Pearl Abyss Corp. (A263750) Earnings Call Transcript & Summary

[Foreign Language] Greetings. First of all, I express my deepest gratitude to the analysts and investors in and out of Korea for taking part in the 2021 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 in the earnings presentation today, Pearl Abyss CEO, Jung Kyeong-In; COO, Heo Jin Young; C.B.O., Kim Gyeong Man; and CFO, Cho Seok Woo. We will first hear the business performance presentation highlights from our CFO, Cho Seok Woo and then engage in a Q&A session.

Greetings; I am [ company ] CFO, Cho Seok Woo. Thank you once again for taking part in our company's earnings conference call despite your busy schedules. First, I will cover Q2 major business activities and results. In Q2, there were challenges in the sales environment with not only the low seasonality but also the reverse base effect caused by the COVID pandemic. Despite this, we provided the best environment so that users could enjoy games and did our best to strengthen our IP life cycle. Black Desert, through diverse types of user meetings, had opportunities to listen to the opinions of users, communicate with them and announce our plans for second half major updates. At the Heidel Ball, more than 100,000 users around the world watched the broadcast in real time, and we were ranked fourth place in the Twitch real time category. In addition, in June, we recorded #1 in Steam game sales. And as a global service game, we were able to more strengthen our long-term service basis. In addition, we had the Corsair class simultaneous updates in all platforms and all regions and had diverse updates and user activities for Console and Mobile. Black Desert is an Open-world game, and we will do our best to have continued diverse updates and offer consistent live services. As a result, we were the only Korean game that was included in the Global Open-world RPG Top 5, which was announced by the global game market research company, Newzoo. In the case of EVE Online as well, we had large-scale updates and communicated with users and maintained high-quality live services. EVE, which celebrates its 18th anniversary of service this year, was reviewed at the 2021 Best PC sandbox and 2021 Best PC MMO and, as an open world game, is still consistently popular. In the case of EVE: Echoes as well, we were included in the Android Open World Game Top 10, and it is receiving top reviews as a representative Open-world game with wide scale and high degree of freedom. Apart from this, in order to meet the global ESG standard as the first KOSDAQ-listed game company, we decided to implement ESG management. In order for transparent management going forward, we will pursue sustainable growth and strengthen social responsibility that encompasses all ESG categories. Next, I would like to cover our company's Q2 financial results. This quarter's operating revenue posted KRW 88.5 billion, a 12% decrease Q-o-Q. Operating revenue turned into a loss. And you can see our net profit posted KRW 2.8 billion, a 86.5% decrease Q-o-Q. And the operating profit ratio and net profit ratio each posted minus 7% and 3%, respectively. I would like to explain a little more in detail regarding our operating revenue. First, operating revenue per IP. Operating revenue for Black Desert IP posted KRW 69.3 billion and decreased 16% Q-o-Q. EVE IP posted KRW 18.1 billion of operating revenue, a 3% increase Q-o-Q. In the case of regional operating revenue, Korea posted 17% and Asia posted 26%. And in the case of North America, with the Black Desert direct service effect and solid EVE revenues, it posted 57%, a 7 percentage point increase Q-o-Q. In the case of operating -- and 11% from console. Next, I would like to cover operating expense. Q2 operating expense posted KRW 94.5 billion, a 7.6% increase Q-o-Q. In the case of labor costs, with the incentive payout, including treasury shares, posted KRW 45.9 billion, a 26.1% increase Q-o-Q. The one-off expenses in this quarter was around KRW 10 billion, and we expect next quarter's labor expenses to decrease since this cost was released. For your reference, the number of employees as of end Q2 recorded 1,475, a 190-headcount increase Q-o-Q. 78 out of them were added for new title development and service for China. In addition, we acquired Factorial Games, and a 112 headcount was increased. There are 924 development-related employees, a 63% level compared to the total number of employees in total. In the case of commissions, with the decrease in market commissions, it posted KRW 21.8 billion, a 7.5% drop Q-o-Q. In the case of advertising, it posted KRW 13 billion, a 14% drop Q-o-Q. Next, I would like to explain about Q3 major highlights. We strengthened Black Desert and EVE's life cycle, and we will do our best to our utmost to utilize the 2 IPs for mobile games China services and to prepare for a new game. In order to strengthen Black Desert IP, we are not only preparing for new updates, but we are also preparing for diverse renewals. Based on the feedback that we received from users so far, we will present improved content that reflect the opinions of users. Since this is a game that's more than 8 years, in order to meet the changed interests of users, we will get rid of the unnecessary systems and make the boring content more fun and make the fun content more fun so that the Black Desert life cycle can get longer. EVE will provide consistent content in the latter half of the year and provide stable live services. In addition, in order to expand our position in Asia, including China, and not only in the Western world, we're going to provide customized content. Through this, we will do our best so that we will not only maintain our popularity in the Western world but also continue and expand our loyal users in Asia so that we can strengthen our core users. We will also work very hard to prepare for service in China. EVE: Echoes China that we developed with our Chinese partner, after receiving the Chinese game license in February, started service around 6 months after acquiring the license. Right before starting service in China, EVE: Echoes recorded around 6 million pre-registrants. And on the day of service, it was ranked #1 as the most popular download, attesting to its popularity in China. On the first day alone, there were more than 1 million users, and the App Store revenue ranking went up to 25th place and is continuing great performance. Since we did our best to localize, we will provide optimized services in China and do our best to maintain a longer life cycle. Black Desert Mobile also acquired a Chinese game license in June. Black Desert Mobile was the first to receive the Chinese game license among large-title Korean games, which is a result of thoroughly preparing for China service for a long time with our partner. In particular, during the last several years, since we were continuously ranked as a top most anticipated game by Baidu and 17173, we will strengthen our marketing as the launch is getting nearer to increase the possibility of success. Also, in the content side, in order for successful Chinese launching, we will prepare thoroughly by providing new content that is localized for local culture and atmosphere and utilize the lessons we learned while providing global services in the past so that we can have great performance for a long time. Along with DokeV and Crimson Desert, we are preparing for many new titles as well at our diverse studios, including CCP. In particular, as was announced, we will participate in Gamescom on August 25. We will disclose the high quality of our new IPs that we have been preparing and -- we will be looking forward to your high expectations and interest. In addition, apart from the titles that have already been disclosed, for the new titles that are being prepared by different studios, we will do our best for good results. And each time, when it is ready, we will disclose to the public and show videos and engage in marketing activities. The COVID situation that has been continuing for 2 years is affecting our lives greatly. We, at our company, are also doing our best to develop new titles while safeguarding the health and safety of everyone. In addition, in the KRW 48 trillion Chinese market, we will do our utmost for best results through thorough preparation for both Black Desert Mobile and Online. Going forward, in order to show better results, all of us here at Pearl Abyss, from our CEO to all of our employees, are doing our best. We will be looking forward to your interest and support. Thank you. Thank you very much. And this concludes the earnings presentation for 2021 Q2 of Pearl Abyss, and we will start the Q&A session.

[Operator Instructions] The first question will be given by Oh Dong Hwan from Samsung Securities.

I have 2 questions. I think for most investors, they are very interested in the mobile launch in China. And although you said you have acquired the games license in China, I believe that, in some cases, this may not automatically lead to an environment that will allow the game to be launched. So can you tell us about the possibility of the launching of our game in China? And when do you think this will happen? My second question is about your revenues in North America and Europe for Black Desert PC sales. And it seems that it is not as high as expected. So when do you think this will increase?

I will answer your first question. And regarding your question about the launching of Black Desert Mobile in China, at our company, from last year-end, we understood that it seemed that the regulations were getting a little bit more relaxed at the end of the last year. And we proceeded with the procedures so that we can have the license that would be given to us as quickly as possible. And as a result, we were able to acquire Black Desert Mobile license as of June 28. Since we had expected that there was a possibility for the license to be acquired within the year, we already were preparing for the marketing after the license acquirement and for the fast launching of our game. For the optimal timing for the successful launching, we are currently consulting and talking to our Chinese partner. Regarding the detailed plans, including preregistration, we will let you know through our publisher. And at our company, regardless of the recent issues, we have been preparing for services without any hindrances. And for the past several years, we were able to prepare our games, meeting the more reinforced regulations. So that is why we were able to receive the game license without any difficulties. And we will do our best to keep an eye on the local regulations and policies and proceed with launching the service as fast as possible. For Black Desert Mobile as well, based on the experience of getting the license, for the Black Desert Online, we are also doing our best to enter into China. Black Desert Online also at Baidu and 17173 was touted to be the most anticipated game and in the top rankings continuously. So we will do our utmost so that we can service the game to the users as fast as possible.

I would like to answer the second question about North America and Europe revenues and plans going forward. After being changed to direct service or self-publishing, we have been receiving great results in North America and Europe as well. However, in the case of North America and Europe, because this is also in the early days of service, because of the high loyalty of our users, there is a lot of the areas that are deferred. Even taking into consideration the revenues that are deferred from the previous quarter, only 64% of the total settlement account is being recognized as our revenues. According to my experience, I believe that the gap between the accounting, revenues and settlement account will be actually narrowed by Q4 of this year.

The following question is by Stanley Yang from JPMorgan.