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

[Interpreted] Good morning. Thank you all for joining the conference call for the Wemade and Wemade Max Earnings Results. This conference will start with a presentation followed by a Q&A session. [Operator Instructions] Now we will begin the presentation on Wemade and Wemade Max's first quarter of fiscal year 2025 earnings results.

[Interpreted] Hello. This is [ Uram Jang ] of Wemade IR Division. Thank you for joining the 2025 Q1 earnings call of Wemade and Wemade Max. We have with us CEO, Kwan-Ho Park; Mr. Sang-won Kim, Head of the IR Division; and Mr. Young-Jun Ko, Head of Corporate Finance Division; Mr. [indiscernible], CEO of WEMIX Foundation; and Mr. [ Mo Shin ], Head of General Management Division at Wemade Max. We will start with the presentation of FY '25 Q1 results by Mr. Sang-won Kim, which will be followed by the Q&A session. The Q1 results 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 as directed by Financial Services Commission. Please refer to the disclaimer from the Q1 results presentation material posted on our website. Now Mr. Sang-won Kim will provide a review of business results.

[Interpreted] Hello. This is Sang-Won Kim from the IR division of Wemade. I'd like to share with you our key business results for Q1 2025. Wemade Q1 2025 revenue was KRW 141.8 billion, with increased games business revenues driven by the success of major new releases. However, the figure was 14% drop Q-on-Q, 12% decrease Y-o-Y because the revenue from the Chinese license of the Mir IP was recognized in the previous quarter. Operating loss stood at KRW 11.3 billion, but the loss narrowed year-on-year. In terms of nonoperating income, the base effect from previous quarter, which included comprehensive share exchange with MADNGINE and a subsequent gain on disposal of an associate and the fair value gains and losses on financial assets, net loss was KRW 20.6 billion with controlling interest net loss of KRW 22.5 billion. First, let me give you a brief overview of Wemade's revenue by business division. The Game business recorded KRW 139.4 billion in revenue, up 26% Q-o-Q, driven by the initial success of Lost Sword and Legend of Ymir, which were released during the quarter. In particular, Legend of Ymir has been ranked high in terms of sales and popularity on Google Play and Apple App Store since its release in Korea, posting outstanding results in a highly competitive domestic MMORPG market. In the first season, which began on April 3, user metrics is showing well-sustained trends to date, and we expect further revenue growth in the second quarter with full quarter effect of season-based content drops and key updates. For existing games, the revenue decreased Q-o-Q because of diminished impact of the large-scale updates from the previous quarter and natural stabilization over time after launches. We expect existing games to show fluctuating revenues depending on quarterly events and promotions. We'll continue to extend their life cycles through continuous content updates and our ability to operate live services. Revenue from licensing decreased significantly Q-o-Q because KRW 500 million was recognized in the previous quarter as Mir IP Chinese licensing sales. But the third year payment will be recognized later this year, which will contribute to building a stable revenue base. Revenue from the blockchain segment decreased slightly Q-o-Q as the overall reorganization of blockchain business continued. We expect it to be back on a growth trajectory as new large blockchain games are scheduled to be onboarded sequentially throughout the year. Now let me move on to the operating expenses for the first quarter. Overall operating expenses increased 4% quarter-on-quarter to KRW 153.2 billion due to increased marketing activities for new launches and expenses related to integration of MADNGINE. Line items, advertising expenses increased 22% Q-o-Q due to the release of highly anticipated titles such as Lost Sword and Legend of Ymir. Labor and depreciation expenses rose by 14% and 86%, respectively, due to the inclusion of MADNGINE as a wholly owned subsidiary. Revenue-linked commission expenses decreased by 2% Q-o-Q despite the release of new games because consolidation of MADNGINE brought down the commission. As other service fees, including outsourcing expenses dropped by 43% Q-o-Q due to our continuing cost rationalization efforts. Having covered the results, I would like to outline our key business achievements and future strategic direction. Since its launch on February 20, Legend of Ymir has retained a very solid initial level of concurrent users up until now based on user-friendly operation policies and stable service infrastructure. It has successfully secured strong user loyalty base within the highly competitive MMORPG market in Korea. Recently, the first seasonal update introduced core large-scale content such as server battles. We plan to further enhance user satisfaction through content expansion based on blockchain game grammar such as the introduction of governance coins and the continuous system improvements. We are also doubling down on the global version of Legend of Ymir, with the goal of releasing it later this year. Based on the tokenomics design capabilities that we have accumulated over the years, Legend of Ymir is evolving into a more advanced format. We aim to build a system where gameplay and WEMIX ecosystem can grow together in a virtuous cycle like creating a structure where WEMIX is directly utilized within the game. Based on this differentiated strategy, Legend of Ymir is expected to continue the legacy of Mir 4 and Night Crows as a flagship title in the global blockchain game market. We are currently refining our road map for major new releases aimed at expanding the global market and diversifying our portfolio across genres and IPs. This will help our game business division continue its steady growth this year. In the third quarter, we will launch our MMORPG Mir M in China, which will be followed by major releases in the second half of the year, which include global launch of Midnight Walkers, a new Extraction FPS title developed by MADNGINE's subsidiary, Oneway Ticket Studio. In addition to these, we have a series of new titles targeting a broad range of users set for sequential releases this year, including the next-generation MMORPG Mir 5, a team-based Extraction FPS, Black Vultures, MADNGINE upcoming Night Crows 2 and Tal. This concludes the explanation of Wemade Q1 2025 results. Next, I will present the key business overview of Wemade Max for the first quarter and the full year of 2025. Wemade Max's consolidated revenue was KRW 47.1 billion, a whopping 135% increase quarter-over-quarter, driven by sales from Lost Sword released in Q1 and the full quarter effect of Night Crows from MADNGINE, which was incorporated at the end of last year. Since its Q1 launch, Lost Sword achieved outstanding results, surpassing 0.5 million cumulative downloads on Google Play within the first 50 days, generating USD 10 million in revenue. Operating loss stood at KRW 2.4 billion. However, the loss narrowed compared to the previous quarter due to strong revenue growth. Net loss was KRW 700 million, while controlling interest net loss was KRW 2.3 billion. Although overseas sales reflected Silkroad Global and Flyff Universe performance, the revenue declined Q-o-Q due to the decrease in other games and license sales. Domestic revenue surged 240% quarter-on-quarter as it captured sales of Lost Sword launched in the first quarter and the full year quarter sales of Night Crow. Operating expenses edged up Q-o-Q due to an increased revenue-linked commission and advertising expenses for Lost Sword and expenses related to the consolidation of MADNGINE. In nonoperating income, the net loss decreased significantly due to the base effect of impairment losses on investment securities and associates and derivative validation losses in the previous quarter. Let me now elaborate on the brief overview of Wemade Max's plan to launch new games. Wemade Max and its 8 consolidated subsidiaries are developing more than 10 new mobile games. We are seeking to diversify the genres to include MMORPG, subculture, idle RPG and casual. The next installment of last year's popular casual world like defense game, Dragon Out is on the horizon. Other plans include expanding the global launch of successful Lost Sword and Midnight Walkers in the second half of the year. With more new games than ever before, we will do our utmost to fulfill the expectations of investors by delivering earnings growth every quarter.

[Interpreted] This concludes the presentation of preliminary results of fourth quarter 2025 of Wemade and Wemade Max. We will now proceed to the Q&A session.

[Interpreted] [Operator Instructions] The first question will be provided by Hee-Seok Lim from Mirae Asset Securities.

[Interpreted] Yes, 2 questions. First question is, can you further elaborate on the tokenomics of Legend of Ymir Global? And second question is what are the differences in terms of content and business models between the Legend of Ymir for Korea and for global markets?

[Interpreted] Yes. I'm Kwan-Ho Park. I will answer the first question about Legend of Ymir Global's tokenomics. So as we continue on with Mir 4 and Night Crows, we have tested out many different ideas by issuing different types of tokens. We call the evolve form of tokenomics second-generation tokenomics, and we were inspired by the method taken by Xfinity, which is enabling users to mine WEMIX themselves. So how are we going to secure the WEMIX? Initially, we're going to use marketing resources to buy WEMIX and to enable users of mining of the WEMIX. And later on, we will use as part of sales revenues to buy WEMIX further to enable further mining by users. So this is slightly advanced form than what is used by Xfinity. In terms of item transaction, for transactions happening on inside the servers, diamonds and other resources will be utilized, but the transactions that are taking place in different trades and exchanges, WEMIX can be used to facilitate the transaction so that the users can gain different items and earn WEMIX through a transaction. So this will further vitalize the tokenomics based on direct utilization of WEMIX. So when it comes to the differences between Korean Ymir and global Ymir for content and business models, for Korean version, we have taken "Lineage like business model." But the business model was comprehensively revamped in Legend of Ymir global, and we're going to present and disclose a completely new business model. It is true the revenue of Legend of Ymir Korean version was falling slightly short of our expectation in terms of revenue. But game content-wise, we are very content and satisfied. And when you look at different user-related metrics, we are seeing a very high level of sustained user metrics that is on par with the initial phase of -- after initial phase of launch. So we are expecting even greater performance with Legend of Ymir global.

[Interpreted] The following question will be presented by Joon Lee from Daishin Securities.

[Interpreted] So launch of Mir M China is slated toward the third quarter. So can you explain the differentiation of Chinese version compared to the Korean version? And because Mir M's performance in Korea was slightly below expectation, can you give us some guidance regarding the possibility of success -- probability of success in the Chinese market? And when do you think the marketing activities will begin?

[Interpreted] So we received the version number for Mir 4 mobile in December 2023 and the version number for the PC version in January 2025. For 1.5 years, we have been developing Mir M completely from scratch almost as if we are developing a completely new game. 60 to 70 new hires that were employed in Beijing and 10 developers from the Korean headquarters are all dedicating their time to Mir M development. In terms of content of the game, graphics wise, there are a high level of similarities. But in terms of content, we are providing the attributes and characteristics that are loved by the Chinese users. In terms of differentiation between the Korean and Chinese versions, the business model is completely different. In Korea, we are using, again, the raffle approach that is inspired by Lineage in Korea, but the business model will be completely different in China. What is most important is the difference in the server operation and servicing. Of course, dozens and hundreds of servers will be established and serviced and operated for the game. And there will be one dedicated administrator for each server going forward for Mir M China. Because of this dedicated fashion of administration, separate events and isolated events for different servers will be possible. And we have developed different features to enable these capabilities, which took a little bit of time. For example, different administrators can launch and initiate server-based specific campaigns like introducing new robots, introducing new compensation schemes and in the event of victory of -- from server battles, the administrator of certain server can provide a 3-hour long discount event. So as can be seen from these examples, we need different features and capabilities to enable the server-specific dedicated administration. So the servicing and operation of servers will be completely different from what is being used in Korea. There are a lot of battle strategy games in China. One market analysis suggests there are more than 50 million users in China. So we are expecting great results going forward from the Chinese market.

[Interpreted] The following question will be presented by Jihyun Kim from Heungkuk Securities.

[Interpreted] I have 2 questions. First one is rather about a sensitive topic. So after the termination of WEMIX transaction support, do you see any impact on your blockchain business? And do you think this will incur any changes to blockchain business strategies in the future? And second question has to do with your global expansion efforts. Since your last earnings call, you have been emphasizing the imperative of global expansion. So do you have any initiatives and plans you can share for this year in the first and second half of the year?

[Interpreted] So including 11 Ymir Global, Mir 4 and Night Crows, these games utilize WEMIX. But the Korean users are not impacted by the WEMIX, course, in terms of game business. And we are awaiting the final decision on the injunction we filed recently, and there might be other decisions made by incoming administration regarding the promotion of blockchain industry. And I believe the government might present some policy directions to rectify incorrect practices that have been taking place in Korea to bring those practices into the framework of institution with the government-guided policy. So we're going to continue our Korean blockchain business in line with those government policies. For overseas extension of games, I don't think the termination of support will impact global users because the global games like Ymir are not impacted by the situation in Korea. So let me now answer your second question regarding global expansion. So first segment, our global expansion strategy is, of course, towards the Chinese market, which is massive and can generate immense success -- immense revenues when initiatives are successful. Of course, there are dedicated matters like version numbers, but we have found and we are intending to find developers in China, and we also are intending to develop in China inside China so that we can be granted domestic version number there. If we are bringing the games that are developed in Korea to the Chinese market, the situation of waiting for the overseas game version number stays the same. The next element is the markets in Japan and the U.S. So before I touch upon these, I want to mention one thing. So far, most of the games developed by Wemade was MMORPG, but changing the graphics from the Eastern to Western sentiment will not entice gamers in Japan and North America because the gamers' lifestyle and habits are completely different. So it was quite difficult to gain a breakthrough in these markets with MMORPG. So starting from years back, particularly last year, we started to make significant investments. And we are preparing and developing a game that can tailor to the lifestyle of the Japanese gamers. And unlike in Korea, in Japan, the commute hours on subways are really long. So we are developing a game that fits that type of lifestyle patterns. And we are optimizing the developed games to tailor to the instable Internet connection landscape in Japan. And in Korea, it is quite tolerable for office workers to have their mobile phone on. It's almost -- it has almost become a habit, but the culture in Japan is completely different. So we are developing a game that -- with graphics that are loved by the Japanese users with consideration of different cultural styles. And same goes for the U.S. market as well. We are focusing on FPS or console games that are more popular in the North America. And these are the important elements in our strategy for Japanese and the U.S. market.

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

[Interpreted] With no further questions, we will conclude Q&A and the earnings presentation conference call at this moment. Thank you for joining us for Wemade and Wemade Max Q1 2025 Earnings Results Conference Call. And should you have further inquiries, please contact IR division. Thank you. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]