NHN Corporation ($A181710)

[Interpreted] Good morning. This is [ Ji Hye Kim ], IR team leader at NHN. Thank you very much for attending our 2026 Q1 earnings conference call. NHN's CEO, Woojin Jeong; our CFO, Hyun Shik Ahn; and CEO of NHN Cloud, Dong-hoon 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 auditor's 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 CEO, Woojin Jeong. First, on web-board games and Japan mobile games. Q1 web-board game revenue grew 11%, both Y-o-Y and Q-o-Q. The web-board game regulatory change in effect from early February has supported an even increase in ARPU across all web-board game titles, including Poker and [ Tokga. ] In particular, HanGame Royal Hold'em, which is the Texas Hold'em-based mobile poker game, successfully completed its second offline tournament HPT in February, leading to a 51% Q-o-Q increase in the games revenue in Q1. The third tournament was held from May 1 to 3, and NHN has firmly established itself as a trusted Hold'em tournament operator by successfully hosting a series of tournaments and we will continue to host regular off-line events as a way of offering differentiated experiences to our users. In Japan mobile games, Dissidia Duellum Final Fantasy launched March 24 continued to maintain stable traffic. Meanwhile, LINE: Disney Tsum Tsum's first-ever collaboration with a non-Disney IP Detective Conan achieved strong results and ranked #1 on the iOS grossing chart for 2 days from March 1 when the collaboration started. Thanks to the 12th anniversary event in early January and the March collaboration, LINE: Disney Tsum Tsum revenue recognized by NHN PlayArt in Q1 increased 94% Q-o-Q and 47% Y-o-Y. Compass surpassed cumulative 20 million downloads as of April 27, and its collaboration with the Chainsaw Man placed Compass back in #1 position in the iOS revenue chart. Next is a look at the payment business. NHN KCP, despite slow seasonality, reported total transaction volume of KRW 14.4 trillion in Q1, which is a 21% increase Y-o-Y and even 5% increase Q-o-Q. Overseas merchant volume steadily increased and some large-scale domestic merchants were newly onboarded, further strengthening NHN KCP's position as Korea's #1 payment gateway company. In particular, in addition to the existing Tesla business, NHN KCP was selected as a payment infrastructure provider for Mercedes-Benz Korea's new vehicle sales model from April, which is expected to accelerate its pace of volume growth. NHN is preparing to lead the next-generation payment market being formed especially around stablecoins by leveraging NHN KCP's superior merchant network and NHN PAYCO's own user data and Ezypay operation Know-How. NHN KCP is preparing a proprietary mini net optimized for payment processes based on its large-scale Korean and overseas merchant coverage and settlement know-how. And together with Ava Labs, the developer of Avalanche, is developing models applicable to actual service. Following POC, NHN KCP plans to lead infrastructure upgrades to connect to actual payment networks. And in this process, NHN PAYCO is expected to contribute to as a touch point, connecting users and merchants and widening service coverage. We will proactively respond to change in domestic policy environment to secure business opportunities and increase our competitive edge. In the tech business, we solidified our leadership in the AI infrastructure market by completing the GPU procure, deploy, operate project value chain during Q1. In late March, liquid cooling-based B200 GPUs went into operation in Yangpyeong region, starting to generate revenue recognition from April and becoming a strong engine to drive full year business performance improvement. We were also a leader in deploying and supplying B300 GPU infrastructure to the National AI Data Center, demonstrating once again our superior capabilities in operating ultra-high-speed GPUs. NHN Cloud's technology edge has been attracting large-scale new project wins. For example, its recent contract with AI infrastructure company, Vessel AI is expected to generate more than KRW 20 billion in revenue. And based on such achievements, NHN Cloud has won the 2026 National AI Data Center Enhancement Project. Our high-performance computing resources are in full operation in response to explosive GPU demand, which will be a decisive factor in NHN's Cloud expanding its market dominance as Korea's #1 AI CSP and achieving its financial targets. Based on such tested and proven GPU business success model, we will focus on meaningfully expanding high value-add service revenue going forward. Meanwhile, NHN Cloud recently decided to merge INNOGRID with its subsidiary, NHN Injae I&C. The combination of INNOGRID's cloud platform technology and NHN Cloud's operational capabilities will complete a full stack service system targeting not only the enterprise market, but also enhancing our competitiveness in public sector as well as financial sector accounts that require higher security levels. The high-growth potential national defense AX or AI transformation market has been selected as a strategic target, and we will leverage our private cloud and DPU deployment operation capabilities to capture this market. Our collaboration platform, NHN Dooray, has already been adopted by the Ministry of National Defense back in 2024 and is scheduled to roll out to all 300,000 military personnel in the Korean Army, Navy and Air Force during the second half of this year. Such references are proof that our cloud service meets the strict security and availability requirements of the military and together with NHN Cloud's strong public sector track record will help us win national defense AX project. NHN Cloud plans to expand its presence in the defense sector and is currently participating in a combined command and control system upgrade development project led by Hana Systems and commissioned by DAPA. In Q1, upfront infrastructure investments were reflected in connection with NHN Cloud's AI GPU project, which has placed temporary burden on the company level profitability. As explained above, the government commission GPU projects have been making smooth progress from Q2, and we expect meaningful performance improvements to follow. From today, NHN will start a share buyback program of a total of KRW 16.7 billion, which represents the entire amount allocated for share buybacks in 2026. Executing a share buyback now using our entire full year buyback budget reflects our conviction of the company's business performance improving in the remainder of the year. Once this buyback is completed, we plan to cancel all acquired shares according to the amended Commercial Act. Regarding the existing treasury shares, we will communicate with the market separately on how they will be utilized once the decision is reached with shareholder value enhancement and financial soundness in mind. That completes my update on key business topics and now will take you through the Q1 financial results.

[Interpreted] Good morning. This is NHN CFO Hyun Shik Ahn. I would like to share the 2026 Q1 business results. 2026 Q1 consolidated revenue was KRW 671.4 billion, which is 11.9% Y-o-Y increase, but a 2.1% Q-o-Q decrease due to seasonality. Consolidated operating profit was KRW 26.3 billion, a 5% decrease Y-o-Y and 52.5% decrease Q-o-Q. Look at Q1 business results by each line of business, Q1 game revenue was KRW 127.8 billion, which is a 6.8% Y-o-Y increase and 1.3% Q-o-Q increase. Mobile game revenue was KRW 79.8 billion, a 7.4% Y-o-Y increase and 4.8% Q-o-Q decrease. Total web-board game revenue increased 18.5% Y-o-Y and 8.3% Q-o-Q, continuing to gain solid traffic. In Japan mobile games, despite LINE: Disney Tsum Tsum revenue increasing 46.5% Y-o-Y and 93.6% Q-o-Q, Japan mobile game revenue decreased Q-o-Q against Q4 of last year when Compass had delivered record high quarterly revenue. Overall, Japan mobile game revenue was similar to Q1 of last year. Payment revenue was KRW 354.6 billion, which is a 22.1% Y-o-Y and 2.6% Q-o-Q growth. NHN KCP saw an increase in transaction volume across large domestic and global merchants even against the peak holiday shopping season volumes of Q4. Overall, NHN KCP's revenue in Q1 increased 22.7% Y-o-Y and 2.8% Q-o-Q. Tech revenue was KRW 125.7 billion, which is a 19% Y-o-Y increase, but 9.6% decrease Q-o-Q. NHN Cloud's revenue increased 20.2% Y-o-Y, but decreased 22.2% Q-o-Q against Q4 of last year, which had benefited from some public sector project revenue being reflected at year-end. Revenue of NHN Techorus, the Japanese MSP. MSP increased 18.4% Y-o-Y and 5.1% Q-o-Q, thanks to solid growth of its AWS resale business. In other businesses, other businesses recorded revenue of KRW 84.7 billion, which is an 18.9% Y-o-Y and 10% Q-o-Q decrease. The 18.9% Y-o-Y decrease is mainly explained by the elimination of the Italian commerce entity and the 10% Q-o-Q decrease is mainly explained by seasonality of NHN Link's concert and performance business. Meanwhile, NHN Links continues to diversify its business portfolio and strengthen its position in the market. And in Q1, enjoyed an increase in its show production revenue and sports revenue, delivering a 32.3% Y-o-Y revenue growth. Next is about our operating expenses. Total operating expense was KRW 645.1 billion, which is a 12.7% increase Y-o-Y and 2.3% increase Q-o-Q. Commission expense was KRW 456.2 billion, which is a 0.4% Q-o-Q increase, reflecting increase of payment gateway commissions linked to increase in NHN KCP's transaction volume. Labor cost was KRW 114.1 billion, which is a 7.5% Q-o-Q increase, reflecting wage increases and NHN KCP's regular bonus. Advertisement and marketing was KRW 23.6 billion, which is a 1.5% Q-o-Q decrease. reflecting decrease in marketing expense related with Compass, which had hit record high quarterly revenue in Q4. Depreciation was KRW 32.7 billion, which is a 21.9% Q-o-Q increase, mainly due to a total of KRW 7.3 billion of amortization of right-of-use assets as well as tangible asset depreciation combined, which were in connection with NHN Cloud's government AI projects. This upfront investment necessary to develop its business as a GPU-as-a-Service provider and revenue is expected to be recognized from Q2 now that the Yangpyeong region has been in normal operations since late March. Q1 consolidated operating profit was KRW 26.3 billion, which is a 5% Y-o-Y and 52.5% Q-o-Q decrease, mainly attributed to decreased revenue due to Q1 seasonality and upfront infrastructure expenses recognized tied to the NHN Cloud's projects. Q1 net profit was KRW 31.1 billion, reflecting disposition gain on [ SBPL ] financial assets by subsidiaries. As a result, net profit in Q1 increased by 35.8% Q-o-Q and recovered from the net loss Q1 of last year. This completes the presentation on 2026 Q1 financial results, and now we will take your questions.

[Operator Instructions] [Interpreted] The first question will be provided by Hoyoon Jung from Korea Investment & Securities.

[Interpreted] I have 2 questions. First is a question about the game business. Can you share more details about your game business strategy this year? And what kind of new games you're planning to launch this year? Second question is about the Yangpyeong region. Can you give us guidance on the cloud revenue you are expecting this year from the Yangpyeong region? Also, you said that you recognized some amortization of right-of-use assets in Q1. Is this the amount of amortization that will be recognized steadily, regularly going forward? Can you give us some more detail on the expense and cost structure of that Yangpyeong region business?

[Interpreted] Regarding our game strategy this year, we're currently preparing to shift our game strategy to focus more on the Japanese market rather than the Korean game market. And in order to prepare for the Japanese game market, we are currently in discussion of signing contracts with IP that have high awareness and recognition in the Japanese market. We also have several projects, but they are currently in the very early phase with only code needs. To your second question about the Yangpyeong region revenue guidance. During the last quarter call, we had shared a revenue guidance of KRW 300 billion revenue from the Yangpyeong region over a 5-year period. That guidance has not been changed since. Of course, recently, there's been explosive demand for GPUs. And so in the long term, there is potential upside on the revenue over that 5-year period, but we believe it's a bit too early to reflect that in our guidance. Regarding the cost structure, yes, the amortization and depreciation, that is something that will be continuously recognized going forward.

[Interpreted] The following question will be presented by Hyo Jin Lee from Meritz Securities.

[Interpreted] I have 2 questions. First question is, can you give us some guidance or confirm the guidance of your advertisement spend to revenue target you have this year? What will be that ratio this year? Second question, it goes back to NHN Cloud. If I recall correctly, NHN Cloud last year recorded revenue of KRW 220 billion and a KRW 20 billion loss. Considering the capacity it has right now, what kind of revenue does NHN Cloud expect to report this year?

[Interpreted] Answer your first question about the ad spend. Last year in 2025, we executed around KRW 86 billion in advertisement. This year, we did have many new games. So we have budgeted about a 10% increase in our ad spend on a Y-o-Y basis. Regarding your second question of NHN Cloud revenue, there is still some room for change. So it's a bit difficult to give you exact guidance on revenue this year. But we do expect some sizable revenue to be generated from the Yangpyeong region this year. So as of CSP revenue, we are expecting about a 30% growth on a Y-o-Y basis.

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

[Interpreted] Since there is no further questions, we will end the call here. Thank you very much for joining us for the 2026 Q1 Earnings Conference Call of NHN. If you have any further questions, please reach out to the IR team. Thank you. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]