Netmarble Corporation (A251270) Earnings Call Transcript & Summary

[Foreign Language] [Interpreted] Good afternoon. This is [indiscernible], Head of Finance Planning at Netmarble. I thank the investors and analysts for participating in Q4 2023 and annual earnings results session despite your busy schedules. We have here with us CEO, Young-Sig Kwon; and CFO, Gi-Wook Do. They will address your questions after the results presentation. Please note that the contents presented today have yet to undergo an independent auditor review and could be subject to future changes upon such review. Now CFO, Gi-Wook Do will deliver the results presentation.

[Foreign Language] [Interpreted] Good afternoon. This is CFO, Gi-Wook Do. I will give you the annual results of 2023 first. Please refer to Page 2. Annual revenue for 2023 decreased 6.4% Y-o-Y at KRW 2.5014 trillion. Overseas contribution to revenue was at 83% and domestic revenue recorded 17%. EBITDA decreased 6.4% Y-o-Y at KRW 115.8 billion. [Foreign Language] [Interpreted] Page 3 is on Q4 results. With full quarter reflection of Seven Knights Idle Adventure and with the update of Marvel Contest of Champions, Q4 revenue increased 5.4% Q-o-Q and decreased 3.2% Y-o-Y at KRW 664.9 billion. With new titles and updates, EBITDA increased 146.5% Q-o-Q and 69.2% Y-o-Y at KRW 60.4 billion. EBITDA margin rate was at 9.1%. [Foreign Language] [Interpreted] Page 4 is on operating and net profit. Q4 operating profit was at KRW 17.7 billion. Net loss recorded KRW 195.0 billion and controlling shareholders' loss KRW 182.8 billion. With temporary increase in corporate tax with asset sales, net loss increased over the previous quarter. . [Foreign Language] [Interpreted] Next page is on regional revenue breakdown. Q4 overseas revenue recorded KRW 534.0 billion, and domestic sales KRW 130.9 billion. In percentage terms, overseas accounted for 80% and domestic 20%. With full quarter reflection of Seven Knights Idle Adventure, domestic revenue contribution increased 3 percentage points over the previous quarter. [Foreign Language] [Interpreted] Next page is on revenue breakdown per genre. Well, in the -- fourth quarter, the one thing that is of particular notice [indiscernible] that with the full quarter reflection of Seven Knights Idle Adventure, while the contribution from RPG grew 3 percentage points in Q4, reaching a 38% level. [Foreign Language] [Interpreted] Next page is on games portfolio. As of Q4 end, Marvel Contest of Champions accounted for 12% of revenue, followed by Jackpot World 9%, Lotsa Slots 8%, Seven Knights Idle Adventure 8%, Cash Frenzy 7% and Seven Deadly Sins: Grand Cross 6%. The company's portfolio remains diversified. [Foreign Language] [Interpreted] Next is on major cost structure. Operating cost in Q4 was KRW 647.2 billion, which is a 0.8% decrease Q-o-Q and 9.0% decrease Y-o-Y. Fees and commissions paid reported KRW 253.5 billion with increase in revenue, it increased 6.0% Q-o-Q and decreased 6.6% Y-o-Y. Labor cost was at KRW 183.3 billion. With preparation work for several project launches, it saw a slight increase of 1.5% Q-o-Q and decreased 9.5% Y-o-Y. Lastly, marketing spend was at KRW 126.7 billion, with absence of new titles in Q4, it decreased 12.5% Q-o-Q and increased 4.4% Y-o-Y. [Foreign Language] [Interpreted] Next is on our new titles line. In the first half of this year, the company will launch 4 new titles, which are Arthdal Chronicles: Three Factions, Solo Leveling:ARISE, Raven 2 and King Arthur: Legends Rise. We are planning to take Ni no Kuni: Cross Worlds to China in the same period. [Foreign Language] [Interpreted] With some delays in our planned launches, the company did not fully meet market expectations last year. But with intensified select and focus, the company will minimize further delays and do our best to bring more competitive titles to the market. [Foreign Language] [Interpreted] This concludes our results presentation. Should you have any questions, we would do our best to address them. Thank you.

[Foreign Language] [Interpreted] [Operator Instructions] The first question will be provided by Jin-Gu Kim from Kiwoom Securities.

[Foreign Language] [Interpreted] Yes, I have 2 questions. First is on the launch date of Seven Deadly Sins: Origin. So when do we expect to see the title in the market? And the second question is on your console strategy. Could you please give us some update on the lineup for the console platform and when will the launches be?

[Foreign Language] [Interpreted] Yes. This is CEO, Kwon, addressing your first question which is on the launch date of Seven Deadly Sins: Origin. We are currently in the midst of developing the title as we aim for end of year 2024. However, having said that, this is an open world RPG title, which requires a vast development of content. So there is some possibility of a delay. But even if so, we would try to target first half of year 2025. [Foreign Language] [Interpreted] And as for the second question, which is related to our console strategy. Well, as you have mentioned in your first question, we have the Seven Deadly Sins: Origin, which we're developing for the mobile, PC, and console platform. So we have 2 titles currently under development bound for the all 3 mentioned platforms. And we are working on 1 title that is purely bound for the console platform. We have communicated our plans for Seven Deadly Sins: Origin, and that's the only disclosed title bound for the console platform and should the opportunity arise, we will be communicating the other titles to the market.

[Foreign Language] [Interpreted] The following question will be presented by from [indiscernible] Investment & Securities.

[Foreign Language] [Interpreted] I will give you the translations to the 2 questions. First is on Solo Leveling: ARISE. Well, the animation is really gaining popularity across the globe. So what would be the influence from this very popular anime title. And my second question is related to fees and commissions for Apple in the European market. Will there be an influence to your numbers starting in the second quarter?

[Foreign Language] [Interpreted] Yes. To your first question, which was on Solo Leveling: ARISE. Well, as you're well aware, the title -- anime title is being aired around the world, starting from January this year. And it's top ranked in many countries. And we believe Season 1 will be over by end of March. And we have plans to conduct an open beta test in the month of March, too. And we already have a build, which is quite complete for a global launch, but we hope to [indiscernible] with the popularity of this animation title. And we believe that timing will come when the first season is over and when you could enjoy the whole season in Netflix without any pauses in between. So we hope to target the date of April. [Foreign Language] [Interpreted] And so your second question, which was related to fees for Apple in the European market. Well, nothing is confirmed yet, so please understand that at this given point in time, we cannot give you a definitive answer.

[Foreign Language] [Interpreted] And this is an add-on from the CFO. As you're well aware, the company's revenue contribution from the European market is not that big -- even with a fee and commission change, there won't be a significant influence to the company's numbers.

[Foreign Language] [Interpreted] The following question will be presented by Dong Hwan Oh from Samsung Securities.

[Foreign Language] [Interpreted] Yes, I have 2 questions. First is your [indiscernible] launch in the first half. Well, would it be really concentrated in the second quarter? And what would be the order of the release? And my second question is related to your Chinese business. I think there will be some easing of the Chinese license situation. So -- well, ideally, what titles would you bring to the Chinese market?

[Foreign Language] [Interpreted] Yes. To address your first question, yes, the order is as is presented. And well, the launches will begin in the earlier part of Q2 and continued till the end of Q2. [Foreign Language] [Interpreted] And as for our plans for the change of market, yes, we're preparing to get the Chinese license. We are simultaneously working on several licenses. And as for the timing, well, it will be according to when the licenses come. [Foreign Language] [Interpreted] Next question, please.

[Foreign Language] [Interpreted] The following question will be presented by Jae-min Ahn from NH Investment & Securities.

[Foreign Language] [Interpreted] Yes. The question is for the Seven Knights Idle Adventure, I think the ranking dropped compared to the previous period. So is there a possibility that your [indiscernible] numbers turn red again? And my second part of this question is related to your cost control. Could you please elaborate on your cost control measures, including labor?

[Foreign Language] [Interpreted] Yes. This is CFO, Do, addressing your question. Yes, it's true that the title has seen a slight ranking decrease, but it was done in a very gradual way and it wasn't to a significant degree. And if I may give you our outlook for the first quarter and year 2024 as a whole, well, as was mentioned in our presentation, the lineup of new titles, the releases will begin in earnest in the second quarter. So in the first quarter, the influence -- the boost up influence from the new titles will be quite small. So compared to the previous quarter, which is Q4 year 2023, there could be some slight decreases, but as was mentioned in our previous answer and also in the presentation, we will be starting to release our new titles in the second quarter. And with this new title launches for the year as a whole for year 2024, I think there will be a significant turnaround of our results. [Foreign Language] [Interpreted] And now to the second part of your question, which was on our cost control, including our labor costs. Well, we are continuously working on adding more efficiency to our resources. And as for cost, we have 3 major pillars. First is fees and commissions. Second is labor, third part is advertisement. And as for fees and commissions, it's up to the market mechanism, and we have little control over what would happen to the fees and commissions. And if I may talk more on our labor costs, we have been working on this since year 2024. We have been constant in delivering message on rationalization and more efficiency when it comes to our labor force. But we are not artificially or firing people. We are resorting more of natural attrition. So when people leave when it comes to new recruitment, we are more thorough in the evaluation. So we're really being tight on our new recruits. And this stance will continue until the end of year 2024. And with this continued stance, there won't be much of an increase when it comes to our head count and also labor. [Foreign Language] [Interpreted] And if I may add some more on our advertising cost [indiscernible] business plan, we are aiming for much bigger growth because [indiscernible]. And well, however, having said that, we're not going to increase the percentage of advertisement in our business. With more titles to be introduced in year 2024. The absolute amount of advertisement could go up, but on a percentage basis, we are going to contain it.

[Foreign Language] [Interpreted] The following question will be presented by Ui Hoon Jeong from Eugene Investment & Securities.

[Foreign Language] [Interpreted] Yes. I have 2 questions related to your SpinX business. What [indiscernible] cost after the acquisition of SpinX, what would the attrition amount be in 2024. And is there significant change compared to year '23? And my second question also related to SpinX. How was the social casino market in year '23? And how do you see it evolving in year '24?

[Foreign Language] [Interpreted] Yes, right after the acquisition of SpinX for attrition purpose, we have to spend about KRW 100 billion per year. But last year, we've seen an amount decrease of KRW 600 billion. And this year, we also hope to see a decrease of KRW 200 billion. So with this amount decrease, the accretion or this amount would also see a decrease. So if I may give you a percentage-wise decrease, well, in year '23 over year 2022, we saw a 30% to 35% decrease. And this year, over the previous year -- over year '23, we hope to see another 20% decrease. So compared to the very early stages of SpinX acquisition, we will see a 50% to 55% decrease.

[Foreign Language] [Interpreted] Yes. This is CEO, Kwon speaking. Well, overall, globally, the social casino market saw a slight decrease. But however, SpinX, it saw a 5% growth last year. [Foreign Language] [Interpreted] And the outlook for year 2024, we will be working with titles such as Cash Rally and Jackpot Crush. Well, we would be optimizing and updating these titles and the data improvement will follow in the fourth quarter. So year 2024, we're going to work on our Social Casino business with the 4 titles.

[Foreign Language] [Interpreted] The following question will be presented by Hee-Seok Lim from Mirae Asset Securities.

[Foreign Language] [Interpreted] Yes. My question is on your borrowings liability. Last August, you've mentioned your plans for deleveraging. And I believe this time around, we have serviced about KRW 520 billion. So could you please give us an update on your leverage situation and your plans to work on this number?

[Foreign Language] [Interpreted] Yes, this is CFO, Do, addressing your question. Yes, we have mentioned to you on our directionality in our August meeting, and we stand by that directionality. And in that sense, we have service back KRW 520 billion at the end of last year. And we're not going to go with the current level. We are going to continuously work on improvement of our leverage situation depending on the external environment. Once again, our directionality remains. [Foreign Language] [Interpreted] Yes. And as was mentioned, we're going to go-to-market situation and opt for the optimal. So we're not going to rush anything. So we have established several strategies or directions. So first, is even to think about refinancing to a lower interest rate vehicle. So with this asset, we'll be taking a longer horizon and improving our financials.

[Foreign Language] [Interpreted] Currently, there are no participants with questions. [Operator Instructions]

[Foreign Language] [Interpreted] If there are no further questions, we will be ending [indiscernible] session here. I once again thank all the participants. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]