PearlAbyss Corp

KOSDAQ:263750

Earnings Call Transcript

[Operator]

[Interpreted] Good morning, and good evening. First of all, thank you all for joining this conference call. And now we will begin the conference call of the Fiscal Year 2023 Third Quarter Earnings Results by Pearl Abyss. This conference call will start with a presentation followed by a divisional Q&A session. [Operator Instructions] Now, we shall commence the presentation on the fiscal year 2023 third quarter earnings results by Pearl Abyss.

[Unknown Executive]

[Interpreted] Hello. This is [ Peter Yu ] from the Pearl Abyss IR team. First of all, I would like to thank the analysts and investors from Korea and abroad for taking time to take part in the earnings call for fiscal year 2023, Q3 by Pearl Abyss despite your busy schedules. Allow me to provide a few important notices. Today's earnings results have been prepared for the convenience of the investors and may be subject to change depending on the final closing results. Please note that the accuracy or completeness of the financial and operating results set forth in the earnings release is not guaranteed and we do not undertake any obligation to update the materials, which speak to the date which they were made.

With us today, we have CEO, Jin-Young Heo; CBO, Gyeong Kim; and CFO, Seok Cho. Mr. Seok Cho, our CFO, will first provide a detailed explanation of our results and then proceed with Q&A.

[Seok Cho, executive]

[Interpreted] Hello, I'm Seok Cho, CFO of Pearl Abyss. Thank you once again for taking time out of your busy schedules to participate in our company's earnings call.

In Q3, we continued to deliver live services for our Black Desert and EVE IPs. The EVE expansion pack and new clips of the Crimson Desert were released showing ongoing preparations for the future. First, I'd like to highlight some of our main business activities and highlights for Q3. Black Desert continued to deliver strong financial results with user metrics improving significantly across all regions globally, mainly driven by the continued popularity and hype created by the Black Desert FESTA in July and the update of the Land of the Morning Light. In fact, average monthly active users grew 36% Q-o-Q in Q3, the highest in the last 2 years.

In Q3, we continue to make efforts to build on the popularity of Black Desert with the Ulukita hunting grounds update, seasonal servers and a variety of user-friendly patches. The Black Desert console has been performing well with the highest user metrics in the recent 2 years following the release of the Land of the Morning Light. And the inclusion in the monthly games by PS Plus has resulted in huge popularity boosting our user metrics. Black Desert Mobile is carrying out continuous updates to be enjoyed including updates of the Land of the Morning Light and new classes. In addition, Black Desert also participated in TwitchCon in Paris, where they organized an event for players to experience and enjoy the Land of the Morning Light content firsthand. And Black Desert Mobile hosted the global Heidel Ball to announce updates for the second half and strengthen the user community.

For EVE Online, we saw a slowdown in revenue in Q3 due to the base effect of the Viridian update we launched in Q2. However, we continue to see the strength of the EVE IP with new updates and most importantly, the largest EVE Fanfest ever held to celebrate the 20th anniversary of service. Notably, the event not only announced news about updates in the second half, but also new titles in development, including EVE Vanguard and the EVE Galaxy Conquest. It was an opportunity to showcase EVE's new road map for the next decade, carrying on a successful legacy of 20 years in service.

For Crimson Desert, we showcased a wide variety of content improvements within the game at Gamescom last August. In addition to the previously released trailer, we also released a clip on some parts of the users can experience with gameplay. After the release of the video, the official trailer reached more than 2 million views in one day, in particular, with many Korean game companies currently strongly focusing on establishing presence in the console market. The market is maturing and we are seeing a lot of interest coming from the partner companies.

Next, I will move on to explain our Q3 earnings results. Operating revenue for the quarter was KRW 84.9 billion, up 8.3% Q-o-Q. Operating profit and net profit recorded KRW 2.1 billion and KRW 15 billion each, respectively, to turn positive. Now, allow me to provide some more color on the operating revenue. First, the operating revenue by core IP. For the quarter for our Black Desert IP, we generated KRW 68.4 billion in operating revenue, up 21.1% Q-o-Q. Operating revenue for the EVE IP stood at KRW 16 billion, down 20.8% Q-o-Q. By region, operating revenue breakdown was 27% in Korea, 20% in Asia and 53% in North America and Europe. And by platform, 81% of our revenue came from PCs, 13% from mobile and 6% from consoles.

Next, I will talk about the operating expenses. In Q3, operating expenses decreased by 10.5% Q-o-Q to KRW 82.8 billion. Labor costs decreased 18% Q-o-Q to KRW 40.7 billion. This decrease was due to the exclusion of the one-off incentive of approximately KRW 8 billion from the previous quarter. As of the end of Q3, our headcount stands at 1,293, out of which 744 are in development positions, accounting for 58% of the total. Commissions decreased 21% Q-o-Q to KRW 14.4 billion. Advertising expenses increased 26% Q-on-Q to KRW 10.1 billion due to various off-line events such as Black Desert FESTA, Gamescom and the EVE Fanfest.

Lastly, I will cover the key highlights for Q4. Black Desert will continue to deliver a wide variety of new contents in Q4. We recently launched the War of the Roses pre-season, a new type of large-scale PVP content and plan to add new content in December. The War of the Roses is a new type of [ CVC ] with new combat rules, aiming to give players a new sense of fun rather than a set of patterns of repetitions. In addition, we plan to improve the accessibility and usability of the game by reflecting recent user feedback to provide better services.

The Black Desert console has recently updated 3 of its most popular mythical Dream Horses in the online space. We're also planning to release the new class of Awakening Maegu as part of our efforts to keep the user retention, which we have seen improvements in Q3. We will also follow up on various updates on the PC platform to ensure that we continue to build on the good progress we've achieved. On the mobile side, we want to keep things interesting by releasing a wide variety of new contents. In addition to content updates, we plan to increase our reach to global users through events such as [indiscernible] and Adventurers' Oasis.

EVE will also be providing various contents to service. Most notably, the new expansion pack EVE Havoc is planned to be released soon, which will support more diversified gameplay compared to the as is with new story elements to add more fun to the game. We are also preparing for the soft launch of EVE Galaxy Conquest, which we announced at Fanfest. EVE Galaxy Conquest is a casual mobile version of the EVE IP that combines exploration, diplomacy and [ PvP ] combat. We're checking those metrics after the soft launch with a global launch plan for some time in 2024.

Also, EVE Vanguard, an FPS expansion pack designed to bring EVE from ship scale to human scale is undergoing preparations to be made available to select users from December. EVE Vanguard has been designed to create an organic relationship with EVE Online that goes beyond just playing an FPS game. It took the best parts of [indiscernible], a different version of the FPS of the EVE IP and fix the weak spots. And it has been designed to be both an expansion pack of EVE Online and have its own VM. We expect to see energy with EVE Online sales as well as increased sales of the EVE IP in the future.

The highly anticipated Crimson Desert is gradually expanding its reach. Following Gamescom, we will be at G-STAR next week to discuss with various partners at our B2B booth to make preparation for a successful service. Being very mindful of the concerns expressed by many, we are prioritizing quality in our development, but we are also making the necessary preparation to not have the time line extended too much.

This year marks the ninth and 20th anniversaries for Black Desert and EVE, respectively, and we are preparing them for the next 20 or 30 years of long-term service. We will continue to strengthen the live service of both games and make thorough preparations for new titles based on the IPs to achieve good results. In addition, we will also make the utmost effort to develop new IPs such as Crimson Desert to build IPs that could last for more than 20 years. We ask for your continuous interest and support moving forward.

Thank you.

[Unknown Executive]

[Interpreted] This concludes our Q3, 2023 earnings presentation. We will now proceed with the Q&A.

[Operator]

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

[Jingu Kim, analyst]

[Interpreted] I have 2 questions in total. In the previous conference call, I think there was a commitment that the development for the Crimson Desert will be completed in the second half of this year. I am curious to whether this commitment can be upheld. So, if you could provide a more detailed time line on the release, that would be much appreciated.

And the second question is regarding the marketing strategy for Crimson Desert. In addition to the plans that you have already explained, for example, moving forward, do you have further plans to release additional trailers or video clips for long-term in-game or even different types of -- because a cinematic video clips because it is targeting and appealing tried to be a AAA game. So, if you have any further relief plans for such trailers, it would be much appreciated if you could share.

[Young Jin, executive]

[Interpreted] Yes, I will take that question. So, in terms of the Crimson Desert development, we're making much efforts to complete the final touches to the game as we see the top quality and completeness of the game quality is much important. As we are targeting it to be a AAA game on the console platform, we are working to provide the story line to have much relevance. And because, as we said, final touches and the level of quality in terms of completeness is very important. So, we are making the utmost effort to realize the quality that we have targeted.

However, in order to provide the quality that we have committed to. So, we do expect that it might take a little longer than we have expected. However, we are trying to not have a significant delay on the time line. So, as much as we can, we will speed up the development so that we could release it to the users as soon as possible. So currently, we are also ongoing in terms of the final discussions and agreements with partner companies in terms of finalizing the contract. So please understand that we will not be able to share a detailed time line on the game release as of now. But as I mentioned before, we will try to stay quite up to speed so that we're not too late to the market and we will try to speed up the development process to meet the users as soon as possible.

In terms of marketing, for the past year, we have been taking various paths in terms of marketing. So, we've been meeting with a lot of our partners to show demos and also gather feedback based on such comments. And we have been continuously updating our game quality as a result. Since Gamescom In August, I think there was also the rise of a lot of needs that they wanted more detailed gameplay trailers or clips to be available. So, we also have high expectations ourselves to achieve good results. So, additional trailers or clips for the play through, if we are meeting the expectation that we think that will satisfy the players, we will try to release them as soon as possible. So, during the upcoming G-STAR next week, we will be setting up a B2B booth so that we could demo our game to the partner companies to gather feedback, and we will use that as our cycle to improve the quality of the game even further. As we are in the final stages of the development, we will also be mindful of how we could strengthen our marketing activities as well.

[Unknown Executive]

[Interpreted] So that was the answer by our CEO, Jin-Young Heo. We'll now take the next question.

[Operator]

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

[Unknown Executive]

[Interpreted] Currently, I don't think there are any more participants with questions. So with that, then we will conclude our Q3, 2023 earnings call. Thank you very much for joining us today.

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