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

[Interpreted] Good morning, and good evening. First of all, thank you all for joining this conference call. And now, we will begin the conference call of the Fiscal Year 2023 First Quarter Earnings Results by Pearl Abyss. [Operator Instructions] Now, we shall commence the presentation on the fiscal year 2023 first quarter earnings results by Pearl Abyss.

[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 2023 Q1 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 update 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 Seok Woo. We will first hear the business performance presentation highlights from CFO, Cho Seok Woo, and then engage in a Q&A session.

[Interpreted] Greetings. 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 schedules. First, I will cover Q1 major management activities and achievements. Black Desert in Q1 released Maegu, the twin of the Woosa class, which was introduced last December and showed solid results with a significant increase for both new and returning users. In addition, a new zone, Land of Morning Light, which showcased the beauty of Korea, was introduced in March, and while receiving unprecedented acclaim, is continuing to be popular. However, the update was made in Korea at the end of March, and it takes time to adjust the tone and manner of the lines, the global release is scheduled for Q2. So the effect of the update is expected to appear in earnest from Q2. For console, in celebration of the third anniversary of cross-play, we held various events and user invitation events. At the event, we disclosed the next content schedule, including the release schedule of Maegu. And along with raising the expectations of users, we were able to confirm the transition to a positive trend. For mobile, new classes, Woosa, Zayed and Igneous were introduced, and along with user indicators, performance improved across all regions, contributing to the long life cycle. In addition, Black Desert was selected as the most popular game in Middle Eastern countries, including Saudi Arabia, United Arab Emirates and Egypt, and won the Game Star Award 2022 at the Taipei Game Show and achieved a record of 5 consecutive awards, solidifying its global presence. For EVE Online, the last update of the uprising content introduced in the previous quarter improved the factional warfare function and continued user-friendly service. Simplified Chinese character was also added and an environment where more users can enjoy the game was implemented. In addition, we announced the development of a new AAA Web3 Game project. Not only the game, but also third-parties are being considered for the new project, and it is attracting the attention of domestic and foreign companies, including global BCs such as A-16D and Makers Fund and have also raised about USD 40 million investment through seed investment. Black Desert and EVE in Q1 with fresh content and user-friendly services was also able to continue steady performance. Going forward, we will strive to manage our IP life cycle and work hard to provide fun and fresh games. I will now cover Q1 operating performance. Operating revenue for this quarter was KRW 85.8 billion and operating profit was KRW 1.1 billion. The revenue, which was generated from the previous quarter's Pearl Abyss capital valuation gains, decreased since there was not a separate evaluation conducted in this quarter; and accordingly, operating revenue and operating profit decreased by 16.9% and 69.4% respectively Q-o-Q. Net profit posted KRW 9.4 billion, a positive turnaround into the Black compared to the previous quarter. I will explain the operating revenue in more detail. First, I will break down the operating revenue by core IP. The operating revenue generated from Black Desert IP for this quarter posted KRW 67.5 billion, a 5.2% decline Q-o-Q. EVE IP operating revenue posted KRW 16.9 billion, down 2.3% Q-o-Q. In the case of operating revenue by region, the biggest was 55% in North America/Europe, then 23% in Korea and 22% in Asia. In the case of operating revenue by platform, 74% was for PC, 20% for mobile and 6% for console. Next, I will cover operating expenses. Q1 operating expenses posted KRW 84.7 billion, down 14.9% Q-o Q. For labor expenses, it recorded KRW 44.3 billion, up 3.2% Q-o Q. For your reference, as of the end of Q1, the numbers of employees stands at 1,355; and among them, the number of people in the development is 793, which is about 60% of the total employees. In the case of commissions, it recorded KRW 19.1 billion, down 3.3% Q-o Q. For advertising expenses, through effective marketing, it recorded KRW 5.6 billion, down 55.6% Q-o-Q. Lastly, I would like to cover Q2 major highlights. We will continue to show steady live service of Black Desert and EVE and do our best to prepare for our new IP. Black Desert in Q2 will also introduce a variety of new contents. Black Desert is planning for not only new class Maegu and Woosa Awakening versions, but also planning a global update of Land of the Morning Light, which was first introduced in Korea last March. The story of Land of the Morning Light, which is composed of Korea's unique emotions, is a sad but touching story, and we expect it to make a strong impression for Western users who like a well-structured story. For console, we are planning to update the new class Maegu, which was hugely popular online and on mobile. And on mobile, we are planning to have a class balance patch and characteristic strengthening. In addition, also in Q2, in order to further increase contact points with global users, along with the recently held Adventurers' Oasis and Japan fan meeting, we will further deepen our relationship with our users with such events. EVE, following the Uprising expansion pack release last quarter, plans to release the EVE Viridian new expansion pack in Q2. By providing enhanced content on the social side with more personalized options, we plan to further strengthen the relationship between users and implement an environment where they can cooperate with each other. In addition, we are preparing a large-scale update to celebrate the 20th anniversary of the release. The Fanfest to be held in September is going to be very commemorative, and this event is already receiving great attention from our users. We will prepare thoroughly to achieve successful results. I will now cover the progress of new IP. Crimson Desert, with the goal of completing development within the second half of this year is focused on development. In addition, we are preparing for the various types of marketing according to the development progress. As the release date approaches, we are preparing to have diverse marketing methods with different strengths. The development of DokeV is also in full swing. As I aforementioned, when developing Crimson Desert, since a lot of our development was carried out considering DokeV in mind, we will believe that after the release of Crimson Desert, it will not take a long time until the release of DokeV. We are also proceeding with the development of the EVE-based Web3 project. As it is a AAA project that has received great attention since the seed round by solving problems that occurred in existing Web3 blockchain-based games, we are working hard to create a net-level ecosystem. We will further strengthen Black Desert and EVE live services, and we are thoroughly preparing for new titles increased -- including Crimson Desert and DokeV. In particular, in line with the development of Crimson Desert, which will be completed in the second half of the year, we are doing our best, so that we can showcase the game on the global stage, where we can best publicize our game. As many people have been waiting for a long time, we will do our best to repay you with the best quality. To be a better company, all employees, from our CEO, are doing their best. We ask for your continued interest and support. Thank you very much. With this, we will conclude the Pearl Abyss 2023 Q1 earnings release presentation and start the Q&A session.

[Interpreted] [Operator Instructions] The first question will be presented by Junhyun Kim from HSBC.

[Interpreted] I believe you talked about your new title development, and I see that in Q1, you have seen a, I think, decrease in the numbers of development people in your company and it is on the downward trend. So regarding the numbers of developers in your company, do you think this will affect your preparations for new title development? Do you have any plans to add to your developers going forward? And can you tell us more about its effect on the line-up of the development?