Netmarble Corporation (A251270) Earnings Call Transcript & Summary

[Interpreted] Good morning and good evening. Thank you all for joining the conference call for the earnings results of Netmarble. This conference will start with a presentation followed by a Q&A session. [Operator Instructions] Now we will begin the presentation on Netmarble's third quarter earnings results of the fiscal year 2024.

[Interpreted] Greetings. I'm [indiscernible], Head of Finance Planning at Netmarble. I thank the investors and analysts for taking the time off of your busy schedule to attend Netmarble's 2024 Third Quarter Earnings Conference Call. On the site with us are CEOs, Young-Sig Kwon and Byeonggyu Kim; and CFO, Gi-Wook Do. We will address any questions that may arise during the call after the main presentation. Please note that the contents of the earnings reports have yet to undergo an independent auditor's review and could be subject to changes with the audit results. And with that, CFO, Gi-Wook Do, will present Q3 earnings.

[Interpreted] Greetings. My name is Gi-Wook Do, and I will present overall 2024 third quarter earnings. Please refer to Page 2. Q3 revenue was KRW 647.3 billion, down 17.2% quarter-over-quarter and up 2.6% year-over-year. EBITDA was KRW 102.8 billion, down 32% Q-o-Q and up 319.6% Y-o-Y. EBITDA margin rate marked 15.9%. Q3 revenue and EBITDA decreased in comparison to the previous quarter due to absence of major new launches. Next page, we're seeing operating income and net income. Q3 operating income recorded KRW 65.5 billion and net income, KRW 20.6 billion. Controlling shareholders' net profit marked KRW 22.4 billion. Net income decreased compared to the previous quarter due to base effect of gains on disposal holdings in Q2, resulting in a relatively lower net income. Next page, we're looking at game portfolio. At Q3 end, we are seeing a diversified portfolio of existing titles, with Solo Leveling:ARISE marking 13% of the total revenue; followed by MARVEL Contest of Champions at 8%; Jackpot World at 8%; Lotsa Slots, 7%; Cash Frenzy, 7%; and Raven2, 6%. Next is revenue ratio by geo and genres. Q3 regional breakdown of revenue contribution was 43% in North America, 23% in Korea, 13% in Europe, 8% in Southeast Asia, 7% in Japan and other regions, 6%. Total ratio of overseas revenue increased by 1 percentage points from 76% in Q2 to 77% in Q3. Revenue contribution breakdown by genre is casual games, 39%; RPG, 38%; MMORPG, 15%; and others, 8%. Next is on major cost structure. Q3 operating expenses was KRW 581.8 billion, down 13.3% quarter-over-quarter and down 10.8% year-over-year. Royalty cost was at KRW 224.9 billion, which is down 14.5% Q-o-Q and down 5.9% Y-o-Y, mainly due to a decrease in revenue. Personnel expense was KRW 179.1 billion, down 2% Q-o-Q and down 0.8% Y-o-Y due to decrease in headcount. Lastly, marketing expenses marked KRW 104.6 billion, which is 27.2% decline Q-o-Q and 28.3% decline Y-o-Y, attributable to absence of new title launch in Q3. Next, I would like to announce our new game pipeline. In the remaining months of 2024, Netmarble plans to launch King Arthur: Legends Rise, followed by 9 new titles in 2025, including titles: Game of Thrones: Kingsroad and Seven Deadly Sins: Origin. In addition, Netmarble is excited to display some of our new games in development to fans a the G-STAR Game Showcase next week. Showcase titles include Open World live action role-playing game, Game of Thrones: Kingsroad, based on a globally renowned IP, as well as MONGIL: STAR DIVE, developed using Unreal Engine 5, as a sequel to Monster [ Tiny ]. Netmarble continues to strive our best to introduce new titles of various genres to the global market in 2025. We ask for your continued support and interest in Netmarble as we expand to PC and console platforms in full swing next year. This concludes our earnings presentation. Should you have any questions, we will be happy to address them now. Thank you.

[Interpreted] [Operator Instructions] The first question will be provided by Seokoh Kang from Shinhan Investment & Securities.

[Interpreted] I have 2 questions. My first question is, we understand that Netmarble will be publishing a new game with Alt9 called Project Sol. Is this Project Red? And what -- does Netmarble have plans to expand external publishing with external IPs? My second part of the question is, I understand that Netmarble has been successful with this turnaround. Does Netmarble have plans to use its current cash flow to invest in new titles? Or does it have plans to repay its borrowings? What plans does it have in terms of its investment and offering back to the shareholders?

[Interpreted] This is CEO Kwon addressing your first question regarding Alt9 and Project Sol. Sol Red -- Project Sol Red is a new title that is under development by one of our affiliates, Netmarble Neo, which is a very different project -- a separate project from Alt9. Alt9's Project Sol is a project that is developed by CEO, Kim Hyo-soo, who was in charge of Lineage and Lineage M projects at NCSOFT, and this team has a very high development skill. Regarding our IP -- strategy using IP, we'd like to clarify that Netmarble has been -- was one of the first companies to make online games, and we have been continuously investing in licensed IP for a very long time. And based on this, we will continue to carefully flex suitable IP for games and release new products.

[Interpreted] So regarding the -- this is CEO Do addressing the second part of the question regarding Netmarble's plans in terms of financial statements and our plans to return to our shareholders. As we have stated continuously throughout our past meetings, our basic direction regarding our financials is that we have continuous -- we will work continuously to improve our financial structure. And currently, we do not have specific plans to securitize investment assets, but this will -- this may change according to the market environment. And we promise that we will do our best to improve our financial structure and also do our best as a company -- a public company to return to our shareholders. Also additionally, regarding our plans in using our cash with our business turning around, we are definitely considering additional investments in order to -- for the company to grow as a whole. However, in terms of resource allocation, we do have to be more strategic and cautious regarding this. And regarding returning to our shareholders, we will be able to give -- provide more detailed plans for year-end.

[Interpreted] Currently, there are no participants with questions. [Operator Instructions] This concludes 2024 Q3 Netmarble Earnings Conference Call. Thank you for your attendance. And should you have any additional questions, please do not hesitate to contact the Netmarble's IR team. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]