Netmarble Corporation (A251270) Earnings Call Transcript & Summary

[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 2023 Third 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 2023 Third Quarter Results by Netmarble.

[Interpreted] Good morning. This is [ Jung Kim ] from Netmarble, despite your busy schedule. We have here with us CEO, Young-Sig Kwon and Gi-Wook Do, who will address your questions after the presentation. Please note that the conference presented today have yet to undergo an independent auditor's review and could be subject to changes upon such review. Now CEO Gi-Wook Do, will deliver the presentation.

[Interpreted] Good morning. This is Gi-Wook Do. Please refer to Page 2 for general Q3 results. With new titles introduction in Q3, including Seven Knights Idle Adventure and Tower of God: New World, revenue in Q3 increased 4.5% Q-on-Q and decreased 9.2% Y-o-Y at KRW 630.6 billion. With new titles, EBITDA increased 126.9% Q-o-Q and 17.8% Y-o-Y at KRW 24.5 billion. EBITDA margin recorded 3.9%. Next page is on operating and net profit. Q3 saw an operating loss of KRW 21.9 billion, net loss of KRW 28.4 billion and controlling shareholder loss of KRW 19.0 billion. Next page is on geographical breakdown. Overseas revenue recorded KRW 520.6 billion, and domestic revenue recorded KRW 110.0 billion in Q3. Overseas contribution to revenue was at 83% and domestic 17%. Domestic contribution rose 4 percentage points Q-o-Q with the introduction of new titles such as Seven Knights Idle Adventure and Tower of God: New World. Next page is our revenue contribution by different genres. As of end of Q3, the biggest genres were casual RPG and MMORPG. In particular, Q3 revenue contribution from RPG grew 5 percentage points Q-o-Q at 35% with global launch of incremental RPG Seven Knights Idle Adventure and collection RPG, Tower of God: New World. Next page is on game portfolio. Major 10 titles, including Marvel Contest of Champions account for 59% of our overall revenue with the launch and good performance of Seven Knights Idle Adventure and Tower of God: New World, these 2 titles made the top 10 list with 5% contribution each. Next is on major cost structure. Operating cost at KRW 652.5 billion, increased 1.9% Q-o-Q and decreased 10.9% Y-o-Y in Q3. Commissions paid at KRW 239.1 billion, decreased 0.5% Q-o-Q and 14.1% Y-o-Y, thanks to the revenue increase of in-house IP games. Labor recorded KRW 180.6 billion. With smaller head count, it decreased 6.5% Q-o-Q and 11.0% Y-o-Y. Lastly, marketing cost at KRW 145.8 billion increased 28.9% Q-o-Q and 0.6% Y-o-Y with new title launches in Q3. Now on our lineup. The company will introduce 6 new titles, including the newly added Raven 2 and Arthdal Chronicles, Three Factions and Solo Leveling:ARISE. Ni no Kuni: Cross Worlds is to be introduced to the Chinese market. For your information, the company is to introduce 3 new games at G-STAR that will take place next week. First is The Seven Deadly Sins: Origin, which is an open world RPG bound for mobile, PC and console platforms. Second, high-quality MMORPG RF online mix that realistically illustrates SF universe while carrying RF online IP. And lastly, our own IP brand cross-based collection RPG, Demis Re:Born. Following last year, the company will introduce a differentiated new titles across diverse channels at G-STAR. The company is pulling all its resources to add to the sophistication of planned releases and provide differentiated fund. We are thoroughly preparing and checking to make sure our efforts translate to a successful launch. So I hope that you keep your interest and support for the company alive. This concludes my presentation. Now we will be entertaining your questions.

[Operator Instructions] The first question will be presented by Dong Woo Kim from Kyobo Securities.

Yes, I have 2 questions. Well, the first well, you have introduced your new titles in Q3, but the deficit level happened and seen a decrease as to what the market has expected. Is it because of the heavier spending associated with marketing? Or is it because of other reasons? And could you give us your guidance for Q4 marketing cost and also labor cost? And the second question, do you think you would be able to turn into a black-changing number in Q4?

Yes. This is CEO, Do, answering your first question, which is on the results for Q3. Yes, as was mentioned in your question, we did have a new title launches in Q3. But the cost associated is not spread across different quarters. So there was a very focused spending on marketing in Q3. That is why the improvement was rather limited. But going into the fourth quarter, there won't be much of an added marketing cost and the results from the new titles will be reflected in full for the [ fourth ] quarter. So we do expect to see added improvement.

The following question will be presented by Sang-Hyun Lee from IBK Investment and Securities.

Yes, I have 2 questions. First is on the delay situation for your expected titles, including Arthdal Chronicles and Solo Leveling:ARISE. Why was there a delay? And when do you think will be the official launch of the expected titles? This is the first question. And my second question is related to your titles to be introduced at G-STAR. Could you give us where the development currently stands?

Yes. This is CEO, Kwon, addressing your first question. Yes, first of all, our apologies for the delayed introduction of the expected 2 titles. And now let me give you a progress update. As for Solo Leveling:ARISE, we have completed the test within the company, and we have confirmed the front part of this title. And after the OBT, we will do our final checkup, and we do believe that we will be able to release this title in the market in the first quarter. And as for Arthdal Chronicles, we have completed the development and test for this title. We would be polishing it further to be introduced, hopefully, in the first quarter next year, too. And now more color on the 3 titles that we are going to introduce at G-STAR. Well, we hope the titles will be released in the second half of year 2024. That's our goal and target. And as for The Seven Deadly Sins: Origin, it's an open-world game, requiring a vast content, and we're preparing for a simultaneous release on the mobile PC and console platform.

Since there are no pending questions now, we will be completing our earnings session. Should you have any follow-up questions, please don't hesitate in contacting our IR team.