Netmarble Corporation (A251270) Earnings Call Transcript & Summary

[Interpreted] Good morning, and good evening. Thank you all for joining the conference call for the Netmarble earnings results. This conference will start with a presentation followed by a Q&A session. [Operator Instructions] Now we will begin the presentation on Netmarble's Fourth Quarter of Fiscal Year 2025 Earnings Results.

[Interpreted] Good afternoon. This is [ Jiwoon Lee ], Head of the company's IR team. Thank you sincerely to all investors and analysts who have taken the time to attend our 2025 Q4 and full year earnings conference call amidst your busy schedules. Present with us today are CEO, Byeonggyu Kim; CFO, Gi-Wook Do; and other members who will be available to answer questions following the earnings presentation. Please note that this presentation is prepared prior to the completion of our external audit. Therefore, some details may be subject to change based on the audit results. Now I'll hand it over to our CFO, Gi-Wook Do, to proceed with the earnings presentation.

[Foreign Language]

[Interpreted] Good afternoon. This is CFO, Gi-Wook Do. Let me begin by presenting our annual business results for 2025. Please refer to Page 2.

[Foreign Language]

[Interpreted] Full year 2025 revenue reached KRW 2,835.1 billion, up 6.4% year-on-year. EBITDA rose 30.8% Y-o-Y to KRW 484 billion, demonstrating solid profitability. In particular, driven by the launch of multiple successful titles in 2025, the company recorded the highest annual revenue since its IPO. In addition, ongoing cost efficiency initiatives supported the achievement of an EBITDA margin of 17.1%.

[Foreign Language]

[Interpreted] Next, I will walk you through our fourth quarter operating performance. Fourth quarter revenue increased by 14.6% quarter-on-quarter and 22.9% year-on-year to KRW 797.6 billion. EBITDA rose by 21.7% Q-o-Q and 102.9% Y-o-Y to KRW 148.9 billion, and the EBITDA margin reached 18.7%. Both revenue and EBITDA increased quarter-on-quarter, reflecting seasonal updates at overseas subsidiaries and the successful global regional expansion of existing titles.

[Foreign Language]

[Interpreted] Next page covers operating profit and net income. In Q4, operating profit amounted to KRW 110.8 billion, while the company recorded a net loss of KRW 35.9 billion and a net loss attributable to controlling shareholders of KRW 34.1 billion. The operating margin remained solid, supported by revenue growth and continued cost efficiency initiatives. However, a net loss was recorded as non-operating results reflected an impairment charge related to intangible assets.

[Foreign Language]

[Interpreted] The following page provides an overview of our game portfolio. As of the end of Q4, revenue contribution by major titles was as follows: Seven Knights Re:BIRTH 15%; MARVEL Contest of Champions, 11%; VAMPIR and Jackpot World, each at 7%; Lotsa Slot and Cash Frenzy, each accounting for 6%. Our game portfolio, as we have just mentioned, continues to become more diversified.

[Foreign Language]

[Interpreted] Next is a breakdown of revenue by region and genre. In Q4, overseas revenue as a share of total revenue increased by 9 percentage points quarter-on-quarter, reflecting the global regional expansion of existing titles, including Seven Knights Re:BIRTH. The share of RPG revenue also rose by 8 percentage points Q-o-Q. For reference, fourth quarter revenue by region was comprised of North America at 39%, Korea at 23%, Europe and Southeast Asia each at 12%, Japan at 7% and other regions at 7%. By genre, revenue was composed of RPG at 42%, casual games at 33%, MMORPG at 18% and others at 7%.

[Foreign Language]

[Interpreted] Next page outlines our key cost structure. Q4 operating expenses amounted to KRW 686.8 billion, up 13.5% quarter-on-quarter and 11.9% year-on-year. Marketing expenses totaled KRW 178.7 billion, up 23% Q-o-Q and 48.3% Y-o-Y, driven by new title launches and seasonal updates for existing titles. Next, labor expenses increased by 6.8% Q-o-Q and 1.8% Y-o-Y to KRW 182 billion, primarily reflecting bonus payments. Finally, the commission rate declined by 0.7 percentage points Q-o-Q to 31.6%, supported by the continued expansion of PC-based payment mix.

[Foreign Language]

[Interpreted] Next, I'd like to discuss our upcoming game lineup. The company plans to launch Stone Age: Idle Adventure and The Seven Deadly Sins: Origin, in the first quarter of 2026, while sequentially rolling out regional expansions for existing titles, including VAMPIR, SOL: enchant, and MONGIL: STAR DIVE are scheduled for release in the second quarter. And in the second half of the year, the company intends to further strengthen its lineup with the launch of 4 additional new titles.

[Foreign Language]

[Interpreted] Finally, I'd like to address our shareholder return policy. The company plans to allocate 30% of consolidated net income attributable to controlling shareholders for 2025 to shareholder returns and to pay cash dividends of KRW 71.8 billion, representing an increase of approximately 110% compared to the prior year. This dividend is expected to be eligible for the special tax treatment for dividend income from shares of high dividend-paying companies. The dividend record date has been set at February 27, 2026.

[Foreign Language]

[Interpreted] In addition, the company has established a new shareholder return policy applicable to fiscal years 2026 through 2028 for 3 years aimed at enhancing shareholder value and improving earnings visibility. Under this policy, the shareholder return ratio will be increased from 30% of consolidated adjusted net income attributable to controlling shareholders to 40%. Based on this, the company plans to implement both cash dividends and treasury share buyback and cancellation. Furthermore, in 2026, the company plans to retire all treasury shares currently held, representing 4.7% of outstanding shares. The company will continue to make every effort to establish a virtuous cycle in which solid earnings growth translates into tangible shareholder value creation, thereby meeting shareholder expectations.

[Foreign Language]

[Interpreted] In the fourth quarter of 2025, the company delivered its highest quarterly revenue since its IPO, supported by strong live service capabilities and successful regional expansion of existing titles once again, demonstrating the strength of our fundamentals. This year represents a critical turning point as the multi-platform, multi-genre new titles that we have been carefully preparing begin to come to fruition. Through continued global expansion and disciplined cost execution, we expect to deliver meaningful earnings growth going forward. We kindly ask for your continued interest in the company. And on this note, I'd like to conclude the earnings presentation.

[Foreign Language]

[Interpreted] Now we'd be happy to take any questions you may have. Thank you.

[Interpreted] [Operator Instructions] The first question will be provided by Junhyun Kim from HSBC.

[Foreign Language]

[Interpreted] And before my question, I would like to congratulate the company on your excellent earnings release. Now for me, I have 2 questions. My first question is to better understand based on the very much improved top-line performance the company has shown and also the improvements that we have seen in terms of reducing the commission fee as a result of increasing the portion of PC-payment as well as increasing the portion of your own IP titles. But if we look at the 2026 title lineup, there's also going to be not only titles produced using your own IP, but also there will be external IP as well. External development will also come into play, which could actually increase the burden compared to the previous year on the commission fee payment side. So on this note, I would like to ask the company to share your internal view on this. And if you can share more mid- to long-term projections on this point, that will be very helpful. My second question moves on to the use of proceeds for the very recently announced the PRS contract that you have disclosed. Would the UOP be used to fully for the debt service? Or would -- and also, if there is any update you can provide related to the sale of G-Tower, your headquarters building or any other asset monetization plan, that would be very helpful.

[Foreign Language]

[Interpreted] To answer your first question, just to summarize your question, you expressed your concerns on the possibility of the commission payment increasing in 2026 compared to 2025. In respect to your question, I can say that in our view, in terms of the commission rate, we do not believe that we will see an increase in the commission fee rate in 2026 compared to 2025. Rather, there is an expectation that the rate will actually go down on a Y-o-Y basis. And the reason for this is not because of the increase of the external IP portion, but because as we have seen most recently and as of end of 2025, there has been a continued improvement or rise in the portion of the PC-payment. And as a result, that has helped to continue to decrease the commission rate. And we believe that in this area, there is also further room for improvement going forward. And so that's one factor, one reason. And also, we have seen that the PC-payment portion is also on the rise for the overseas subsidiaries as well. And then on top of that, we also have to look at the app market policies as well. So combined, we believe that overall, the environment is quite favorable for the company. So on an aggregate basis, as I have mentioned previously, we believe that the commission rate will actually be lower than in 2026 compared to 2025.

[Foreign Language]

[Interpreted] Moving to your second question. You asked about the purpose of the most recent our PRS transaction. I also have heard that you would like the company to provide an overall update on the company's liability position as well as any potential additional plan for future asset monetization. Moving to the answer portion. In terms of the HYBE PRS transaction, the first priority is really to improve the financial structure of the company. And this is actually very much in line with what we have been communicating to the market for several years now. So the most recent monetization of our interest in HYBE is really to continue on our efforts to improve the company's financial structure. So please consider this as an extension of the efforts that we have been showing in recent years. And in respect to the -- any updates related to the sale of G-Tower, I'm sure that you had the opportunity to look at the news release. And so I can confirm that we do have already completed the process in terms of selecting the preferred bidder. But there has not been any additional definitive update since then. And so as soon as we have something very definitive to communicate to the market, we will be very swift in coming to the market to provide you with the latest update.

[Interpreted] The following question will be presented by [ Seung-ho Choi from DS Investment & Securities ].

[Foreign Language]

[Interpreted] Thank you for announcing such good earnings performance and the content. Congratulations to the company. My first question is related to the cost. And so could the company provide 2026 guidance for your marketing expense as well as labor expense? And I also want to secondly ask if it's possible for the company to provide additional details to the impairment loss on the intangible assets that you have mentioned? And my last question is related to what you have shared on your presentation slide. You have mentioned that there will be 4 new titles that you will be releasing in the second half. But if we actually look from the past experience, it's also possible that there could be some changes to your anticipated schedule for new title releases as well. So how can -- how much confidence does the company have in terms of able to meet the scheduled release targets in respect to the upcoming title lineup.

[Foreign Language]

[Interpreted] Let me first comment on your first question and provide you with the overall guidance for 2026. First, commenting on the cost side. There was already a question related to the commission fee rate. And as I have mentioned previously, that compared to 2025, we do anticipate that we will become more efficient in 2026. That leaves us with 2 big cost items, which is the marketing expense and the labor expense. And just to address the marketing expense first, as you, probably, have heard that we have continued to communicate this message to the market. And this is the stance of the company, which is that we will be executing our marketing expense in the most efficient fashion tied to new title releases and the company's earnings performance. What this means is that on a consolidated basis, the marketing expense ratio was at around 20% in 2025. So if we're just talking about on a ratio basis, we believe that this is going to be at a very similar level in 2026, which means that we continue to make the marketing expenditure expenses become more efficient for the company. Moving on the labor expense side, it also remains unchanged from the communication that the company has been making to the market as well. On an absolute basis, we continue to maintain the same number of head count. The size of our labor force will remain the same, which is the expectation that the company has. But at the same time, we will continue to see better performance, earnings performance, which means that in terms of the share of the labor expense to the company's overall top-line, this is going to be actually less. So just to wrap up on the cost side, in terms of the marketing side, the ratio will be somewhat similar on a Y-o-Y basis, whereas on a labor expense side, the ratio will actually decline because we're going to actually see additional top-line growth in 2026 compared to 2025. And on the commission fee rate, I have already mentioned that we believe that we'll be able to make this more efficient in 2026 as well. So just moving on to the top-line performance expectations. Internally, we have The Seven Deadly Sins: Origin as well as MONGIL: STAR DIVE to blockbuster new titles that we believe will continue to show a meaningful top-line growth for the company on a Y-o-Y basis for 2026 as well. So if we consider that there is going to be a meaningful top-line growth driven by these blockbuster new title releases in 2026, while we continue to make meaningful earnings -- meaningful improvements on the cost side, we believe that we'll be able to continue the improvements that we have seen -- we have shown in 2025 and be actually further improve that in 2026.

[Foreign Language]

[Interpreted] Moving to your second question related to the impairment loss related to the intangible assets. As you may remember, for several years, it was usually towards the end of the year in Q4, there were several quarters in which we did recognize impairment losses and mostly that was related to SpinX. For this time, there has not been any impairment loss related to SpinX. But as was previously announced, this is directly related to the impairment loss on goodwill as a result of us deciding to suspend the King Arthur service.

[Foreign Language]

[Interpreted] And moving to the third question. This is CEO, Kim. You asked about any potential delays that could happen to our expectation of launching 4 new titles in the second half of this year. In respect to this, in order to prevent any unnecessary delays in our schedule to launch these titles, we are putting a lot of effort to make sure that they are being -- they are going to be released as we have internally scheduled. So we are deploying resources for this end, building out content so that we are able to strike an overall good balance in the development of the titles. But at the same time, before we actually do launch new titles, there's always this variable, meaning that you have to always pass the not only internal testing, but also external testing as well. So that is one moving variable that we do have to take into account. But in terms of being very specific telling you how many business days of delays that we can anticipate for the upcoming 4 new titles. I think at this point in time, this is actually too early for us to be very detailed in terms of making such comments. As these titles are slated for the second half of this year, we will be having an opportunity as we get closer to this time frame, be able to communicate to you in respect to their release scheduled time. But at the same time, there are external events in which we participate in sharing our overall schedule for new title releases. So by leveraging these opportunities, I think that we will be able to give good indication in respect to when these upcoming titles can be launched to the market.

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

[Foreign Language]

[Interpreted] If there are no further questions, we will conclude the 2025 Q4 and full year earnings presentation at this time. For any additional inquiries, please feel free to reach out to our IR team. Thank you once again for your participation.