Pearl Abyss Corp. (A263750) 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' first quarter of fiscal year 2025 earnings results.

[Interpreted] Greetings, everyone. 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 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 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. 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 cover 2025 Q1 major financial highlights and performance. Black Desert and EVE provided stable live service in Q1 as well through strengthening content and continued consistent performance. Black Desert in Q1 added the new dream horse ‘Voltarion that uses lightning as well as Orzekia, which is the last story of cooperative dungeon, Atoraxxion. Atoraxxion content following the first update with the field hunting ground and main quest added a 5-person cooperative conquest content to add to the fun. For console, while carrying out steady updates, including Season Server and dream horse, we stepped up efforts to prepare for PlayStation 5 and Xbox X and S versions. For mobile, we consecutively updated Nightmare, Tshira and Serene Forest and provided the fun of PvP and monster hunting at the same time. For EVE Online, we had additional updates to Revenant expansion pack and strengthened our game strategy and game immersiveness to users. In addition, we revealed our 2025 road map and shared that we have been preparing for 2 expansion packs a year and the Alliance Tournament. Apart from this, we were thorough in preparing for new services to expand revenues. First, Crimson Desert participated in GDC in March. And based on Crimson Desert assets, we demonstrated the BlackSpace Engine. In the Crimson Desert Open World, we provided demos which allowed you to directly experience interaction with nature and physics effects, which also heightened expectations to another level. In addition, in the 3 Benelux countries and in London, we held a hands-on demo for media and creators. We had continued positive responses by the media to our excellent graphics, in-depth battles, open world views and physics effects, and we continued our successful demonstration. Blockchain-based EVE Frontier provided 10 days of free play, and we added new content and had in-game events and continuously upgraded the game. Next, I would like to cover 2025 Q1 performance. Q1 operating revenue posted KRW 83.7 billion and went down 12.5% Q-o-Q. This was caused by the removal of 2024 Q4 Pearl Abyss Capital's additional revenues as well as Black Desert Mobile China-related revenues. Operating losses posted KRW 5.2 billion and turned to a deficit with increase in CCP Games' new title development costs. And net profit posted KRW 500 million. And with reduction of gains on valuation of fair value financial assets and foreign exchange-related gains in Q4 of 2024, it went down 98.9% Q-o-Q. I would like to walk you through more details related to operating revenue. The operating revenue from this quarter's games posted KRW 83.5 billion and decreased 8.3% Q-o-Q. Looking at the operating revenue breakdown for different regions, it was 20% for Korea, 22% for Asia, and North America and Europe reported 58%. Next, I would like to cover operating expenses. Q1 operating expenses posted KRW 88.9 billion, a 4.8% decrease Q-o-Q. For labor, it posted KRW 49 billion, a 4.5% increase Q-o-Q. For your reference, head count at the end of Q1 recorded 1,336, and 761 are in the developer category, which is 57% of the total head count. Commissions posted KRW 17.3 billion, a 6.1% decrease Q-o-Q. And advertising posted KRW 7.3 billion, a 38.1% decrease Q-o-Q. Lastly, I will cover 2025 Q2 major highlights. Black Desert in April added a new difficulty level in the Land of Morning Light Donghae Golden Pig Cave. As this is a challenging difficulty content update, a variety of rewards were provided upon successful conquest, and we provided an environment where the users could immerse themselves more in the game. Apart from this, we plan to continuously improve live content and Node War and Siege War to continue stable and consistent service. In addition, in June, through Heidel Ball, we plan to communicate second half major updates and provide more to enjoy and strengthen more communication with our users. For Black Desert Console, we plan to launch PlayStation 5 and Xbox X and S versions on June 26 and provide a better experience to users. We will provide diverse content that we could not until now due to the limitations of devices and provide more fun to the game. In the case of mobile, we updated the Rabam skill in April, which could enable stronger attacks, and we have plans to launch Atoraxxion: Vahmalkea where 5 party members could play together. For EVE, we are planning to launch the new expansion pack Legion that implemented the freelance system. Until now, you needed to join certain groups to enable contracts between users, including for transport work delegation and related supplies. But when Legion is updated, users can enjoy free economic activity regardless of whether they belong in their group. In addition, during the EVE Fanfest that was held in the first week of May, we disclosed our second half update, including our map revamp and strengthened communication with users. We are also smoothly carrying out preparations for our new titles to secure new growth engines. First, we are continuously implementing tests for EVE Frontier and plan to strengthen marketing. We thoroughly will test and validate so that we can offer high-quality new content. For Crimson Desert, before its launching in Q4 of this year, we plan to heighten marketing intensity. Last week, we participated in PAX East held in Boston in the U.S. and successfully concluded the first Crimson Desert B2C demonstration in North America. We plan to participate in a global game event in June and plan to show a new demo built for Crimson Desert for the media. Crimson Desert is carrying out full-scale marketing from Q2. Until last year, through notable events, including gamescom and TGA, we focused on sharing game development progress. But from now on, we are carrying out marketing that can lead to real game performance by meeting more users, media and creators each month. In addition, apart from the Boss Wars that we have been sharing with you so far, we will consecutively showcase our open world and stories that you are very curious about. As many of you have been waiting for so long, in order to achieve the performance that can repay you for your patience, everyone here at Pearl Abyss will do our best until the very end. We will be looking forward to more of your interest and support. Thank you very much. With this, we will conclude 2025 Q1 earnings presentation by Pearl Abyss and start our Q&A session.

[Interpreted] [Operator Instructions]

[Interpreted] It seems that we do not have any questions in the queue now, so I believe that it's a good time for us to give you a progress update on Crimson Desert. And I would like to tell you that for Crimson Desert, while implementing our QA process, we are in the last stages of preparing for launching, including having our voiceover work and preparing for console certification as well. In the case of marketing, we plan to participate in more and more diverse game events this year. And in Q1, we had a demo event in Benelux 3 countries and in London with core media and influencers, and we also participated in the GDC as well. And in last week, we participated in PAX East and continued our aggressive marketing actions. Through this, we have been sharing our game to our global users who have actually come in contact with our game for the first time, and we have been receiving very positive feedback. And through this, we have been increasing the name recognition of Crimson Desert and we have been heightening expectations. Also at a global game event that will be held in June, we plan to have for the media, not just sharing with you our Boss War but a demo with our new build. Also in the process of our marketing, we plan to consecutively share with you new content, including our open world and stories, to heighten the effect of marketing. Everyone here at Pearl Abyss is doing our utmost for the successful launching of Crimson Desert. So I hope that all of our shareholders, investors and everyone has continued interest and support for the game development.

[Interpreted] It was a comment made by our CEO, Heo Jin-Young. We will take the next question.

[Interpreted] The first question will be provided by Jee-un Lee from Daishin Securities.

[Interpreted] I think until the last quarter, you have been sharing with us your Black Desert Mobile and PC revenue breakdown, but I think that for this quarter, this was not included in your presentation. So can you share the breakdown with us?

[Interpreted] Well, regarding the contribution of the revenues for Black Desert and IP, it is at a similar level for each quarter. In addition, in regards to your question about the platform revenue contribution, although we do have slight differences for each quarter according to content updates, it generally shows a similar trend to the past.

[Interpreted] Your question was answered by CBO, Kim Gyeong Man.

[Interpreted] The following question will be presented by Junhyun Kim from HSBC.

[Interpreted] Thank you for sharing with us updates related to Crimson Desert. And I am wondering if you can share with us in numbers about any performance or results that you gain from your marketing efforts for Crimson Desert. Will that be possible?

[Interpreted] Thank you very much for your question. And I think I will need to apologize that although we are meeting diverse users in different regions directly, and we are receiving feedback and getting many reviews and feeling firsthand the responses, the warm responses that they are showing to the game, and we are also seeing a lot of the articles by the media regarding our game, I think it will not be possible for us to give you in numbers or metrics about the performance of our marketing. However, we can tell you that we are keeping a very, very close eye on the different responses by influencers, for example, video feedback or the feedback by different users. And we are feeling firsthand that the expectations of the market and the users is heightening. So although I cannot answer your question in numbers, I hope you can understand that we are getting the responses firsthand and feeling them.

[Interpreted] The answer was given by our CEO, Heo Jin-Young.

[Interpreted] Currently, there are no participants with questions. [Operator Instructions] The following question will be presented by Jihyun Kim from Heungkuk Securities.

[Interpreted] I have a question about whether you are applying any of the diverse feedback that you said you're getting from global users through your marketing. So are you applying any of that feedback to the game? And we know that you've shared with us at G-STAR the Boss Wars. But after you had that revealed to us, can you tell us if any development direction has changed or has been revised with the feedback?

[Interpreted] So it seems that until now, when we see the current situation, we mentioned that we participated in the North America PAX East. So we were successful in our first B2C demo in North America. And it seems that we have almost ended the tour when we were able to showcase the different demos through our Boss Wars. So at these events, we had the demo booth where users can experience firsthand the Boss Wars of Crimson Desert. And through diverse events, we actually were one of the companies that participate in PAX East that received the most amount of attention. So we could find out firsthand the positive responses we got to Crimson Desert graphics and our combat system. However, we are aware that some of the users who experienced Crimson Desert for the first time gave some feedback that it was a little more challenging to play. And we also are aware that we have been getting some feedback about the optimization for console control. So we have been getting this feedback with our Boss War demos, and we have been making improvements based on these pieces of feedback. And with the demos of the Boss Wars, we have been getting more increased positive feedback about the unique and dynamic combat system that is very special to Crimson Desert. So we will do our best to enhance our strength, but we will do our best to also incorporate this feedback so that we can have more development in the right direction and do our best until the launching in optimization so that everyone can enjoy our console play with more convenience and fun.

[Interpreted] Our CEO, Heo Jin-Young, answered the question.

[Interpreted] Currently, there are no participants with questions. [Operator Instructions]

[Interpreted] Thank you very much for your participation, and it seems that we have reached the end of the earnings conference call for Pearl Abyss 2025 Q1. Thank you very much once again. [Statements in English on this transcript were spoken by an interpreter present on the live call.]