit was a onetime event with increase in equity method gain with the listing of Big Hit.
Gi-Wook Do
executive[Foreign Language]
Unknown Executive
executive[Interpreted] Q4 overseas revenue was at KRW 420.1 billion and contribution from it was 67% out of our total revenue, which is a 8 percentage point decrease over the previous quarter. The regional breakdown is that follows: North America 33%, Korea 33%, Europe 12%, Southeast Asia 10%, Japan 8% and others at 4%. With the launch effect of Seven Knights2, domestic contribution rose 8 percentage points Q-o-Q.
Gi-Wook Do
executive[Foreign Language]
Unknown Executive
executive[Interpreted] Next page is on game portfolio. As of fourth quarter, RPG accounts for 33%, MMORPG, 31%, Casual 24% and Others 12%. Our portfolio remains diversified. The MMORPG genre grew 8 percentage points over the previous quarter with new title launches, including Seven Knights2. Top revenue contributors as of end of Q4 are evenly distributed with MARVEL Contest of Champions 15%, Seven Deadly Sins: Grand Cross 12%, Seven Knights2 12%, Lineage2 Revolution 8%, Blade & Soul Revolution Asia 5%, Harry Potter 5% and A3: Still Alive 5%.
Gi-Wook Do
executive[Foreign Language]
Unknown Executive
executive[Interpreted] Next page is on major cost structure. Q4 operating cost was at KRW 541.4 billion, which is an increase by 7.4% Y-o-Y and decrease of 2.4% Q-o-Q. Commissions at KRW 246.4 billion, increased 1.3% Y-o-Y and decreased 6.6% Q-o-Q. In particular, the paid commission rate improved to below 40%. With continued efforts to promote enhanced IP, the company was able to realize a decrease in commissions. With success of Seven Knights2 in Q4, this trend will continue. Labor cost at KRW 137.8 billion, increased 11.8% Y-o-Y and remains the same as last quarter. Marketing cost at KRW 86.8 billion, rose to 17.8% Y-o-Y, with launch of new title also increased slightly by 1.3% Q-o-Q.
Gi-Wook Do
executive[Foreign Language]
Unknown Executive
executive[Interpreted] Now on our new titles lineup. In Q1 2021, the company plans to introduce Blade & Soul Revolution to regions that the title has not yet gone to, including North Americas and Europe, and NBA Ball Stars to the global audience, excluding China. In the second quarter this year, the company plans to simultaneously introduce Ni no Kuni to Korea, Japan and Taiwan. In the second half, Seven Knights Revolution will be introduced to Korea and Japan. MARVEL Future Revolution will be introduced on a global basis ex-China. There will be multiple titles released this year.
Gi-Wook Do
executive[Foreign Language]
Unknown Executive
executive[Interpreted] This concludes our results presentation. We will be entertaining your questions now. Thank you.
Unknown Executive
executive[Foreign Language] Now Q&A session will begin. [Operator Instructions] [Foreign Language] The first question will be provided by Jingu Kim from KTB Investment & Securities.
Jingu Kim
analyst[Foreign Language]
Unknown Executive
executive[Interpreted] Yes. I have 2 questions to ask you. First is about your release schedules scheduled for the first half of this year. You have plans to release Blade & Soul Revolution the Western version and Ni no Kuni and Seven Knights Revolution. And are you sticking to your announced schedule? This was the first question. And now on to the second question. I see that the revenue from A3: Still Alive has seen a rise. Is it because of your global launch? And what about your plans for an update? I would like to hear your answers.
Young-Sig Kwon
executive[Foreign Language]
Unknown Executive
executive[Interpreted] So this is CEO, Kwon, addressing the first question. Now let me once again illustrate our launch schedule for year 2021. Blade & Soul Revolution Western is scheduled for a release in the first quarter, Ni no Kuni in the second quarter and Seven Knights Revolution and MARVEL Future Revolution in the second half. So all 4 titles are on track.
Seungwon Lee
executive[Foreign Language]
Unknown Executive
executive[Interpreted] Yes, this is CEO, Lee, addressing the second question. Well, as you're well aware, we have released on a global basis our A3: Still Alive in North American market, Southern European market and Southeast Asia market in the fourth quarter. And with that, we have seen a rise in revenue in the second half from this title. The western build and the global build is getting us the wanted and the desired results. And it has seen a significant increase when it comes to the user base and revenue from major markets, including EMEA and U.S. And since this is an in-house IP, this has a very big strategic value to the company, and we will continuously bring updates to this title.
Unknown Executive
executive[Foreign Language] The following question will be presented by Sang-Hyun Lee from IBK Securities.
Sang-Hyun Lee
analyst[Foreign Language]
Unknown Executive
executive[Interpreted] Yes, I have 2 questions for the company. As of last year, you've introduced your first console title, the Seven Knights Time Wanderer. And does it have a different profit structure from your mobile titles? This is the first question. And my second question is related to your non-game business. What would be your future direction related to your non-game businesses?
Young-Hoon Paek
executive[Foreign Language]
Unknown Executive
executive[Interpreted] Yes, this is CEO, Paek, (sic) [ CBO, Paek ] addressing your question on console title. Well, the console title has a pretty similar margin structure to our mobile titles. So the revenue sharing structure is more or less the same. But Seven Knights Time Wanderer was our first console title ever. So rather than focusing on revenue-wise results, it gave us the big know-how and development-wise expertise. And it would greatly help the company in creating future console-bound titles. So while profit wise it may not have given us the biggest contribution, but it has aided us in building our know-how and expertise which would be required for -- by the company in building our future platform.
Young-Sig Kwon
executive[Foreign Language]
Unknown Executive
executive[Interpreted] Yes, this is CEO, Kwon, addressing the second part of your question, Netmarble has always actively invested in the game business, the core business, and we are the company to have released the most number of titles, and we continue to seek M&A opportunities with developers and development related companies. And we would, in the future, be engaged in activities. As for our investment in KOONGYA we had ample fund related to our IPO. And we wanted to invest in a business that will create much synergy in order to -- and it also helped us in enhancing our portfolio. And going forward, we will continue our investment activities in promising business areas in order to enhance corporate value.
Unknown Executive
executive[Foreign Language] The following question will be provided by Dong-hee Kim from Meritz Securities.
Dong-hee Kim
analyst[Foreign Language]
Unknown Executive
executive[Interpreted] Yes. I have 2 questions. First is on the commissions paid in the fourth quarter. It has reduced a bit and will this decrease continue in the future as well? I want to hear your future guidance related to commissions. And second question is on dividend. I've heard that you would be paying out dividend this year. And what about your future shareholder return policies, including measures such as treasury share buyback and dividend policies?
Young-Sig Kwon
executive[Foreign Language]
Unknown Executive
executive[Interpreted] So this is CEO, Kwon, addressing your first question related to commission. Well, a bulk of the commission is related to our IP-related commission. And with the contribution from IP -- or external IP games, well, the commission also sees some changes. So that is why the company going forward would invest in our in-house IP, and that in turn will push down the commissions.
Gi-Wook Do
executive[Foreign Language]
Unknown Executive
executive[Interpreted] So CFO, Do, will address your shareholder value related question.
Gi-Wook Do
executive[Foreign Language]
Unknown Executive
executive[Interpreted] So we have, in the past, communicated our shareholder policy or dividend payout policy of within 30% of controlling shareholders' stake. And in years '18 and '19, we did a treasury stock buyback. And in the year 2020, we've decided to pay out cash dividend. But this time around, it will be shareholder -- well, to controlling shareholders' stake subtracting noncurrent profit and losses.
Unknown Executive
executive[Foreign Language] Currently, there are no participants with questions. [Operator Instructions] [Foreign Language] That would be our last question for the session. We will end the call with closing comment from the host.
Unknown Executive
executive[Foreign Language]
Unknown Executive
executive[Interpreted] This concludes the yearly and Q4 earnings release section of Netmarble. Should you have any follow-up questions, don't hesitate to contact our IR team. Thank you for your participation. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
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