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

[Foreign Language] [Interpreted] 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 Q3 Pearl Abyss Earnings Presentation despite your busy schedule. 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; CBO, 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.

[Foreign Language] [Interpreted] Greetings everyone. I am Pearl Abyss CFO, Cho Seok Woo. Thank you once again for taking part in our company's earnings conference call despite your busy schedule. [Foreign Language] First, I would like to elaborate on Q3 major activities and performance. In Q3 with stable service of Black Desert and EVE IP, we made thorough preparation for the Chinese launching of Black Desert Mobile. First, in the case of Black Desert, in order to provide a better playing environment, we had time to have system renewal. Based on user feedback, renewed content, improve the balance of all characters and worked hard to create an environment where users could enjoy games for a long time. In addition, we created an environment where we were the first to apply the recent upscale technology for the first time to mobile where there was little consumption of hardware resources and increased [indiscernible] so that more users could enjoy games regardless of the device specifications for the first time in Korea. In addition, Black Desert Mobile China service starting with pre-registrations in August, executed FGT in October and technology test in early November and has been making technical preparation so that the game could be well run in diverse mobile devices in market. EVE Online implemented a program to improve the experience of new players and to help them settle into the game. In particular, we renewed the new user training program and worked hard to provide a better early game playing environment. EVE: Echoes which started service in China in August, based on our experiences from the global version launch last year, demonstrated stable service and showed consistent flow. The global version also with its first anniversary, a diverse event and introduced a new tutorial system. Going forward, Black Desert and EVE both will provide changed services that fit its lifecycle and we will work so that we can provide service for a long time. [Foreign Language] Next, I would like to explain our Q3 financial performance. This quarter's operating revenue posted a KRW 96.4 billion, a 8.9% increase Q-o-Q. Operating profit turned into black and posted KRW 10.2 billion, and net profit posted KRW 26.8 billion, a 857.1% increase Q-o-Q. Operating profit rate and net profit rate each posted 11% and 28% respectively. [Foreign Language] I will explain in more detail about operating revenue. First, I will explain about major IP operating revenue. The operating revenue from Black Desert IP in this quarter posted KRW 70.9 billion, and increased 2.3% Q-o-Q. EVE IP posted KRW 18.8 billion of operating revenue, a 3.9% increase Q-o-Q. For regional operating revenue, it posted 19% for Korea and 30% for Asia, and increased 2 percentage points and 4 percentage points respectively. And North America and Europe was affected by the COVID-19 lockdown lift and posted 51%, a 6% point drop Q-o-Q. For the operating revenue breakdown for different platforms, among the Q3 operating revenue, 62% was from PC, 29% from mobile and 9% from console. [Foreign Language] I would like to cover operating expenses. Q3 operating expenses posted KRW 86.2 billion, a 8.8% drop Q-o-Q. In the case of labor expenses with the one-off expenses that faded in this quarter, it posted KRW 41.3 billion, a 9.9% decrease Q-o-Q. For your reference, the numbers of employees as of end Q3 posted 1,003, a 28 head count increase Q-o-Q. The numbers of developers among the total employees was 949, 63% of the total. In the case of commissions, it posted KRW 18 billion, a 17.3% drop Q-o-Q. In the case of advertising expenses, it posted KRW 11.8 billion, a 9.1% drop Q-o-Q. [Foreign Language] Lastly, I would like to explain Q4 major highlights. [Foreign Language] We will do our best not only for the live service of Black Desert and EVE, but also do our utmost for the Chinese launching of Black Desert Mobile and new IP marketing. We plan to have the content renewal of Black Desert in particular through character reboot, we are searching for a way for those who have enjoyed the game for a long time to feel joy again playing. In the case of mobile, we plan to update the new character stage to all countries, which was already popular online and on the console. In addition, through the Calphe:ON Ball, which will be held in December, we will present our game development situation and 2022 road map and strengthen contact with our users. After the COVID outbreak, we have been conducting real time online meetings with users, and we will do our best to listen to the opinions of users and provide fun and fresh content that meet the interests of users. We will also provide diverse content with EVE and provide services. In particular, we will put online tournaments, our 10 to 10 PVP event and we will not only apply NSP technology in this tournament, but also provide cryptocurrency as award. We will also work very hard to prepare for the Chinese launching of Black Desert Mobile. Along with our Chinese partner, after the license was given in June, we have been preparing for a successful service and we will do our best so that we can launch this without setbacks after the technical test that we are currently conducting. I would like to cover the current status of our new IP. All of our new IP development is being done smoothly and we are disclosing it in stages according to the degree of development. We revealed DokeV at Gamescom in August. DokeV is a game that we aim to develop so that all members of the family can enjoy it together and it has a modern background. After disclosing the footage at Gamescom, we surpassed 7 million views in 5 days and captured the interest of global media and users. We will continuously disclose to our global users by finding appropriate opportunities to sufficiently explain about the diverse new titles that we are preparing and engage in marketing so that the market interest will be maintained and the market expectations can get greater. In addition, we are responding to the fast changing market trend, including NFT and Metaverse. As the game industry has greatly changed with the development of graphic technology and telecommunications technology, we believe that the new trend is showing possibilities to change the game ecosystem. Our company, while pursuing high quality -- high-level quality since our establishment, has been working very hard to overcome the many technical barriers, so that users can have excellent experiences in as many devices as possible. This was to present new and fresh adventures to our users. Our company's experience and direction is still ongoing. We will not only strengthen our own proprietary technologies, including our own engine and art center, but also implement cooperation and strategic investments with companies in and out of Korea, and we are preparing for a new market. Through this, we will work hard to provide great experiences not only in the game, but also beyond the game. As many investors and users are interested, we are also continuously observing the changes in the industry and always looking for good opportunities and we are proactively making preparations. And when our preparation level becomes more detailed and when it's at the level when we can disclose to the public, we will do our best to continue to communicate this and lead to better performance. In order to become a better company, all employees at Pearl Abyss from our CEO to all employees are doing our best. We will ask you for your continued interest and encouragement. Thank you.

[Foreign Language] With this we will conclude the Pearl Abyss 2021 earnings release and then start the Q&A session.

[Foreign Language] [Interpreted] [Operator Instructions] The first question will be given by Stanley Yang from JPMorgan.

[Foreign Language] [Interpreted] I have 2 big questions, and my first question is about your scheduling for the Chinese launching, and I believe that you probably have been localizing Black Desert Mobile for China. So can you tell us about if anything has changed compared to the global version, what has changed for the version in China and what kind of content may have been changed. So I would like to hear about that. My second question is about Metaverse and NFT, and I have 3 large questions. First, can you tell us about the current Metaverse situation in DokeV application. And second question is, I heard that you have invested in [ Hyper Wheel ] and can you tell us about what that investment means? My third question is about EVE Online by CCP Games because I know that it is a game that is a good fit for NFT and maybe play-to-earn method. So can you tell us about any plans you have to apply play to earn our business model or this type of method to EVE Online?

[Foreign Language] [Interpreted] I would like to talk about Black Desert Mobile in China. [Foreign Language] For Black Desert Mobile China, after the FGT in October from November 5 to 12, this Friday, we have been conducting our technical tests. [Foreign Language] The tests that are currently ongoing are for us to find out whether the game can run smoothly in the many Android markets and many different types of devices in China. [Foreign Language] After the technical test, we are going to have the CBT and then we are going to have the official launch. Regarding the specific details about the launching schedule, we will let you know through our publisher. [Foreign Language] For Black Desert Mobile China, we are currently developing this with the most optimized art and content for the China. [Foreign Language] In addition, we have been repeating tests and we have been perfecting the completeness of the game, and we are seeing the user evaluations and ratings get higher and better. [Foreign Language] Black Desert Mobile has been touted as a game that has been the most waited for game for the longest time and many users are waiting for the launching of the game, and we expect that we will have great performance that corresponds to the great popularity of the game. [Foreign Language] Our company and the Chinese publisher have the experience of making successful so many great titles, and we will also reflect all of our know-how and we are making thorough preparations for the launching of the game. We are going to do our best to perfect the completeness of the game going forward so that we can have a successful launching.

I believe that the Metaverse universe or the Metaverse world that connect reality and virtual is going to be a part of our everyday life. [Foreign Language] DokeV is a vast open world-based action adventure game and along with the innate playfulness or the [ gameability ] of the game itself, we have the background within the game and many realistic factors that are going to be included in the game. So we are going to be showing you diverse types of Metaverse content. [Foreign Language] Our company has been reviewing diverse methods of cooperation with many global companies around the world so that we can give diverse and rich experiences in the virtual space to our users. [Foreign Language] Currently, we are developing the game. So we cannot give you specific details at this point, but we will do our best so that we can show to you how we're preparing for the Metaverse business in which direction.

[Foreign Language] [Interpreted] Hyper Wheel is a good case in point of the Metaverse investments. [Foreign Language] Hyper Wheel in implementing virtual humans has been recognized for the best expertise in the industry. [Foreign Language] Currently, our company is thinking very hard in many directions of the Metaverse business, thinking about how we can combine it with our engine and our related technologies. [Foreign Language] We will do our best to share it with you as we have go -- we have been going along. [Foreign Language] The buzzword of the game industry nowadays is play to earn and we have been seeing the movement in the game industry to create good through the game. [Foreign Language] We have been participating in the blockchain platform since 2019 and in the case of CCP Games of our subsidiary at the currently ongoing alliance tournament. As a reward, we have been offering cryptocurrency and we are reviewing many diverse business opportunities. [Foreign Language] However, there are different regulations for different countries and these are vastly changing. So we are going to be reviewing actively the related risks and we will be showing -- sharing with you our ongoing procedures.

It was our CBO, Kim Gyeong Man; and CEO, Jung Kyeong-In, who answered your question.

[Foreign Language] [Interpreted] The following question is by Eric Cha from Goldman Sachs.

[Foreign Language] [Interpreted] I have 2 large questions and they may be of similar topic. I am curious about what is your company's expectations about Black Desert Mobile China? And for us in the outside, are there any indicators that you can share with us that can maybe give you also an idea about how well do you think it will do? And this seems to be a bit of a early question, so I will like to excuse myself for asking this question. But this is a very high-level question about Metaverse and NFT. And for -- I know that for Black Desert you have had a type of Metaverse, which is open world with communication between the users and having a economic system. However, I think that maybe there is a differentiating point from that Metaverse to the Metaverse that we are talking about nowadays. So can you tell us about any differences? And you also mentioned that NFT and play to earn are buffered nowadays. And can you tell us about what type of meaning this has on the business model for the game developers? And I think that maybe the audience that are playing games for this purpose is different from the existing audience that played game from a long time ago, so can you tell us the difference? And I think in the development stages, you probably consider these concepts, but it seems that when you consider the games that have been already been in development for several years, maybe this was not taking into consideration for your business model, so can you tell us about this? And can you tell us about how you're going to be converting these new trends and technologies into your games going forward?

[Foreign Language] [Interpreted] First of all, I would like to comment on the internal expectations for BDM China. For the Black Desert Mobile China, we have had great interest internally and we have had a great degree of popularity. And we are expecting great performance for Black Desert China. And while we were providing service, we thought about how we can make the early low remaining rate or the lifecycle that we need to manage for long-term play. And we have been discussing these issues with our publisher in depth so that we can make improvements. [Foreign Language] We would like to ask for your understanding for the other details. We have a relationship with our publishers, so we are not at liberty to disclose the details to you at this point. Thank you for your understanding.

[Foreign Language] [Interpreted] I will answer your question about Metaverse. As you have mentioned, there are many concepts of Metaverse within the existing MMO game itself because there are avatars and there are economic systems within the game. So a lot of those Metaverse characteristics were already embedded in the MMO game. [Foreign Language] However, the Metaverse that we are thinking about based on the development of technology is seeing a lot of the barriers between reality and virtual disappear. So we are reflecting these concepts into developing our game DokeV. [Foreign Language] I believe for the other details we can show you more through future reveals of DokeV in the future. [Foreign Language] I would like to answer your question about NFT and crypto games. [Foreign Language] And as you mentioned, the buzzwords nowadays in the game industry is play to earn games and you probably know that Axie Infinity and MIR4 had early success with these types of concepts and they are being implemented in the RPG games. [Foreign Language] And we believe that for this area by -- for Pearl Abyss that develop Black Desert and also for CCP Games with EVE Online, we will have ample opportunities going forward.

[Foreign Language] [Interpreted] The questions were answered by our COO, Heo Jin Young; and CEO, Jung Kyeong-In.

[Foreign Language] [Interpreted] The following question is by Kim Jingu from KTB Investment Securities.

[Foreign Language] [Interpreted] I have 2 large questions. First is about the NFT and play to earn-based game launching schedule that you can maybe update us on. So can you tell us about when do you think you can have them develop and can you tell us about the timeline going forward? So any details about your further plans? And -- [Technical Difficulty] diverse, apart from new titles such as DokeV, can you tell us any plans to cooperate with other industries in terms of platform or in other areas? And I have another question related to new titles. Can you tell us when you'll be able to show us more in-game footage of Crimson Desert and DokeV? And can you tell us about your development schedule update. And can you also update us on the Chinese license situation for Black Desert PC game?

[Foreign Language] [Interpreted] First, I would like to answer your question about NFT games. As we have previously mentioned, we are making internal reviews of these types of games and we will let you know as soon as we can about any scheduling or any game development situation. Thank you. [Foreign Language] Regarding Metaverse, not only for DokeV game, but we are also thinking about many ways to utilize our proprietary engine and technology. [Foreign Language] And not only we had invested in Hyper Wheel, but we also, in the area of Metaverse, had made strategic investments in [ VA Corporation ] and see a flow virtual fashion. [Foreign Language] Regarding strategic investments, we are thinking about many ways to have alliances with our external companies. [Foreign Language] I would like to answer your question about new titles. For Crimson Desert, we had a lot of development after our March reveal. [Foreign Language] In particular, with the [indiscernible] advancement that took place from early this year, we have had accelerated process of organically connecting countless contents together. [Foreign Language] We are currently thinking about which would be the most optimal to show you the development status of Crimson Desert at this point. [Foreign Language] We are making preparations to show you a 10-minute or longer in-game playing footage at a show that targets overseas users and not just a short trailer. [Foreign Language] We are making very thorough plans for us to have marketing that will heighten our possibility of global success. So we will be looking forward to your interest in the game.

[Foreign Language] [Interpreted] I would like to tell you about the license situation for Black Desert PC in China. For Black Desert Online, we are currently consulting with our publisher and making early preparations for Chinese service. Regarding the details, we will share them with you as we can going along.

[Foreign Language] [Interpreted] It was our CEO, Jung Kyeong-In; and Kim Gyeong Man, our CBO that answered your questions. [Foreign Language] It seems that there are no other questions in the queue. And with this, we will conclude 2021 Q3 Pearl Abyss Earnings Presentation. Thank you for your interest and participation. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]