Good morning. I'm Lily from Kakao Games IR team. Let's begin the third quarter 2025 earnings presentation. Today, I am joined by our CEO, Michael, and CFO, Terry. We will start with our CFO's presentation on 2025 third quarter earnings. As a disclaimer, today's earnings release includes estimates of KIFRS-based consolidated statements, which are subject to change upon the auditor's review.
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Good morning. This is Terry, CFO at Kakao Games. During the third quarter, we focused on defending profit erosion and ensuring cash flow stability, while new titles underperformed expectations, making only limited contribution and stabilizing earnings in the second half. Accordingly, we have redesigned servicing and operational cost plans more conservatively to minimize impact in Q4, and are focusing more on managing our bottom line. While improving resilience of cost structure at the portfolio level, we will ensure steady revenue stream from core live titles, such as Odin and PUBG to defend earnings.
For big projects, we will stick to the discipline of executing our spending in stages based on the review of completeness and market relevance of such titles. Underpinned by such stance, in the short term, we will be able to drive visible improvement in profitability through nimble management of marketing spend and servicing cost. When it is timing for a triple A rollout, we will create momentum for growth based on a proven ROI framework.
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Now, moving on to the financial performance for the third quarter of 2025. First, Q3 consolidated revenue was down 22% year-over-year due to lack of performance contribution from new titles, but was up 10% QoQ, reporting KRW 127.5 billion on the back of updates from core titles. Operating loss reported KRW 5.4 billion. In terms of revenue breakdown by business in Q3, PC game revenue was up 25% year-over-year and 188% QoQ, reporting KRW 42.7 billion on the back of PUBG collaboration update. Traffic in the peak season for PUBG has been stable and multiple collaboration updates drove good performance. In Q4, we will continue to work with game studios to update main content and do on and offline marketing to stabilize business metrics. Path of Exile 2 went through its second large-scale update in August, focusing on diversifying play patterns and improving overall system convenience.
As a result, we drove core users to return back to the game and have sustained high retention rate. Also, based on stronger communication with the community, we will continue to improve on the depth of the content and adjust game balance until the time for the official release. For Chrono Odyssey, we are incorporating feedback from the first CBT test, and we'll share key improvements and development status with the community before the end of the year. ArcheAge Chronicles is scaling up its build completeness in time for the test against Western core user base. A new title from XLGAMES, THE CUBE, SAVE US Demo, has been successfully released through Steam Next Fest as we expand our reach into the global PC portfolio.
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In mobile games, Odin in the domestic market kept its solid revenue and metrics despite competitors releasing multiple new titles. Performance from ArcheAge War and Odin Global stabilized downwards, driving mobile game revenue down 34% year on year and 16% QoQ to KRW 84.8 billion. Odin Domestic saw impact from four-year anniversary update in June persist. High-density PVP content like the server invasion helped to expand core users' time spent and sustain quality metrics like traffic and user activity, reaffirming the power of updates and long-term competitiveness of the IP. In the fourth quarter as well, through release of new classes, class change, and P2P trading system, as well as other updates, we will maintain the resilience of long-term servicing and revenue generation.
ArcheAge War has configured new competitive dynamics by way of server integration back in October, and now we're focusing on keeping the performance metrics stable by building upon the fun of large-scale nation versus nation combat. We will continue to focus on extending the life cycle of major titles, and with a pipeline of wide-ranging titles that satisfy expectations of users and market trend, we will expand sustainable sources of revenue in mobile game segment.
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Next is operating expense. Q3 consolidated operating expense was down 14% YoY and up 7% QoQ, coming in at KRW 132.9 billion. The breakdown shows labor cost declining 5% year-over-year and 1% Q-over-Q to KRW 36.7 billion, based on efficiency-centric stance taken across the company and on our stronger execution capabilities for core global projects and for new lineups. Total headcount will be managed stably, but to drive global outcome in Q4, we will make selective investment while making reallocations based on capabilities and efficiencies to scale up nimbleness and flexibility of the organization.
Following the base effect from concentration of global rollouts last year, marketing spend was down 36% YoY, but was up 6% QoQ, coming in at KRW 9.1 billion. We are rigorously running pre- and post-assessment of profitability and have taken on a flexible approach in either shedding or suspending expenditures when requirements are not met. We therefore expect Q4 marketing spend to be in line with Q3 levels and will strengthen budget allocation based on performance contributions.
Commissions include fees paid to the marketplace and studios and infrastructure payments, and moves in line with game revenue mix and changes. For Q3, it fell 20% YoY, but was up 15% Q-over-Q, reporting KRW 66.2 billion. Depreciation and amortization increased 3% YoY and 1% Q-over-Q to KRW 12.3 billion on the back of infrastructure expansion at game studios. Last but not least, other expense inclusive of SG&A increased 10% YoY, but was down 6% QoQ, reporting KRW 8.7 billion. In the short term, Kakao Games will focus its efforts on profitability-centered business management and strengthen earnings capacity of live service games.
Also, based on data built up through our global endeavors and development and operational learnings, we will systematically raise chances of success by thoroughly validating and incorporating market relevance and depth of content development. Upon this basis, we will expand into new genres and gameplay experience to drive visible results from global growth opportunities. In closing, we thank the shareholders and investors for your continued support and interest. This ends the presentation on Q3 2025 earnings of Kakao Games. We are now open for questions.
[Non-English content] Now Q&A session will begin. Please press star one, that is star and one, if you have any questions. Questions will be taken according to the order you have pressed the number star one. For cancellation, please press star two, that is star and two on your phone. In order to allow as many Q&A chances as possible within the restricted time, we would appreciate only two questions per each participant.
[Non-English content] The first question will be provided by Jaemin An from NH Securities. Please go ahead with your question.
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Good morning. Thank you for taking my question. The first question is, can you provide some more update on your pipeline or the lineup for 2026? I do see that information on the presentation slide, but would like to understand what are some of the key titles that the company has high expectations on, and it seems that overall timeline is being pushed back on a quarter to quarter basis.
Would like to know whether based upon the current timeline, Project Q and Project OQ, can they be within that timeline or would there also be some delays there as well? And in the presentation you talked about how you will focus on profitability, but without any new titles, I'm just wondering how that will translate into your operating profit improvement. It seems quite difficult for you to actually achieve that improvement by first half of next year. What is the company's outlook on this?
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This is Michael. Responding to your question, in terms of the titles that we are looking forward to in terms of their size and market impact, there are four main titles. But of course, along the way, there are also smaller scale games that are part of the pipeline as well. On the mobile game side, it includes Project Q and Project OQ. For PC and console, it includes Chrono Odyssey and ArcheAge Chronicles. Four titles in total. In terms of the timeline for our new title releases, we are considering the depth of the game content as well as the appropriate marketing timing, based upon which we go through the review and make that announcement.
There are many tests that are being scheduled, as well as enhancements within the remaining six months to one year. Depending on, of course, the result of those tests and the changes in the market backdrop, there may be an impact on the business decision-making. However, having said that, at each of the milestones, gateways, we very closely review the timeline, and we are at this point putting efforts to make sure that we don't depart too far from the timeline that is already planned.
As of today, I can tell you that things are going quite smoothly. Just to talk about a couple of the games in more detail. If you look at, for instance, Chrono Odyssey, basically based upon the user feedback that we gained from the CBT that we had conducted, we're working towards not only ensuring tech stability, also improving UX and UI, but as well as strengthening the narrative, the combat system, and sharpening the edges.
Doing the polishing work based on the region and character specific characteristics, making improvements to scale up quality in terms of the depth of the content as well as the quality. We will, before the end of the year, share with the community as to what those enhancements are for the benefit of user communication. We expect that through the internal testing, we will carry on with the core user groups, which is scheduled for early next year. We will be able to review the specific elements and then make our timeline much more concrete.
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For ArcheAge Chronicles, although we did not open this externally, we've been undertaking user tests for about seven to eight times. Many internal validations have been ongoing, to enhance immersiveness, the depth of the creation, and of course, tech stability as well. The polishing work has been going on. Within the end of the year, against about 100 Western core users, we are at this point making preparations to do a test against 100 or so Western users in the first half of next year. Basically, we are going to carry on with core system related tests to improve and to verify the game ability in next year.
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For Project Q and Project OQ, you mentioned that as well. It is being developed by a well-seasoned MMORPG game studio, so the structure and the overall framework is highly developed in terms of the depth and in terms of the level of completeness. But mobile MMORPG market in Korea is highly competitive, so we're very much focusing on creating the originality, the differentiating characteristics, and the edge that the game offers. For Project O as well, we are focusing on really making a distinct combat experience, as well as the combat and the realm versus realm type of a fight across different groups to really maximize on the fun that the game offers. So these two game titles are currently going through the development process as according to the previously said timeline.
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Responding to your question on increasing the bottom line, at this point, the company is mindful of redesigning the overall company-wide cost basis, and we are focusing our efforts to make sure that we redesign so that we can defend our bottom line. That is also the perspective that we are taking when we're looking at the live title update schedule as well.
Now, the timing of when that profitability rebound is going to come is going to be dictated by when the new titles are released and the performance contributions made by such new titles. In coming up with the financial planning for 2026, we're, at this point, very closely reviewing different aspects, but we are making our planning based on the assumption, the conservative assumption that is, that things may turn for worse in the first half of next year. It's under that conservative approach that we are allocating our resources to make sure that we come up with the most optimal financial planning.
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Next question, please.
[Non-English content] The following question will be presented by HeeSeok Lim from Mirae Asset Securities. Please go ahead with your question.
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I just have one simple question. Google and the global market is removing the fees, and they're allowing for off-platform payment as well. Just wondering whether Odin has plans to develop its own payment launchers, for instance, providing the payments method and scheme within the game.
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So as you know, this is a topic that will require the overall decision as well as approach by the industry as a whole. There were mention of such during the National Assembly hearing, and there were relevant messages that's been communicated that really showed the will and the determination as well as direction forward. It's now a matter of timing, but we have the infrastructure and structure in place prepared, so when that time comes so that it could be actually implemented. It's actually been applied to some games, especially the global games. The preparations are in place. The question is in terms of the timing. Once that decision is made, we will be able to come back to you and share with you more details.
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Next question, please.
[Non-English content]. Currently, there are no participants with questions. Please press star one, star and one to give your question.
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Thank you. If you have any unanswered questions, please feel free to contact us at the IR team of Kakao Games. This ends the Q3 2025 earnings conference call of Kakao Games. Thank you, everyone.