Pearl Abyss Corp. (263750.KQ) Earnings Call Transcript & Summary

[Interpreted] Good morning, and good evening. Thank you all for joining the conference call for the Pearl Abyss earnings results. [Operator Instructions] Now we will begin the presentation on Pearl Abyss' second quarter of fiscal year 2025 earnings results.

[Interpreted] Greetings, I am [ Kim Yeun ] from Pearl Abyss IR team. First of all, I express my deepest gratitude to the analysts and investors in and out of Korea for taking part in the 2025 Q2 Pearl Abyss earnings presentation despite your busy schedules. Before elaborating on today's business results, I would like to ask for your understanding regarding the following. The financial and business results contained in today's earnings release have been prepared for the convenience of investors and is subject to change depending on the final closing of our books. In addition, the accuracy and completeness of the financial and business results in the earnings results material are not guaranteed, and the company is not obliged to give updates of the accounts given after this date. So please take these factors into consideration. We have here with us at the earnings presentation today Pearl Abyss CEO, Heo Jin Young; CBO, Kim Gyeong Man; and CFO, Cho Mi-young. We will first hear the business performance presentation highlights from CFO, Cho Mi-young, and then engage in a Q&A session.

[Interpreted] Greetings, everyone. I am Cho Mi-young. Thank you once again for taking part in our company's earnings conference call despite your busy schedules. I would like to elaborate on 2025 Q2 major business activities and performance. Black Desert and EVE also showed stable live service in Q2, and through Heidel Ball and EVE Fanfest, we revealed the second half road map and strengthened communication with users. Black Desert in Q2 added a new difficulty level to Land of the Morning Light Donghae, Golden Pig King boss, improved siege war and node war and heightened gameplay for users. However, in Q2, in case of revenues, since there were no large-scale updates, it was weak compared to the previous quarter. In addition, Heidel Ball was held and second half major updates were communicated and rich gameplay content was provided. In particular, detailed information related to the new region Edania and new PvP Blue Battlefield was revealed. And based on user feedback, continuous updates were announced, and we were able to confirm heightened user responses. In case of console, we launched PlayStation 5 and Xbox X and S versions and established a stable playing environment where content can be delivered faster and provided an opportunity for a rebound. In case of mobile, we updated Rabam skill, where strong attacks could be made, as well as Atoraxxion: Vahmalkea, where 5 party members can play the game together consecutively and added more fun to the game. However, with the removal of the China contract effect, which was recognized until Q1 of the previous quarter, revenues were weak. For EVE Online, we launched the Legion expansion pack, including freelancer mission and new warships, and through diverse events in the game as well as changing of the product composition, demonstrated the best performance since Q4 of 2016. In addition, we held the EVE Fanfest, revealed our 2025 road map and strengthened communication with users. Apart from this, we are continuing to prepare for new services in order to increase our revenues. First, Crimson Desert participated in PAX East and Summer Game Fest and strengthened North American region marketing. In particular, as the Summer Game Fest -- at the Summer Game Fest, we demonstrated a new quest line demo where open world could be experienced, which received praise in every aspect, action, graphics and presentation, further heightening expectations. Blockchain-based EVE Frontier continues testing following the previous quarter, and we are consistently upgrading the game. Next, I would like to cover 2025 Q2 financial performance. Q2 operating revenue posted KRW 79.6 billion, a 4.9% decrease Q-o-Q, and operating losses posted KRW 11.8 billion and posted a loss with decrease of operating revenue and marketing cost increase. Net loss posted KRW 22.7 billion. And due to foreign currency-related losses following FX rate drop, it turned to a loss. I will now cover operating revenue in more detail. First, I will go over the operating revenue for major IP. The operating revenue from this quarter's Black Desert IP posted KRW 54.9 billion, decreased 12.9% Q-o-Q, and EVE IP operating revenue posted KRW 24.2 billion and increased 18% Q-o-Q. Breaking down the operating revenue for different regions, it was: Korea, 18%; Asia, 18%; and NA/Europe, 64%. And in case of operating revenue for different platforms, it recorded 85% for PC, 12% for mobile and 3% for console. Next, I will cover operating expenses. Q2 operating expense posted KRW 91.3 billion, a 2.7% increase Q-o-Q. Labor cost posted KRW 47.2 billion, a 3.8% decrease Q-o-Q. For your reference, Q2 and headcount was 1,360, and those in the development department are 772 headcount, which is 57% of the total headcount. Commissions posted KRW 18.1 billion, a 4.5% increase Q-o-Q. Advertising due to marketing costs increased due to offline events and game show participation posted KRW 10.5 billion, a 43.9% increase. Last but not least, I will cover 2025 Q3 major highlights. Black Desert in July launched new class Wukong, which uses Power Pole as a major weapon and is planning to showcase our naval PvP content Blue Battlefield, which is a PvP content which takes place at sea. In addition, we plan to update Edania, a new region. And with a playing method which is different from the existing Black Desert hunting ground as well as a difficulty level which encourages players' sense of challenge, we plan to add more freshness to the game. Apart from this, with the summer season, we provided summer costumes and props and have been providing diverse continuous updates so that users can be more immersed in the game. With the wealth of these updates, all the metrics have been increasing from Heidel Ball and is leading to revenues, and we expect Q3 Black Desert performance to significantly increase. In case of Black Desert Console, based on new devices, new class Deadeye and Wukong as well as new exalted land, Ulukita, was quickly updated and is providing an environment where console users can enjoy content like PC users and become duly immersed. In addition, through the console adventure event, we revealed our future road map and announced that we will provide content that are at the PC level within this year. In the case of Black Desert Console, all the metrics have been improving since the new devices have been launched, and we expect solid performance in Q3. In case of mobile, we hosted the Heidel Ball and revealed second half update plans, including Land of the Morning Light new region Seoul and new class Seonin. In particular, we recreated Gwanghwamun in Gyeongbokgung Palace in Land of the Morning Light Seoul, which was updated in July and provided a realistic experience of actually traveling in Seoul. For EVE, we plan to have the Legion expansion pack additional update that was given in Q2 and hold the annual Alliance Tournament, an annual PvP game. We are smoothly preparing for our new titles, which will secure our new growth engines. First, for EVE Frontier, we will continue founders access in Q3 as well and is growing the community. Going forward, while verifying the game, we will continue marketing in order to secure core users. For Crimson Desert, continuing from the previous quarter, we plan to strengthen marketing intensity, and we participated in Bilibili World and ChinaJoy in July and successfully concluded the first demo in China for the first time. In addition, in August, we will participate in Gamescom and PAX West, showcasing our open world demo and plan to participate in the Tokyo Game Show. Crimson Desert participated in almost all gaming events held this year, and we have built anticipation for Crimson Desert among players worldwide. In addition, we have incorporated the feedback received during this process into the game, upgrading it to enhance its overall quality. As we carry out actual demonstrations, we have observed increasingly positive reviews, allowing us to gauge the game's strong potential for success. Since many people have been waiting, all employees at Pearl Abyss will do our best until the end so that our results will make it worth the wait. We will count on you for your continued interest and support. Thank you very much. With this, we will conclude Pearl Abyss 2025 Q2 earnings presentation. We will start the Q&A session.

[Interpreted] [Operator Instructions]

[Interpreted] Before the Q&A session, I would like to first share an update on the development status and release schedule of Crimson Desert, which many of you have been curious about. Currently, Crimson Desert is in the process of voice-overs while also carrying out tasks such as console certification in preparation for its release. In the case of marketing, we plan to participate in Gamescom and PAX West this August to showcase our open world build. And in September, we will join the Tokyo Game Show to strengthen our marketing efforts in the Japanese market. The launch of Crimson Desert, our first large-scale AAA console game, has been unavoidably delayed by 1 quarter from the previously announced schedule. This is due to longer-than-expected time lines arising from schedule coordination and collaboration with multiple partners for offline distribution, voice-over, console certification and other launch preparations. We sincerely apologize for not being able to meet the originally promised fourth quarter launch schedule. Please kindly understand that this is a strategic decision aimed at ensuring success on a meaningful scale. The release date has been internally confirmed for Q1 of 2026. However, given the change in launch timing, we will announce the date at a more appropriate time based on business considerations rather than making an announcement at Gamescom next week. We are grateful for your continued interest in our company, and we will do our utmost to deliver an even better experience going forward.

[Interpreted] Our CEO, Heo Jin Young, delivered these remarks. And now we will be receiving questions.