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Edited Transcript of 251270.KS earnings conference call or presentation 13-Feb-20 7:00am GMT

Q4 2019 Netmarble Corp Earnings Call (English, Korean)

SEOUL Feb 13, 2020 (Thomson StreetEvents) -- Edited Transcript of Netmarble Corp earnings conference call or presentation Thursday, February 13, 2020 at 7:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* ChanSeok Choi

Netmarble Corporation - Head of Investment & MD

* Gi-Wook Do

Netmarble Corporation - CFO

* Seungwon Lee

Netmarble Corporation - Chief Global Officer

* Young-Sig Kwon

Netmarble Corporation - Co-CEO

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Conference Call Participants

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* Dong-hee Kim

Meritz Securities Co., Ltd., Research Division - Analyst

* Euljeong Yun

* Sang-Hyun Lee

IBK Securities Co. Ltd., Research Division - Analyst

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Presentation

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Unidentified Company Representative, [1]

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(foreign language) Good afternoon. This is [B. T. Kim] from Netmarble IR team. I would like to wholeheartedly thank the investors and analysts for taking time out of your busy schedules to attend Q4 earnings release session of Netmarble. We have here with us, CEO, Young-Sig Kwon; CGO, Seungwon Lee; CBO, Young-Hoon Paek; CFO Gi-Wook Do; and Head of Investment and Strategy, ChanSeok Choi to address your questions after the presentation. Please note that the content presented today have yet to undergo an independent auditor's review and, therefore, could be subject to changes in the future.

With that, we will hear the presentation from the Head of Investment and Strategy, ChanSeok Choi.

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ChanSeok Choi, Netmarble Corporation - Head of Investment & MD [2]

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[Interpreted] Good afternoon. I will now give you the summary of Q4 results. Please refer to Page 3. Revenue in Q4 increased 13.3% Y-o-Y and decreased 11.0% Q-on-Q at KRW 551.8 billion. EBITDA increased 25.8% Y-o-Y and decreased 34.1% Q-on-Q at KRW 78.4 billion. Operating profit increased 32.1% Y-o-Y and decreased 40% -- 40.5% at KRW 50.2 billion. With limited results from the new launches in Q4, revenue and profit decreased from the previous quarter.

Next page is on net profit. Q4 net profit is at minus KRW 6.3 billion and controlling shareholders' net profit at minus KRW 10.3 billion. This is due to one-off factors such as FX loss of KRW 27.4 billion and fair value evaluation loss on invested assets amounting to KRW 25 billion.

Next page is our overseas revenue contribution. Q4 overseas revenue recorded KRW 399.1 billion. It accounts for 72% of overall revenue with 4 percentage points increase over the previous quarter. Geographic breakdown is as follows: 30% North America, 28% Korea, 15% Japan, 11% Europe, 9% Southeast Asia and others 7%.

Next page is on games portfolio. Our diverse portfolio remains solid with 39% RPG, 25% MMORPG, 25% Casual and others 11% in Q4. The top revenue-generating titles as of Q4 are Marvel Contest of Champions 17%, Lineage2 Revolution 13%, Seven Deadly Sins 9%, Blade & Soul Revolution 7%.

Next page is on cost structure. Operating expense in Q4 was at KRW 501.6 billion, which is 11.7% increase Y-o-Y and 6.3% decrease Q-on-Q. Labor costs increased 10.3% Y-o-Y and 1.5% Q-on-Q at KRW 122.1 billion. Marketing expense at KRW 73.9 billion saw a 0.7% Y-o-Y increase and 2.2% increase Q-on-Q.

Now on the major lineup for the first half of 2020. We have launched Magic: ManaStrike in the global market on January 29. Starting with that, we will globally launch Seven Deadly Sins on March 3, A3: Still Alive in the Korean market in the same month. In April, we have plans to introduce Blade & Soul to the global markets. We have plans to globally launch Kabam's much anticipated title, Marvel Realm of Champions in the first half.

This concludes my presentation. If you have any questions, we'll be more than glad to entertain them. Thank you.

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Questions and Answers

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Operator [1]

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(foreign language) Now Q&A session will begin. (Operator Instructions)

(foreign language) The first question will be provided by Euljeong Yun from Shinyoung Securities.

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Euljeong Yun, [2]

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[Interpreted] I have 2 questions. First, you've told us about your plan for the first half lineup. And my question is, when will you have Netmarble Together with Press session. Do you have any exact timing as to when? Now the second question. Well, you've introduced through your past global launches and the current -- the current status check on your progression when it comes to Seven Deadly Sins and Blade & Soul. And what is your expectation from those 2 titles? And could you please compare it with your successful Seven Knights series?

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Young-Sig Kwon, Netmarble Corporation - Co-CEO [3]

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[Interpreted] So this is CEO, Kwon, speaking. Well, as to address to your first question on the exact timing of Netmarble Together with Press, we have plans to have that in the second quarter of this year. But with the recent outbreak of corona-19, we are keeping a keen eye on the situation and how it will unfold.

So if I may, I guess, the second question, which is on the launch date and our expectation for our new titles. Well, as was mentioned in the presentation, we have plans to launch Seven Deadly Sins on a global basis on March 3. It had garnered good results in the Japanese market, and we are getting a good pre-subscription from a lot of audience around the world, especially from the western regions. So we have high expectations for that title, and we will be very thorough in our preparation in launching that title on a global basis.

And as for Blade & Soul, we are thinking of the second quarter -- early second quarter for our Asian market launch. And we've also touched on the Seven Knights series. We are preparing for Seven Knights switch version and Seven Knights II and also Seven Knights Revolution. And some are seeing quick progress and some are not. So it's quite difficult for us to pinpoint an exact date as to what will be the launch date for the Seven Knights series. But I could tell you that we have plans to at least introduce 2 of them in the year 2020. And as for the Realm of Champions, we do have plans to release that in the first half of this year.

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Operator [4]

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(foreign language) The next question will be provided by (inaudible) from CGS-CIMB.

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Unidentified Analyst, [5]

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[Interpreted] I have one question. What is your cash equivalent situation after your acquisition of Woongjin?

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Gi-Wook Do, Netmarble Corporation - CFO [6]

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[Interpreted] So this is CFO, Do Gi-Wook speaking. Even after the acquisition of Woongjin, we have about KRW 2.5 trillion in terms of liquidity, is in cash form as well as subsidiaries and also investment assets.

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Operator [7]

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(foreign language) The next question will be provided by Dong-hee Kim from Meritz.

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Dong-hee Kim, Meritz Securities Co., Ltd., Research Division - Analyst [8]

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[Interpreted] I have 2 questions. After your completion of Woongjin Coway acquisition, when do the results of that entity be reflected in your company's numbers? Will it be in the format of equity method? And what is the exact timing of reflecting the company's results on your financials? And the second question is related to headcount spending and also in your spending related to marketing? So could you please give us a guidance on those expenses?

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Gi-Wook Do, Netmarble Corporation - CFO [9]

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[Interpreted] So this is CFO, Do Gi-Wook once again addressing the question. So whether it be a consolidation method or equity method, well, it's appropriate that we go by the equity method gain when it comes to recovery asset. And as to the timing, some numbers will be reflected in first quarter numbers. And the whole number of entity would be reflected starting in the second quarter.

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Young-Sig Kwon, Netmarble Corporation - Co-CEO [10]

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[Interpreted] So this is CEO, Kwon addressing you the second part of your question related to labor cost. So the company has addressed much of the inflation factors when it comes to labor cost. And as to headcount increase, we are approaching in a very prudent manner in a very competitive way. So there is not much of a, like, (inaudible) of our labor cost going up dramatically in the near future. And as to your marketing question, well, marketing expense is closely related with our revenue numbers. And compared to year '19, I don't think there will be much of an increase.

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Operator [11]

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(foreign language) The next question will be provided by Sang-Hyun Lee from IBK Investment & Securities.

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Sang-Hyun Lee, IBK Securities Co. Ltd., Research Division - Analyst [12]

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[Interpreted] My question is related to your soon-to-be-introduced Marvel Realm of Champions title. What's the nature of the game? Could you please give us more color on that title? And I know that you are enjoying quite a successful result with your Contest of Champions title. And could you please compare the ROC with your COC?

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Seungwon Lee, Netmarble Corporation - Chief Global Officer [13]

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[Interpreted] So This is CEO, Seungwon Lee speaking. Well, when it comes to Marvel Realm of Champions, it's all about families. You have to join a family or create your family and you will engage in live P2P type of contest with your peers around the world. And compared to COC, there is more emphasis in collaboration with the amount of families. And our expectation from the ROC title, well, as you rightly mentioned, the Clash of Champions is representative title to Netmarble. And we have the same level of anticipation and expectation for ROC as well.

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Operator [14]

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(foreign language) The last question will be provided by Euljeong Yun from Shinyoung Securities.

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Unidentified Analyst, [15]

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[Interpreted] So you have mentioned foreign currency exchange losses, you said it was a one-off loss in the fourth quarter. Could you give us more flavor or more color on what kind of foreign currency loss it was?

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Gi-Wook Do, Netmarble Corporation - CFO [16]

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[Interpreted] So this is CFO, Do Gi-Wook speaking. If I may talk about our foreign exchange, foreign currency losses, well, every quarter, we do an evaluation of our foreign currency denominated assets and it's done at the end of each quarter. And compared to Q3, we saw a decrease in the numbers in Q4. And with that, we have seen some evaluation loss when it comes to our foreign currency denominated assets. And the same could be said for our invested assets. Every year-end, we do an impairment test on our invested assets denominated in foreign currency. And much of the number tends to be reflected in Q4.

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Operator [17]

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(foreign language) This concludes the 2019 Q4 earnings release of Netmarble. If you have any further follow-up questions, please don't hesitate to contact the IR team. Thank you once again for your time.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]