NHN Corporation (A181710) Earnings Call Transcript & Summary

[Interpreted] Good morning. This is Seong-won Kang, head of IR at NHN. Thank you very much for attending our 2025 Q2 earnings conference call. NHN's CEO, Woojin Jeong; CFO, Hyun Shik Ahn; and CEO of NHN Cloud, Dong-Wook Kim, are also present. CEO, Woojin Jeong will start with a business update, followed by CFO, Hyun Shik Ahn's presentation on financial results before we take your questions. The earnings announced today have been prepared based on IFRS consolidated financial statements and are subject to change depending on the results of the external auditors review that is currently underway. Also, I remind you that the conference call contains forward-looking statements and that the company's actual business results may differ materially. Now CEO, Woojin Jeong, will address some key business topics.

[Interpreted] Good morning. This is NHN's CEO, Woojin Jeong. Before I go into the Q2 results, I would like to explain our shareholder return policy to be adopted starting from 2026 for a 3-year period. Please refer to Page 11 of today's presentation material. To ensure that the company's stronger earnings power on a consolidated basis leads to greater financial resources allocated for shareholder return, we have decided to use the previous year's consolidated EBITDA as the basis of calculating the size of shareholder return. Accordingly, for the next 3-year period, 15% of the previous year's consolidated EBITDA will be the resource allocated for shareholder return and used in various forms, including cash dividend and share buybacks. For cash dividends, our plan is to pay out dividends that are equal or larger than the previous year to maintain a dividend growth momentum. Also for additional buybacks carried out from 2026 and after, at least 50% of shares will be canceled immediately within the same calendar year to strengthen shareholder value. For reference, in the recent 3 years, NHN has already canceled around 3.75 million shares, which is equivalent to 10% of the total number of issued shares and plans to additionally buy back around 1.4% and cancel 3% of total number of issued shares by the end of this year. NHN will continue to focus on enhancing shareholder value by generating stable performance and implementing a differentiated shareholder return policy. First of all, our Game business. In Q2, our Japan Game business grew 26% Y-o-Y, driven by the successful collaboration of COMPASS and the popular Japanese Manga A Certain Scientific Railgun, but had a negative base effect against Q1, which had the LINE: Disney Tsum Tsum 11th anniversary event. Webboard games maintained healthy traffic even in Q2, which is traditionally a slow season for webboard games and reported revenue growth on a Y-o-Y basis. In particular, Hangame Poker Classic's new competition content challenge battle increased user engagement, leading to a meaningful increase in total circulation and driving a 16% revenue increase Y-o-Y. Hangame Double A Poker has been cohosting the Bithumb Double A Poker Championship with the crypto asset platform Bithumb from June. The online qualifying rounds and the offline main rounds attracted huge interest, leading to a 4x increase in monthly growth in July versus the previous month. In the second half, we will be celebrating the 25th anniversary of Hangame with various special content that highlights the unique appeal of Hangame. The event will give users new fun and value and build long-lasting brand equity for Hangame. This month, ABYSSDIA will officially launch in the Japan market. Currently, preregistration is underway. And after a successful launch and uptake in Japan featuring ABYSSDIA's unique production and seamless combat content, global rollout, including the Korean market, is scheduled 6 months later. Darkest Days is currently undergoing enhancements to actively reflect the user feedback collected during our open beta launch. We have confirmed promising opportunities in Korea, Japan and Taiwan, and we'll go ahead with official launch within the year after some updates. Project STAR revised its launch schedule to the first half of next year to coordinate with the airing schedule of season 3 of the animation. We are making use of this additional time to put in additional development resources to ensure that the game deeply appeals to the global fandom of Oshi no Ko. NHN PAYCO continues to deliver results by stably operating its unique services, such as the corporate welfare solution, coupon and PAYCO Point businesses despite a challenging environment. In Q2, PAYCO's coupon business revenue increased 15% Q-o-Q through successful collaboration with a major brand and the transaction volume of its corporate welfare solution increased 42% Y-o-Y, continuing a steady Q-o-Q growth trend. People will continue to place top priority on creating a better profit structure by aggressively improving its business fundamentals and accelerate its top line growth by focusing on core services. NHN KCP recently applied for a stable coin related trademark in Korea and overseas to strengthen its competitiveness in the payment infrastructure market. NHN KCP is preparing related businesses from multiple angles, together with PAYCO by exploring partnerships with various tech companies and financial institutions and leading various options open. NHN Cloud, recognized for its strong AI GPU operation capabilities is making newsworthy headway in government-led AI projects. In the GPU acquisition deployment and operation support project in July initiated by MSIP and NIPA, NHN Cloud was chosen to deploy the largest number of GPUs among the selected companies. NHN Cloud will be securing more than 7,000 B200 GPUs by the first quarter of next year and more than 4,000 of them will be deployed as a single cluster. NHN Cloud will also be participating in various government AI projects this second half using the Guangzhou AI data center. First, NHN Cloud will supply the GPU service to the local infra-based computing resource support project of NIPA and has also been selected as the CSP for the AI platform project of the Gyeonggi Province Board of Education and the Brain Reserve Capacity Foundation Model Project of the Ministry of Health and Welfare. NHN Cloud also continues to deliver results on the public sector cloud migration business, winning the infrastructure supply contracts for 5 out of 7 public institutions undergoing cloud native migration in 2025. NHN Cloud will continue to actively participate in various AI projects led by the government to build up its cloud capabilities and contribute to the development of the AI ecosystem. NHN Dooray is enhancing service usability by leveraging various generative AI models. In July, it became the first work collaboration tool to successfully connect open AI's ChatGPT and Google Gemini's latest LLM with the internal network of 10 financial companies, enabling these users to use a variety of LLMs in their daily work. Dooray will continue to focus on providing better user experience for public sector and financial sector companies to support work efficiency gains and provide competitive solutions. In our other business, which mainly consists of our commerce and content businesses, the focus has been on ensuring that the new business model successfully take root while also working on better business efficiencies. The Chinese IBT, which recently transitioned to a brand distributor model, successfully opened the online fashion mall in China for the popular design brand Wiggle Wiggle last March and followed up with the fashion product lines in four offline Wiggle Wiggle stores in April. In the beauty category, it continues to generate success stories such as the cosmetic brand BBIA and its own brand, W.Lab as part of its strategy to build a stronger presence covering fashion and beauty license businesses. NHN Comico, the Webtoon subsidiary is delivering strong performance by distributing its original works on various Webtoon platforms. Recently, its content distribution revenue increased 81% Q-o-Q. And based on this encouraging sign, Comico is transforming its business structure to focus around the Japan Comico platform and the external distribution businesses. According to this strategic direction, the Korean Comico platform as well as the English and French language platform services will be discontinued at the end of October. That completes my business update. And now CFO, Hyun Shik Ahn, will cover the Q2 business results.

[Interpreted] Good morning. This is CFO, Hyun Shik Ahn. I would like to share the 2025 Q2 results. 2025 Q2 consolidated revenue was KRW 604.9 billion, a 0.9% Y-o-Y and 0.8% Q-o-Q increase. Q2 consolidated operating profit was approximately KRW 21.9 billion, which is a 23% Y-o-Y and 20.7% Q-o-Q decrease. Q2 operating profit margin was 3.6%, which is a 1.1 percentage point decrease Y-o-Y and 1.0 percentage point decrease Q-o-Q. So looking at the Q2 business results by each line of Q2. The Game revenue was KRW 114.9 billion, an 8% Y-o-Y increase and 3.9% Q-o-Q decrease. Total webboard game revenue increased 1.9% Y-o-Y, but decreased 2.2% Q-o-Q. Hangame Poker Classic's new challenge battle content increased total circulation but reflecting the slow seasonality, PC game revenue was KRW 43.3 billion, which is a 0.8% increase Y-o-Y and 4.5% decrease Q-o-Q. Mobile game revenue was KRW 71.7 billion, a 12.9% Y-o-Y increase but 3.5% decrease Q-o-Q. Even though LINE: Disney Tsum Tsum's 11th anniversary event had a negative base effect on a Q-o-Q basis, the collaboration between COMPASS and the famous Japanese Manga, A Certain Scientific Railgun drove Y-o-Y top line growth. Payment revenue was KRW 309.4 billion. NHN KCP revenue increased 8.9% Y-o-Y, thanks to growth of domestic and global merchant transaction volume and NHN PAYCO's cumulative loss in the first half improved 52% on a Y-o-Y basis, reflecting the active business streamlining efforts. Tech revenue was KRW 104.5 billion, which is a 6.6% Y-o-Y increase, about 1.1% Q-o-Q decrease. NHN Cloud's revenue decreased Q-o-Q due to some onetime revenue items that had been included in Q1, but NHN Dooray grew 27% Y-o-Y, thanks to new customer acquisitions in public sector and financial sector. Other businesses recorded revenue of KRW 96.5 billion, which is a 25% Y-o-Y and 7.7% Q-o-Q decrease, mainly due to the decrease in Commerce business revenue. Commerce revenue decreased 47% Y-o-Y and 26.6% Q-o-Q, mainly due to the decrease in volume of iconic, which is undergoing debt restructuring. The Q-o-Q growth of NHN Links and NHN Comico partially offset this decrease and limited default in overall other business revenue. NHN Links' revenue increased 20.6% Q-o-Q, reflecting the peak summer sports season and on a Y-o-Y basis, revenue grew 21.6% driven not only by sports ticket sales, but also sales of concerts and exhibitions. NHN Comico revenue grew 3.5% Q-o-Q, supported by strong book publishing performance of subsidiary WISDOM HOUSE. Next, about our operating expenses. Total operating expense was KRW 583 billion, which is a 2.1% increase Y-o-Y and 1.8% increase Q-o-Q. Commission expense was KRW 410.1 billion, which is a 3.7% Q-o-Q increase, reflecting the increase of revenue lead commissions of NHN KCP versus the first quarter. Labor cost was KRW 108.1 billion, which is a 5% Q-o-Q decrease reflecting the decrease in headcount included in the consolidation versus the first quarter and the absence of bonuses paid to by subsidiaries unlike first quarter. Advertisement and Marketing was KRW 21 billion, which is a 15.2% increase Q-o-Q, reflecting the premarketing expense for new games, including Darkest Days. Depreciation was KRW 25.1 billion, which is a 4.9% decrease Q-o-Q. Telecom expenses was KRW 4.2 billion, which is a 10.4% Q-o-Q increase tied to increased network usage for content transmission with the new game launches. Our Q2 consolidated operating profit was KRW 21.9 billion, which is a 23% Y-o-Y and 20.7% Q-o-Q decrease. Q2 net profit was KRW 11.2 billion, returning to a quarterly net profit. This is attributed to a decrease in valuation loss on every PL financial assets and decrease in corporate tax expense versus the first quarter. This completes the presentation on our Q2 financial results, and now we will take your questions.

[Interpreted] [Operator Instructions] The first question will be provided by Hoseung Lee from NH Investment & Securities. Please go ahead with your question.

[Interpreted] I have two questions. First question, recently, you have been selected as the company that will be deploying the largest number of GPUs as part of this government project to acquire and deploy GPUs. Can you give us an outlook on what kind of revenue and profitability you are expecting during the project period? Second question is about additional government AI projects. What kind of government AI projects do you think you'll be able to participate in the second half of this year?

[Interpreted] Well, this is Dong-Wook Kim of NHN Cloud. To answer your first question, first of all, about the government GPU acquisition and deployment project, we are expecting revenue of around KRW 300 billion during the project period. Regarding the profitability, the P&L. At this point, it is difficult for us to disclose the expected P&L given various operation-related matters that have to be resolved and some issues regarding the internal operation and usage. Your second question asked about additional projects, government-led AI projects we're expecting in the second half. Actually, the projects that we mentioned during the presentation, such as the local infrastructure supported AI services, the project by the Gyeonggi province Board of Education and also the project run by the Korean Ministry of Health and Welfare, all of that will start provisioning supply in the second half. And we think that based on the contract size, this will be a revenue of around KRW 12 billion.

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

[Interpreted] Since there is no further questions, we will end the conference call here. If you have any further questions, please forward them to the NHN IR team. Thank you. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]