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

[Interpreted] Hello. This is [ Uram Jang ] of the Wemade IR division. Thank you for joining the 2024 Q4 Earnings Call of Wemade and Wemade Max. We have with us Senior Managing Director, Sang-won Kim of the IR Division; and Director Young-Jun Ko of the Corporate Finance Division. We'll start with the presentation of FY '24 Q4 results by Senior Managing Director, Sang-won Kim, which will be followed by a Q&A session. The results of Q4 of 2024 is provided for the convenience of the investors without completing the external auditor's review. It is subject to change in the course of final review by the external auditor and at the request of Financial Supervisory Commission. Please refer to the disclaimer from the Q4 results presentation material posted on our website. Now Senior Managing Director, Sang-won Kim, will provide a review of fourth quarter business results.

[Interpreted] Hello. This is Sang-won Kim from the IR division of Wemade. I'd like to share with you our preliminary fourth quarter consolidated results and annual results for 2024 as well as the business status for the current quarter and our full year plan for 2025. 2024 was a year of internal reinforcement through management streamlining, laying the foundation for sustained growth. Following the achievement in 2023, we once again posted the highest revenues in our history, providing the company's distinctive growth trajectory with 4 consecutive years of record-breaking revenues. In particular, Night Crows exceeded KRW 500 billion in cumulative sales at home and abroad since its launch in 2023, strengthening our position as a leading company in the domestic and global game market. The IP for Mir has also been generating steady performance in the global market. Based on this growth and the business efficiency strategy implemented since the second quarter of last year, we achieved a successful earnings turnaround in 2024. Regarding specific business achievements. First, Night Crows Global continued to be very successful even after a year since its launch, maintaining a stable daily average concurrent users of around 300,000. We have successfully extended the game's life cycle and achieved great results in the global market by incorporating blockchain technology and providing content updates that reflect the preferences and taste of global players. This achievement is another proof point that the convergence of games and blockchain technology can create greater synergy following the success of Mir 4 Global. Game content utilizing blockchain technology is playing an important role in the long-term success of the games, and we expect to further strengthen our leadership in the global game market based on these differentiated competitiveness. In December, we successfully completed the share exchange between MADNGINE, the developer of Night Crows and Wemade Max. MADNGINE's inclusion to the Wemade Group further strengthens our game IP portfolio and expected to accelerate growth of our game business. Specifically, Midnight Walkers, a new extraction shooter game developed by MADNGINE's subsidiary, Oneway Ticket Studio, is scheduled to be released in the second quarter. And development is underway for the release of Night Crows 2 in 2026 and [ Projectile ], a console-based open world RPG in 2027. I'd like to turn to the release plans of new games for the year. In the first quarter, Golf Super Crew was released globally yesterday, on February 11; and the MMORPG epic, Legend of Ymir, is to be launched on February 20. This will be followed by This Means War, the FPS game; Mir 5, the new Mir IP MMORPG; and Legend of YMir Global with blockchain elements throughout the year. Legend of Ymir, a large-scale MMORPG, is a combination of our accumulated game development know-how and the blockchain game grammar. Its immersive game play and differentiated economic system will provide an innovative gaming experience. Overcoming the limitations of a Korean MMORPG, it will present a new in-game economic model based on players' trust and bringing in a new paradigm for the game industry. We are doubling down on the development of Mir 5, a new MMORPG, to launch it within the year. In January, we unveiled Asterion, an AI boss monster, created in collaboration with NVIDIA, that learns from users' behaviors and grow even stronger, opening up new possibilities for the MMORPG genre. As an MMORPG with an AI boss monster, Mir 5 will grip and challenge players even further, mark a new turning point for long-term user engagement and strategic fun. We plan to continue our innovative development through various global partnerships. Our upcoming game, This Means War, slated for the fourth quarter launch adopts a new unique game play mechanics of team-based extraction shooting where collaboration and strategic thinking are key elements to deliver more lifelike combat experience. As an FPS game for the global market, we expect it to be another milestone in expanding our game IP portfolio in terms of genre. Our consolidated subsidiaries are also preparing to release games in various genres such as idle RPGs, SMGs and MMORPGs within the year, which we expect to contribute to the growth of our earnings this year. In particular, Lost Sword, a collectible RPG released by our consolidated subsidiary, Wemade Connect, on January 16, ranked #1 in top chart and #5 in the top grossing on Google Play and has been performing strongly to date. In the blockchain business in 2024, we reorganized WEMIX tokenomics, burning 400 million WEMIX from the reserves and introduced halving system to lay the groundwork for the elevated value of the WEMIX ecosystem. For WEMIX PLAY and Wepublic, we enhanced community features and significantly improved user convenience with the launch of mobile apps and revamped websites. In 2025, we plan to accelerate the expansion of the ecosystem with a variety of innovative projects centering around WEMIX PLAY. We'll strengthen community-driven services to actively engage users and provide enhanced user experiences with the release of new games to encourage more users to actively engage and utilize the WEMIX PLAY ecosystem. As Wemade celebrates its 25th anniversary, we are gearing up for a greater leap forward based on the global capabilities we've been building over the years. We have well-proven experience and capability in IP management and publishing at home and abroad. We have been steadily strengthening our competitiveness through differentiated game services that incorporate blockchain technology. Starting with the release of Legend of Ymir, we plan to introduce 20 diverse new games one by one with a view to business expansion and innovative genre. Amid a changing market environment and fierce competition, Wemade has established itself as a leading player in the global blockchain game market following the success of Mir 4 Global in 2021. And based on this growth, our 2024 overseas revenue grew 81% year-on-year to KRW 501.6 billion, accounting for 70% of our total revenue. This year, we will continue to extend the life cycle of existing games, launch major new games and strengthen the WEMIX ecosystem, creating distinctive value and exerting greater influence in the global market. All the members of the organization will do our utmost to make 2025 another year that proves our differentiated long-term growth potential. Next, I'd like to provide a brief overview of Wemade's Q4 2024 preliminary results on a consolidated basis. In Q4 2024, revenue was KRW 165 billion, up 42% Y-o-Y. Operating expenses stood at KRW 146.9 billion, down 21% Y-o-Y, resulting in an operating profit of KRW 18.1 billion, turning to profit compared to the same period last year. Net profit came in at KRW 109.6 billion, also posting a turnaround Y-o-Y. Let me briefly describe our revenue by business segment for the fourth quarter. First, in the game business, revenue decreased 13% Q-o-Q to KRW 110.7 billion as sales from existing launches stabilized. The licensing business recorded revenue of KRW 51.9 billion, and this included the second payment from [ Actoz ] under the Mir 2 and 3 Chinese license agreement, which was KRW 50 billion, and was recognized in the fourth quarter. Revenue from the blockchain business was KRW 1 billion in the fourth quarter, down slightly from the previous quarter. Q4 operating expenses decreased 10% Q-o-Q to KRW 146.9 billion driven by an overall decrease in labor costs and commission fees. Labor costs decreased 14% Q-o-Q to KRW 50.4 billion, while commission fees decreased 18% quarter-on-quarter to KRW 59.2 billion due to a decrease in revenue-linked expenses. Nonoperating income increased significantly from the previous quarter, reflecting gains on the disposal of investment shares in MADNGINE's associated companies following the share exchange between MADNGINE and Wemade Max and gains on foreign currency translation due to the appreciation of foreign exchange rate and gains on the fair value of financial assets held by the company, all of which contributed to the increase in the net income. I'd like to move on to our full year 2024 results. Annual revenue showed an 18-point growth Y-o-Y, reaching KRW 712 billion, breaking the record once again. As mentioned earlier, we have been breaking the record of historic highs in revenues 4 years in a row since 2021. Operating expenses in 2024 decreased 2% year-on-year to KRW 703.9 billion, thanks to the business-wide cost-cutting efforts. Advertising expenses and other commission fees, including outsourcing costs, decreased 21% and 35%, respectively, year-on-year. Labor costs decreased 5% Y-o-Y due to reduced head count and stock compensation expenses reduction. As a result, operating profit was KRW 8.1 billion and net profit was KRW 86.9 billion, successfully turning to profit on year. This concludes our discussion of Wemade's fourth quarter and full year results, and I will now switch to 2024 fourth quarter and full year business highlights of Wemade Max. Q4 2024 consolidated revenue of Wemade Max was KRW 20.2 billion, an increase of 6% Q-o-Q as the sales of MADNGINE's Night Crows started to be included as of December 17, the day of equity exchange. Operating loss stood at KRW 3.9 billion, and net loss was KRW 7.8 billion. Overseas sales increased 16% driven by newly added Night Crows Global revenue and positive impact from Mir 4 Global event. Domestic revenue decreased by 9% on quarter due to the stabilizing effect of existing games despite the contribution of Night Crows and 2 new idle games. Operating expenses increased by 14% Q-o-Q due to the amortization of intangible assets related to the acquisition of equity in MADNGINE. In nonoperating income, we recorded a net loss due to impairment of investment in affiliates and loss on valuation of derivative instruments. Next, I would like to share with you the full year results of Wemade Max. Annual revenue was KRW 75.1 billion, up 8% year-on-year, reflecting sales of Silkroad and Flyff Universe and Night Crows. Operating expenses increased 27% Y-o-Y to KRW 83.8 billion due to increased advertising expenses and commission fees linked to new product launches, and expansion of consolidated subsidiaries. Operating loss was KRW 8.7 billion, resulting in a net loss of KRW 14 billion. Next, I would like to talk about the business plan for Wemade Max. In 2025, Wemade Max plans to pursue a more aggressive growth strategy and strengthen its business competitiveness. We are looking to introduce new titles in various genres through 8 development subsidiaries, including MADNGINE, the developer behind the successful Night Crows. We'll maximize the expertise and strength of each developing houses to release differentiated games and create synergy effects through collaboration amongst them. Starting with Lost Sword, a subculture collectible RPG released on January 16, we plan to release a total of 13 new games consecutively throughout the year. The portfolio will encompass a wide range of genres, including MMORPG, extraction shooters, collectible and idle RPGs and SMGs, to target various user bases in and outside of Korea. In addition, we will strengthen strategic operation to expand our global market, extend the life cycle of existing games and implement more strategic and systematic service and marketing operations to maximize the success of new games. Wemade Max will make 2025 the year of rebounding performance, and we'll do our utmost to secure sustainable growth and profitability. This concludes the presentation of business results of Wemade and Wemade Max for the fourth quarter of 2024 and open the floor for questions and answers.

[Interpreted] [Operator Instructions] The first question will be provided by Kim Jihyun from Heungkuk Securities.

[Interpreted] I have two questions. First, can you share with us the development status of Mir M and the time line or time frame that you are targeting for? And do you have any adjustment or changes made to your revenue target and performance expectation of Mir M? Second question has to do with your blockchain business. Do you have any collaboration or initiatives underway with other exchanges or association for cryptocurrency? So can you give us a little bit of update on blockchain business?

[Interpreted] To answer your first question about Mir M, we've been communicating that the launch time line is first half of this year, but there has been slight delay, and it was pushed to third quarter of the year, and we have brought more clarity to the time line. And I believe there will not be any further delay for the third quarter launch. What is quite encouraging is that when we conducted internal test on the developed version up to now, there was very positive feedback and very good assessment. So we have high expectation about the success that we're going to have in the Chinese market. The preparation period got elongated because we have adjusted many parts of Mir M to tailor to the taste of the Chinese users and the Chinese market. But all the process for development was smooth-sailing, and we have high expectation for the performance. As for the target performance or revenue, the publisher of Mir M, The9, has already disclosed their annual revenue expectation of KRW 380 billion. There hasn't been any change to this target. And if we achieve that level, it will be quite successful. so to answer your second question, you probably asked the question about exchange to understand more about our plan for additional listing of WEMIX in different exchanges. And all I can say is we are making full preparation and making utmost efforts. Please understand we cannot really disclose any specific plans for listing to particular exchanges or further plans. The key message here is we are endeavoring in certainty. As for the direction of blockchain business this year, we have already shared with you that we have assigned WEMIX PLAY and Wepublic as core business area of our blockchain business, and we will continue to focus on these 2 businesses for further growth. So in 2025, you will be able to see all our endeavors come to fruition and see greater expansion. To add more details about WEMIX PLAY, last year, it has been rather quiet in terms of games onboarded to WEMIX PLAY as we focus more on revamping the platform itself and reinforcing our community-related features. So onboarding strategy has changed the direction slightly. So we will focus more on the games with greater gameability and game plays and with a higher probability of success at the time of changes. Because a lot of global game companies are relatively unfamiliar with the blockchain games compared to other traditional game business area, we need to provide greater assistance and advisory to these game companies so that their tokenomics can settle deep roots and their value can be sustained and expanded. So providing and establishing this type of precedents and references will be very important for the further success of the platform. Although we have achieved great success with Mir 4 Global and Night Crows, it is very important to achieve other successes that is comparable to these two examples. So we will focus on sure bets, with greater probability of success, so that platform can take strong roots. So our strategy this year will be, rather than focusing on the number of games or quantity of the games, we will selectively onboard games with a greater probability for success with outstanding gameability. Regarding our second core business of blockchain, Wepublic, last year, we focused on clubs and community experiences on the platform. This year, we will intensify the social aspect of the platform, intending to bring in small clubs and fandoms and associations and different groups to Wepublic platform for greater growth and success. One prime example of those initiatives will be onboarding of eSports fan club for eSports team, DRX, in our fan community service. So we will go after mid- and long-term business expansion by bringing new community experience based on blockchain technology. And for Wepublic business, rather than aiming at short-term and immediate outcome, we will work to build the traffic and create a greater ecosystem. So this year, we will work to showcase to you the expansion in Wepublic service and growth of the platform.

[Interpreted] The following question will be presented by Lim Hee-Seok from Mirae Asset Securities.

[Interpreted] I have two questions. First one is about the trend of Lost Sword revenue and performance up until now and time frame for the global launch. Second question has to do with the license revenue. There has been slight differences in terms of the time point of capturing and reflecting the revenue of license business. So with an existing and already signed agreement, can you share with us how much amount will be recognized in what time frame?

[Interpreted] As was mentioned in the presentation, Lost Sword has been our quite promising title from the get-go, and it surpassed our expectation and achieved great feat in both app stores in terms of top grossing and top charts. And you would be in agreement, of course, when you look at these outcomes. But because we are in the current quarter, first quarter of 2025, please understand I cannot disclose any specific numbers. Please make decisions on the ordinary assumptions on the revenues shared in the App Store. Regarding the global launch of Lost Sword, its performance is good enough to consider global launch, of course, but we haven't made any specific decisions or detailed plan regarding the time point and the method in which the global launch will be made. So regarding your second question regarding license revenue, you probably expected the second payment of the agreement to be recognized later than the fourth quarter. But in the course of our book housing audit, the second payment came in, and we recognize it as we close the books. And the agreement and the revenue was signed and made in the year 2024. So it was accordingly done. Because this large amount is coming in and recognized as a onetime event, there is an ample possibility that our expectation or assumption can be not in line with the actual recognition time point. And this was our first experience of getting 2 rounds of payments recognized in the book in the year 2024. So there was a little bit of difficulty in communicating clear time line. But in 2025, we will make more efforts to share more accurate time points. But this cannot be done by us alone because this needs to go through consultation with financial auditors. So there is still room for variability, and I ask for your kind understanding. But please take into account that this KRW 100 billion payment of annual basis within 12 months' time frame will be recognized in that particular year as per our contract. So consider this when you're thinking about our earnings potential and guidelines.

[Interpreted] If there is no further questions, we will conclude our earnings call of Wemade and Wemade Max for the fourth quarter of 2024 and annual results. Thank you for joining us. And should you have any questions regarding the earnings results, please contact IR division. Thank you. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]