Netmarble Corporation (A251270) Earnings Call Transcript & Summary

[Foreign Language] [Interpreted] Good morning and good evening. Thank you all for joining this conference call for the earnings results by Netmarble. This conference will start with our presentation followed by a Q&A session. [Operator Instructions]. Now we will begin the conference of the fiscal year 2024 First Quarter Earnings Results by Netmarble.

[Foreign Language] [Interpreted] Good afternoon. This is [indiscernible], Head of Finance and Planning at Netmarble. I thank the analysts and investors for taking time out of their busy schedules to attend our Q1 2024 earnings session. Today, we have here with us CEO, Young-Sig Kwon and Byung Gyu Kim; and CFO Gi-Wook Do. They will address your major questions after the results presentation. Please note that the contents presented have yet to undergo an independent auditor's review and could be subject to changes upon such review. Now CFO, Gi-Wook Do will deliver you the results.

[Foreign Language] [Interpreted] Good afternoon. This is Gi-Wook Do. I will give you the overall results for Q1 2024. Please refer to Page 2. Revenue in Q1 decreased 12.0% Q-o-Q and 2.9% Y-o-Y at KRW 585.4 billion. EBITDA decreased 30.6% Q-o-Q and increased 112.4% Y-o-Y at KRW 42.7 billion. EBITDA margin rate was at 7.3%. Revenue and EBITDA decreased over the previous quarter with no new releases. [Foreign Language] [Interpreted] Next page is on operating and net income. OP recorded KRW 3.7 billion and net loss, KRW 9.9 billion in Q1. Controlling shareholders' loss was at KRW 400 million. Net loss saw a significant decrease because of the base effect of corporate tax recognition with asset divestment in the last quarter. [Foreign Language] [Interpreted] Next page is on games portfolio. At Q1 end, 3 top ranking titles were Jackpot World with 10% and Ratcha Slots with 9% and Cash Frenzy at 9%, with updates on Saint Patrick's Day and Valentine's Day, revenue increased over the previous quarter. Marvel Contest of Champions was at 8% and Seven Deadly Sins: Grand Cross 7%, Seven Knights Idle Adventure 5%. The portfolio continues to remain well diversified. [Foreign Language] [Interpreted] Next is on regional and genre breakdown with the mentioned [indiscernible] Games, North America's revenue contribution increased 3% Q-o-Q and casual games revenue proportion increased 7% Q-o-Q. Q1 regional breakdown of revenue contribution was North America at 48%; Korea, 17%; Europe, 13%; Southeast Asia 9%; Japan 6% and others at 7%. Casual games accounted for 47% of the revenue, followed by RPG at 33%; MMORPG 9% and other 11%. [Foreign Language] [Interpreted] Next is on cost structure. Q1 operating cost recorded KRW 581.7 billion, which is a decrease of 10.1% Q-on-Q and 7.8% Y-o-Y. Fees and commissions paid was at KRW 227.4 billion, which is a 10.3% Q-o-Q and 8.0% Y-o-Y decrease with reduced revenue. Labor costs recorded KRW 179.5 billion, with labor force rationalization, it decreased 1.8% Q-o-Q and 4.3% Y-o-Y. Lastly, marketing cost recorded KRW 101.5 billion. With lack of new releases, it decreased 20.5% Q-o-Q and increased 1.2% Y-o-Y. [Foreign Language] [Interpreted] Now on new releases. The company is planning to launch Raven 2 on 29th May. After that, we have plans to introduce 4 new titles, which are Seven Deadly Sins Idle Adventures, King Arthur: Legend Rise, RF Online Next and Demis Ribbon. [Foreign Language] [Interpreted] Even with an absence of new releases, with continued cost rationalization efforts, the company was able to deliver an operating profit. In the second quarter, we will consecutively introduce new titles with different IPs, genres and platforms to give new fun and experience to our users. With many new leases and thorough cost management, the company expects to see earnest profit expansion. So please keep your interest in live for our new [ lease forward ]. [Foreign Language] [Interpreted] This concludes our earnings presentation. Should you have any questions, we will be glad to entertain them. Thank you.

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

[Foreign Language] [Interpreted] Yes. Yes. The first question was on Solo Leveling. You have recently launched Solo Leveling. And how do you view the early success? And what is your expectation for this new title going forward? And I would also like to hear your expectations for the second quarter and also the second half.

[Foreign Language] [Interpreted] Yes. This is CEO, Kwon addressing your question. As you're fully aware of, the title was launched yesterday, and it's only a day old. So I am rather cautious to be delivering a definite expectation or forecast with this title. But as was witnessed through the presubscription or preregistration process, we do have high hopes for it, and we conducted a 50 days open beta test, and we've made various improvements based on the results from the beta tests. And accordingly, we've made updates on the content and the story. And with that, I believe that this title is quite competitive. [Foreign Language] [Interpreted] So it's only been a day old, but since its introduction, recorded, the title recorded #1 in many countries download numbers, and it's also made top ranking in the Apple App Store. And well, 24 hours into birth of the game. We saw a daily average user of 5 million and a revenue number of KRW 14 billion, which is much higher than our initial expectations. And I could safely say that this was the best result from a new title ever.

[Foreign Language] [Interpreted] Yes, this is CFO Do. He will be addressing the second question, which is on expectations. For the second quarter and second half results. [Foreign Language. [Interpreted] So if I may talk about the cost side of things first, well, we do expect to an increase in the absolute amount of marketing costs with new title introductions. But we will be executing our marketing efforts, whilst keeping a keen eye on the results. And with that, we hope to thoroughly manage the percentage of marketing cost to revenue. [Foreign Language] [Interpreted] And now I will talk on our fixed cost -- labor cost accounts for a huge portion of the fixed cost as does others. And as you would have seen from our results presentation, well, we are going to maintain our fixed cost spending going forward. So there won't be a significant price to our fixed cost. And we will be maintaining this stance until the end of this year. Well, if we see a revenue increase, we hope to directly translate this into profitability improvement. [Foreign Language] [Interpreted] So Arthdal Chronicles and the Solo Leveling games, which were recently introduced. Well, the results from these new titles will be reflected in the second quarter. And with the reflection, you'll be able to witness significant improvement in our results. [Interpreted] And in the second half, our expectations for the second half, well, the 2 types of the two new titles will be reflected for the full term in the second half, and we will also be introducing new titles -- additional new titles. So for the year as a whole, we do expect to see significant improvement in our results.

[Foreign Language] [Interpreted] The following question will be presented by Junhyun Kim from HSBC Securities.