Wemade Co.,Ltd. (A112040) Earnings Call Transcript & Summary

Good morning. Thank you for joining us for the Fiscal Year 2023 First quarter Earnings result by Wemade and Wemade Max. Today's conference call will consist of presentation from Wemade and Wemade Max, which will be followed by a Q&A session. [Operator Instructions] From now on we will now listen to the presentation of Wemade and Wemade Max.

This is Jimi Lim, as the Wemade's Strategic Communications Division. Thank you for joining the 2023 Q1 earnings call of Wemade and Wemade Max. We have with us CEO, Henry Chang; Senior Managing Director, Sang-Won Kim, of the Strategic Communications Division; and Director, [indiscernible], of the Corporate Finance division. We'll start with the opening remarks by Wemade CEO, Henry Chang and the presentation of FY '23 Q1 results by Senior Managing Director, Sang-Won Kim, which will be followed by a Q&A session. The results of Q1 of 2023 is provided for the convenience of the investors without completing the external auditor's review. It is subject to change due to accounting audits and instructions of the Financial Services Commission. Please be advised to refer to the disclaimer from the Q1 result presentation material posted on our website. Now CEO, Henry Chang will give us an opening address.

Hello. I'm Henry Chang, CEO of Wemade. Thank you for joining us for Wemade's Q1 2023 earnings call. I have shared with you that this year, Wemade -- will roll out the business system services that we have built up so far. It will go beyond simply overcoming the volatility, uncertainty and challenges in the market to leverage them in an anti fragile manner and contribute to making the society more transparent using blockchain technology. These three keywords: roll-up, anti fragile and transparency, are the pillars of our corporate management in terms of our development and business endeavors. NIGHT CROWS launched about 2 weeks ago after years of development. Yesterday, we finally reached the #1 spot in top grossing rankings of both Google Play Store and Apple App Store in Korea. I believe this performance is quite sustainable because it's not just because of temporary post-launch popularity, but because of the consistent increase in traffic and revenues. This feat was possible, thanks to the members of the NIGHT CROWS. Taking this opportunity, I want to express my gratitude. We'll stay committed to developing and servicing the games users will love and play for a long time. We plan to release the global version with blockchain technology and embedded on WEMIX PLAY later this year. As we have seen with Mir 4 and Mir M, we expect even greater success in the global market than in Korea. Combining game quality proven in the Korean market and world-leading tokenomics capabilities will open a new chapter in the history of Korean MMORPG in the global market. Despite numerous breaches of contracts and the legal copyright infringement, we have not given up, and we have reinforced our rights to the Mir IP where will be exploring various opportunities in China, the largest game market in the world this year. Centering around the Mir IP, we are actively working to enter the Chinese market with Mir M and Mir 4. We have been investing in local Chinese studios so far, and the games developed by them will also be released this year. We'll take full advantage of the opportunities in the reopening Chinese markets. Starting with Abu Dhabi, which we entered last year, we are also focusing on exploring the markets and partnership in the Middle East. We will leverage the trust and contracts forged between Korea and the countries like Saudi Arabia and the United Emirates, and meet the needs of local countries regarding gaming and blockchain industries, thereby laying the foundation for Wemade and WEMIX to make greater strides locally. As in our cooperation with Microsoft, business alliances and investments will work like interlocking costs, creating synergies. Let me say Nile and WEMIX.Fi, based on the public [indiscernible] are adding to the lineup of existing services and continue to introduce new services. All these achievements and capabilities we are building when combined with diverse internal and external conditions will lead to an explosive growth of the ecosystem. We are moving towards our goal of a digital economic platform based on a blockchain, moving one tile of earth at a time to move the mountain. In the year ahead, we will continue to make aggressive human and physical investment in new businesses. And at the same time, we'll make profits and attract global investors to enhance financial stability. This financial stability will enable us to sustain our right investments, to solidify our position as a platform company going beyond a simple content company. We'll do our utmost to make the shareholders and [indiscernible] holders proud and well rewarded. Thank you.

Hello, this is Sang-Won Kim from the Wemade Strategic Communications division. I'll provide a brief update on the performance for our main businesses of 2023, Q1 and the current status and upcoming plans for Q2. First, I will touch upon the results of the new titles and the blockchain-based businesses on WEMIX 3.0. On January 31, in 170-plus countries, the in-house developed MMORPG blockchain being titled was globally released Mir M Global, and it's continuing the trend of strong performance of Mir 4 Global. As the Entertain economy with Mir 4 Global was successfully implemented, we were able to check the potential of scalability to all blockchain games moving forward. The new MMORPG title developed by MADNGINE which we have strategic equity investment in and service by us was officially launched on April 27 in the domestic market and was ranked #1 in top grossing in Korea on both Apple App Store and Global Play Store on its launch date. For the blockchain business on WEMIX 3.0. we are establishing partnerships with major global blockchain companies and also game companies to actively expand the WEMIX ecosystem. And at the same time, we are making continuous efforts to expand the services on the WEMIX platform. In particular, we are eyeing the Middle East and Africa -- North Africa as a critical region, which we refer to as the MENA region to expand the WEMIX ecosystem. We set up WEMIX Mena early this year, and are working on expanding our businesses in the MENA region. Last February, we signed a strategic partnership with Nine66, which is a subsidiary of the Savvy Games Group company that was established by a sovereign fund of Saudi Arabia, in April, we signed an MOU with the Ministry of Investment of Saudi Arabia and plan to carry out various collaborative efforts for local business activities. In order to increase the accessibility of WEMIX trading for domestic and overseas WEMIX platform users, we are continuously increasing the number of crypto exchanges, which have WEMIX listed. Support for WEMIX transactions have been resumed at Coinone, domestic crypto exchange and WEMIX has been newly listed on the Global Exchange Bitmart and Singapore's largest crypto exchange BIT.com. In addition, in major markets for WEMIX play users, local currency-based WEMIX trading has become possible in overseas local crypto exchanges such as Mercado Bitcoin, the largest in Brazil. Bitbns, the largest crypto exchange in India. Efforts made for the WEMIX platform business to advance into the global markets are also producing for full results. After seeking part in GDC 2023, the world's largest game developer conference held in San Francisco in March. MOUs were signed with three North American game developers and three games from these game companies are planned to be onboarded to WEMIX plan. Including these games, we secured 100 games to be onboarded to WEMIX PLAY through onboarding contracts with global game developers. In addition, we are expanding the WEMIX platform-based services to provide diverse services to our users. To name a few, services such as the world's first NFT-Fi service NEITH Station, T2E Talk to Earn Life Dapp Tangled and Korea's first M2E Move to Earn project SNKRs were unveiled through the Wemix 3.0-based NFT/DAO platform, Nile. Meanwhile, as part of our efforts to protect our IP rights, we received the award on the financial amount of damages on the litigation alleging the termination and invalidation of Legend of Mir software license agreements against Shengqu games, its subsidiary [indiscernible] and Actoz Soft listed in Korea on March 17. The law suit filed by Actoz Soft against the judgment was also dismissed on May 2, clearly and objectively validating our rights as the original copyright holder of the legend of Mir 2. Excluding interest, compensation for damages is approximately KRW 200 billion and Actoz Soft, with joint liability is required to compensate for approximately KRW 86 billion. Based on the results of the arbitration award, we plan to collect damages after applying for enforcement to each local court especially, we expect that the enforcement will happen at an accelerated pace of provisional features on Actoz Soft, a listed company in Korea have been carried out in the past in relation to this judgment. Next, I will provide a brief update on WEMIX tentative results on a consolidated basis for Q1 of 2023. Q1 revenue was KRW 93.9 billion, a natural decrease in revenue from previously released games and base effect from the previous quarter's lump sum license revenue recognition, resulting in a decrease of 18% Q-o-Q. Operating expenses stood at KRW 140.7 billion despite an increase in server costs following the launch of Mir M Global, it was down 2% Q-o-Q, thanks to adopt and advertising expenses. As a result, operating income for Q1 recorded an operating loss of KRW 46.8 billion. In terms of net income, then deficit narrowed Q-o-Q due to the reversal of impairment losses on intangible assets resulting in a net loss of KRW 28.5 billion. For more details on performance such as revenue by business and region, please refer to the earnings release materials uploaded on our website. That concludes the presentation on WEMIX tentative results for 2023 Q1 and now I will move on to Wemade Max tentative results for 2023 Q1. Wemade Max Q1 consolidated sales recorded a decline of 2.2% Q-o-Q to record KRW 18 billion due to slowdown in sales from existing games such as Mir 4 and Mir 4 Global. Operating expenses decreased by 8% Q-o-Q to KRW 15.2 billion, thanks to reduction in advertising expenses and commission payments. As a result, operating income recorded KRW 2.9 billion, an increase of 48% Q-o-Q. Net income recorded KRW 2.8 billion turning into profit. With this, we're going to conclude presentation of tentaive results of FY '23 Q1. We're going to proceed with the Q&A session now.

[Operator Instructions] The first question will be asked by Ye-ji Yoon from Hana Securities.

I am Ye-ji Yoon from Hana Securities. Two questions. First, NIGHT CROWS is performing quite well. Can you share a little bit about the traffic and revenue trend after the launch. And this is running for streamers -- can you talk about the nature as a streamer? And within the year, Legend of Mir is supposed to launch and can you talk a little bit about the progress of the launch? Would it be in this year? And can you also talk a little bit about the differentiation between Mir and NIGHT CROWS?

Thank you for the question. During the 2 weeks after the launch of NIGHT CROWS, we are seeing a very robust performance. And when it comes to traffic on a daily basis, although the traffic is not continuing to increase on a daily basis, day by day, but the entire trend is definitely upturn and we are continuing the opt-in trend in terms of traffic. And daily revenues are posting good numbers. Thanks to that, we have reached top spot in [indiscernible]. And on average, our daily revenue is over KRW 2 billion. And particularly, what's encouraging is -- on day 1, sometimes revenues are higher with the declining trend ever since, what's encouraging is our revenues are on par with the day 1 revenue. It is sustained a good level. So like I mentioned, the popularity and commercial success of NIGHT CROWS will be sustainable. We are cautiously expecting that the achievement will be sustained into the future. Of course, as a essential part our ability responding to the needs and voices of the users, we're going to make efforts to do it well. In SS fund accumulation logic, we cannot really fully disclose the detail of that. It is percentage opposed to -- in relation to revenue. So it will completely disclose our revenues and sometimes we add to SS fund. So we are responding flexibly. We're going to flexibly respond to the changing situation. So we do not have fixed accumulation logic to the addition of SS fund. We are not intending to have fix logic and make decisions solely on the basis of that logic. But of course, we're not going to make decisions randomly. We will -- in principle, work with the logic, but we will stay flexible and respond to the necessary needs depending on the market situation. As a big time Mir M and Mir 4 and say in terms of change of the game. But when you look at the core users of Mir M and Mir 4, there are significant differences and users of Mir and the users of NIGHT CROWS, when you look at the core users, of course, there are clear distinction. And Legend of YMIR will be newly launched, will bear different colors from the games that we have already launched in terms of graphics and wall views. It is gravitating towards North European, look and feel. So it's different from Mir. But in terms of economic systems, it is closer to Mir 4. So the YMIR is different from NIGHT CROWS. From the get go the Legend of YMIR was developed with blockchain incorporation in mind. So in terms of economic system, it is better suited for the application of tokenomics. So right now, we are looking to launch it later this year, near the year-end or at the latest at the beginning of next year. But it is uncertain so far whether we're going to launch it in Korea first or will go global first. We are pondering on that topic still.

[Operator Instructions] There is nobody currently on standby to ask a question. [Operator Instructions] The next question will be from DAOL Investment & Securities, Ha Jeong Kim.

MADNGINE, the developer of NIGHT CROWS, you acquired new equity. I think it was released in the press. Out of now, I would like to just understand the current relationship. And if there are additional stakes to be required, is that because of new titles potentially developed in that engine? And do you have stakes in that?

So out of that, we have 40% in equity. When -- before MADNGINE team was formed, they consulted with us about the games that they wanted to develop and what role Wemade will play. How much development costs will be required and how much equity Wemade should own. And if they succeed, we conceptually and in principle, talk about how we would work together and we do believe that we are on the same page. So additional acquiring of stakes in that engine have been discussed before. However, of course, equity ownership, how much the valuation is of the company from a technical standpoint on the exact valuation on the method of that valuation is currently an open question. So as of now, the game is released, it's doing really well. In order to make it more successful and to make it consistent, we're really focusing on that aspect. And once we close that chapter, we'll talk about additional acquiring of stakes and may be a potential M&A. Of course, the reason for us discussing such aspects would be based on the performance and results of NIGHT CROW in the Korean market. But not only that, the global blockchain version to be released in the future and the development capability of MADNGINE for future titles will be taken into consideration.

Next question will be asked by Mr. Seoko Kang of Shinhan Securities.

Seoko Kang from Shinhan Securities. Two questions. First question has to do with NIGHT CROW. How much marketing expenses are you going to implement or execute in Q2. Because its new title is performing really well. Maybe the marketing activities will continue into the third and the fourth quarter beyond the second quarter. So can you answer that question? And NIGHT CROWS global version, which would enable WEMIX. When do you think the time frame will be for the launch? And going forward in the future, in terms of financials in the earlier this year, you talked about very aggressive investment in labor -- in human capital. So do you think that the trend of aggressive investment in labor costs will continue? Can you give us some guidance about the labor cost?

Yes. Thank you for the questions. Actually, the traffic is increasing. We are seeing more traffic coming in. Whenever we open a new server, we are seeing a waiting list for the server. So we do not have large scale planned to conduct big-scale marketing campaigns or activities. So first, I want to mention that we are not playing large-scale marketing activities in Q2. Q3, even when we do marketing, it will be around KRW 1 billion budget, the brand marketing, and we are now planning to have large-scale marketing activities. The blockchain global version, our target time frame is within this year. I think earlier, it will be better for us because it will amplify the potential of the game, and it will bring more outcome or the results to us. So we were working with the game developer to accelerate the launch. An aggressive investment, we are continuing with that. We want to hire high-caliber people and it's not an easy thing to do. So this year, we have already passed April. So first quarter is already up, and we only hired up to 100 people. From January to April, we worked really hard to hire good people, and we only reached 100. But I think until the year-end, I think new hires will be around 2,000 excluding M&A and acquiring of human capital through that, only -- solely, purely, newly hired people will be about 2,000 people. I think that is something that is more realistically predictable.

We'll take the next question. The next question would be from Hee-Seok Lim from Mira Asset Securities.