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 of our Fiscal Year 2023 Fourth Quarter Earnings Results by Pearl Abyss. This conference call will start with a presentation followed by a divisional Q&A session. [Operator Instructions] Now we shall commence the Presentation on the Fiscal Year 2023 Fourth Quarter Earnings Results by Pearl Abyss.

[Interpreted] Greetings, I am Kim Gyeong 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 2023 Q4 and full year 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 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 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. I would like to first cover the 2023 overview. The game industry in 2023 on the whole went through challenges due to the reopening after the end of the pandemic. In this situation, we made significant changes to our live service, made management more efficient and implemented new pipeline investments. Black Desert implemented diverse changes with 9 years of service. We changed and reinforced many outdated content, which were more enjoyable in the past, but not anymore. Through diverse patches for user convenience and new user support, we tried hard to lower awareness that this was a game with a high entry barrier. In addition, we introduced new characters with new concepts that we did not attempt before and also introduced diverse character costumes from oriental costumes to modern costumes. Moreover, through the Land of the Morning Light update, which had a Korean ambience that was not attempted in the past, many users were able to experience a new landscape. Land of the Morning Light also changed the gameplay style and introduced the console type of rate combat that was quite refreshing. In Q4 as well, we have been continuing these efforts through new class, Scholar, updates and continuous convenient patches for our users. For consoles, we have also been overcoming many limitations, which occurred due to the console or console device limitations through technical enhancements and have worked hard to provide joy of playing on a similar level to the PC version. Through these efforts, excluding the accounting deferral, we are seeing a solid revenue upward trend, including 17% Y-o-Y increase in Black Desert PC Q4 actual sales and also 13% Y-o-Y increase in the annual total Black Desert PC actual sales as well. The online also implemented diverse changes with 20 years of service. We continuously work hard to attract new users, not only by implementing diverse devices in order to improve the game's convenience to users, but also gave many missions so that new users can easily adjust. The Havoc expansion pack, which improved new contents and diverse game environment with a new battle system, which breaks away from the existing framework and an interesting storyline, provided immersive experiences to users that were playing. In addition, EVE Vanguard, which was developed at EVE Online-based FPS, with the 20th anniversary of EVE, had the first playtest test in Q4. It was able to appeal to the gamers who are waiting for SF and EVE-Based FPS and attracted many returning users. These efforts led to the highest numbers of EVE daily concurrent users in November during the past 5 years based on the same date, and the daily revenues also recorded the highest peak during the past 5 years, leading to firm financial performance. Under the robust basis of live service, we continued investment in new IP and new titles. Crimson Desert through many demos for partners and media is predicting the possibility of success. We are receiving many favorable reviews through actual demos. And internally, we are confident that we can achieve significant results. In addition, through reflecting the abundant feedback that we have received, we are heightening our possibility of the game's success. After showcasing the mobile casual game, EVE Galaxy Conquest, which was made by utilizing EVE IP by the CCP of Shanghai office at the EVE Fanfest in Q4, we have been implementing actual live tests in some regions through soft launching. Next, I would like to walk you through our 2023 full year and Q4 operating performance. 2023 operating revenue posted KRW 333.5 billion, decreasing 13.5% Y-o-Y. Operating loss posted KRW 16.4 billion and turned to loss. Net profit posted KRW 15.4 billion and turned to profit Y-o-Y. Q4 operating revenue posted KRW 84.4 billion, decreased 0.6% Q-o-Q. And operating loss and net loss each posted KRW 5.5 billion and KRW 4.4 billion and turned to loss, respectively. I would like to explain in more detail regarding operating revenue in Q4. First, I will cover operating revenue for major IPs. Operating revenue for Black Desert IP in this quarter posted KRW 60.1 billion, a 12% decrease Q-o-Q. EVE IP operating revenue posted KRW 19.9 billion, an increase, 24% Q-o-Q. In case of operating revenue by region, it posted 21% domestically, 20% in Asia and 59% in North America and Europe. In case of operating revenue by platform, 83% was for PC, 12% for mobile and 5% for consoles. I would now like to elaborate on operating expenses for Q4. Q4 operating expenses posted KRW 89.9 billion, an 8.6% increase Q-o-Q. In case of labor expenses, it posted KRW 40.6 billion and maintained the level of the previous quarter. For your reference, the numbers of employees as of end Q4 are 1,324, and there are 765 developers, which is 58% of the total. In case of commissions, it posted KRW 17.4 billion, a 21.4% increase Q-o-Q. In case of advertising through efficient implementation of diverse user events and banquets, we were able to post KRW 8.1 billion, a 19.6% decrease Q-o-Q. Lastly, I would like to cover 2024 major highlights. We plan to continue our performance through Black Desert and EVE's continuous changes and at the same time, improve profitability through efficient company operations. At the same time, we plan to focus intensively for successful launching of our new IP. For Black Desert, we'll work to make an environment which is newer and can provide more enjoyable environment. In Q1, we are newly reorganizing PvP contents through Guild League that you can enjoy 15-to-15 and through updates of Siege Wars with new rules. In addition, we are continuing to update user convenience improvements that we have been doing from last year to promote the influx of new and returning users, and we plan to help them stay and settle. In addition, we plan to accelerate the development of Land of the Morning Light Part 2, which was indeed very beloved. We will support also next-generation console devices, and we're working hard so that we can go beyond the limitation of existing devices so more content can be enjoyed on the console platform. We also have heightened expectations for China game license for Black Desert Chinese service, which recently had confidential tests. We are working with our publishing partner thoroughly so that fast results can be derived when official service begins. If IP also is continuously changing, we are preparing for 2 new expansion packs for EVE Online. In particular, for these expansion packs, we plan to introduce user-generated content where users can directly generate content, and we're preparing so that users can enjoy games in more diverse ways. In addition, in the case of EVE Vanguard, which was already introduced and tested, we, through continuous development and content updates, plan to, not only lengthen more time for user enjoyment, but also are considering a proprietary business model line. At the same time, we will work hard to improve the company's income through efficient operations. After closing down Factorial Games last year. We have our Canada studio, which is also closing down, which was preparing for indie games this year, and we are working hard to improve our company's cost structure. In addition, we will find areas and make improvements so that day-to-day costs can be efficiently saved, including changing the CCP London office location so that more efficient work can be done in a bigger and more reasonably priced space. In case of marketing costs, we will also work with diverse partners so that our financial burden does not increase. We plan to prepare to secure new pipelines. We plan to have the global launching of EVE Galaxy Conquest this year, which is a casual mobile game which meets the recent trends by improving based on the feedback which came in during the soft launching period. In addition, we plan to showcase Project Awakening within the first half of this year that we recently had confidential tests for. We expect that these new projects will enhance the profitability of EVE-based -- EVE IP-based games, which have high loyalty. Most of all, for Crimson Desert, we will increase the possibility of success by expanding our contact points, including through user demos at diverse events in 2024. In addition, since the development is being completed, we are considering appropriate launching time and we will prepare so that we can have significant results considering that you have been waiting for a long time. With stable service of live service, we made many preparation to create new IP. The global game market competition has heightened. Regulations for the labor market and game market has become more strengthened and it has become more challenging to secure developers than before. We are fully aware that many investors are concerned since the preparation time has become longer than expected. We believe that in 2024, we will showcase and launch new titles that we had been preparing so far, and that this will be a year when we will significantly leap forward. Utilizing 10 years of Black Desert service and 20 years of EVE service know-how, we will do our best so that our new titles will also be loved for a long time by many people. We will look forward to your continued interest and support. Thank you.

[Interpreted] With this, we will conclude the Pearl Abyss 2023 Q4 and full year earnings release and start the Q&A session.

[Operator Instructions] The first question will be presented by Jin-Gu Kim from Kiwoom Securities.

[Interpreted] I am Jin-Gu Kim from Kiwoom Securities, and I have three questions. First, I would like to know, in more detail, about all the information that you can disclose about Crimson Desert that you can disclose to the market. Secondly, I would like to know about your top line gross goals for a Black Desert. And third, if you have any new titles that you're planning to launch this year, I would like to know about them.

[Interpreted] Thank you very much for your question. For Crimson Desert, since we are developing it for a single play, we are concentrating on heightening our optimization and completeness and are making our final touches. It has very vast content and a very free playing area or a free degree of freedom. So it will -- it has taken a little more time than expected. However, currently, the development is very smoothly being done, and we are making great progress in our finishing touches. In addition, based on the feedback that we had actually acquired from many partners for the past year or so, we have been actually completing the game playing experiences continuously. And we believe that now we are at the level of quality that we had targeted. Accordingly, regarding the Crimson Desert demos that we had for our partners until now, we plan to actually expand them to B2C from this summer and start our full-fledged marketing. Regarding our launching period, we will start our full-fledged marketing from the second half of this year. and we will heighten it until the end of this year as we are currently planning. We know that you have been waiting for a long time, and we also have been thoroughly making preparations for a long time, so we will do our best for a successful launch till the end. Regarding more details about our launching period in the process of our marketing within this year, we will do our best so that we can give you more detailed schedule as time progresses. Development time is taking a little more than expected. But all the people in our development team are doing their best in the environment that we're given for this long period of time. We are also truly wanting to launch as quickly as possible, and we are focusing on our finishing touches intensively so that we will do our best so that we can come up with satisfactory results, and we will ask for the kind understanding for -- from our investors as well.

[Interpreted] I will answer your question about Black Desert. Regarding our 2024 forecast for Black Desert, we have been celebrating the tenth year, and we will do our best so that we can reaffirm our basis and also come up with some changes. With the know-how that we had accumulated for the past 10 years, we will go through full-fledged changes so that we can provide more enjoyment to our global users. First of all, during the last year, we know that Land of the Morning Light was very popular. And we are currently preparing for Land of the Morning Light Part 2, so. And apart from this, we plan to add many diverse new contents so that we can continue with our consistent performance. To answer your questions about new titles for this year, well, our company has been concentrating our efforts on developing Crimson Desert, and also CCP games has been doing very well and they have been well maintaining their live service so far. And in order to secure new growth, engines have been developing EVE IP-based new titles. In particular, we are also seeing the new titles -- new title development that is being completed. And from Q4 of last year, from -- with the open test of EVE Vanguard, we have had the soft launching of EVE Galaxy Conquest. So we are making preparations for the launching in 2024. And you can see that for EVE Vanguard, it is like a sister program of EVE. And for EVE Galaxy Conquest, we plan to have global launching within this year. Apart from this, for the new blockchain project from -- we have actually received many -- a lot of feedback, because we had countless tests in the previous year, and we have been actually reflecting these feedback to our games. And we are also planning to showcase or disclose this game within this year as well. Until now, CCP Games has been servicing EVE Online and also has been developing games based on the EVE IP. From this year, there will be consecutive launching of the games that have been developed -- that have been in development, and we have expectations that this will be a year where we can make profits. In addition, because we have high expectations that we can receive Black Desert online Chinese game license within this year, if we do, we plan to launch this within this year as well.

It was our CEO, Heo Jin-Young ; and CBO; Kim Gyeong Man, who answered your questions. [Operator Instructions] It seems that we have no questions on the line, so we will conclude Pearl Abyss 2023 Q4 and full year earnings release. Thank you for listening. [Statements in English on this transcript were spoken by an interpreter present on the live call.]