Good afternoon, everyone. This is Jang-Wook Lee, Head of IR at NCSOFT. Thank you so much for participating in the NCSOFT Earnings Conference call for the second quarter of 2024. We have CFO Willie Hong joining us for today's conference. Now, without further ado, let me begin with the financial highlights.
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Second quarter sales recorded KRW368.9 billion, down by 7% quarter-on-quarter and 16% year- on- year. Operating profit fell 66% quarter-on-quarter and 75% year- on- year, totaling KRW8.8 billion. Pre-tax income posted KRW84.9 billion due to the increased gains on the foreign currency driven by strong dollar, which is an increase of 8% quarter-on-quarter and 117% year-on-year. Net income was KRW71.1 billion, up by 24% quarter-on-quarter and 133% year-on-year.
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Moving on to the sales by platform, second quarter mobile game sales recorded KRW282.2 billion, down by 13% quarter-on-quarter, with the sales of Lineage M recording an uptick while sales of other mobile games dropped compared to the last quarter. Second quarter PC online games posted sales of KRW86.2 billion, down by 6% quarter-on-quarter. The sales of Lineage experienced a quarter-on-quarter increase, while the sales for other PC online games declined from the previous quarter. Lastly, royalty sales increased 15% quarter-on-quarter to KRW37.7 billion. NEO Classic server update resulted in increased royalties for the PC version of Blade & Soul in China compared to the previous quarter.
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Next to the operating costs, second quarter operating costs totaled KRW360 billion, down by 3% quarter-on-quarter and 11% year-on-year. Labor costs yielded KRW188 billion, down by 7% quarter-on-quarter and 10% year-on-year. Severance benefits from recommended resignation were reflected, but long-term incentive reserves and other costs dropped. Marketing costs rose 152% quarter-on-quarter to KRW172.4 billion, driven by promotional campaigns for the large-scale update of Lineage M and marketing activities for new releases. Depreciation was flat quarter-on-quarter and year-on-year, totaling KRW27.9 billion. Variable costs and other expenses totaled KRW126.8 billion, down by 6% quarter-on-quarter and 19% year-on-year. The decline in the sales of mobile games resulted in lower distribution fees.
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Good afternoon, I'm CFO Won-Jun Hong. Like Jason just mentioned, during the first quarter earnings call, we announced four key initiatives for NCSOFT's sustained growth. Those are: first, sustained sales growth; second, improving cost efficiency; third, efficient distribution of resources; and fourth, share price management, including the treasury stock buyback. Over the past three months, NCSOFT has been delivering on all four initiatives as promised at a rapid pace, and today we'd like to share the details about our progress. Firstly, let me begin by what we achieved regarding the first initiative, the sustained sales growth for stabilizing legacy IP sales and expansion to overseas region.
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Firstly, for the sales growth of NC's existing IPs, in June, NCSOFT showcased a reboot world with unique ecosystem for Lineage M, which has led to remarkable achievements with 1.5 times higher number of active users, 2.5 times greater daily average sales, and 2.5 times higher number of paying users during one month before and after the update. This upbeat user trend has been well maintained so far, which will continue during the second half of 2024. Apart from the Lineage M, we'd like to apply the successful approach to other titles as well, with a comparable large-scale update planned for Lineage2M this month. Overseas releases are also on track as initially planned. We're going to launch Throne and Liberty globally, Blade & Soul 2 in China, and Lineage2M in Southeast Asia within the year. Establishing a joint venture with our local company to launch Lineage2M in Southeast Asia will be completed soon.
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For the sales growth of new titles, new titles will be released as promised. I told you during the last earnings call that three new games based on the legacy IP were under development, and one of them will be launched globally during the fourth quarter of 2024, with its teasing campaign starting to be rolled out within this month. The remaining two games will be slated for launch during the first half and second half of 2025, respectively. Blockbuster titles Project G, AION 2, and LLL are under development, targeting the first half, second half, and fourth quarter of 2025 for launch, respectively. In addition, two casual games will be launched in 2025. Looking ahead to 2026 and beyond, we're also working on a global IP-based new MMORPG, a brand new shooter game with a differentiated concept in a bid to secure long-term growth engines.
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Apart from the sales growth for existing IPs as well as new titles, there are two more areas that we've been focusing on, and this is regarding our external collaboration. Pushing ahead with inorganic growth for NCSOFT's globalization efforts is that firstly, as part of the dual track strategy to explore drivers for business diversification from outside, we've been pursuing equity and publishing right investments in external game developers, and this effort recently came to fruition in the form of our very first investments in Moon Rover, a Sweden-based game developer and VIC Game Studios, which we'll communicate today. For Moon Rover, we'll closely monitor how the project will be progressing and discuss more deeply, including further investment and publishing rights. With VIC Game Studios publishing a new title called Breakers: Unlock the World is expected to bolster NCSOFT's portfolio and contribute to user diversification.
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Once again, allow me to reiterate that our strategic investment activities do not end with these two recent transactions. We will continue to identify more investment opportunities and actively pursue business diversification by leveraging both internal and external capabilities. Secondly, we are simultaneously moving forward with a large-scale M&A, which will allow us to immediately secure global business portfolio and financial performance by acquiring a global gaming entity. We'll make sure to communicate more once the outcome materializes.
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The last piece of our sales growth will be the platform PURPLE. I believe we're going to share some good news on the business strategy of the PURPLE platform very soon. We'll announce a detailed onboarding plan for four AAA games to PURPLE next week and begin the first release starting this month. The onboarding will be followed by a series of global AAA releases within the year, and for mid to long term, we're exploring ways to expand our publishing business for new titles targeting global market with PURPLE .
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Next to the topic of cost efficiency, like I said during the last earnings call, recommended resignation and corporate spinoffs will allow us to streamline the headquarters headcount to around mid-4,000 with relevant procedures still ongoing. We'll keep doing our best to achieve cost efficiency by freezing new hires apart from mission critical areas. Regarding the liquidation of non-business assets, like I said during the last conference call, we completed the process of selecting an advisory to sell off NC Tower in Samseong-d ong and undertook necessary steps for the asset disposal. We also bought back treasury stocks worth KRW100 billion in July. When establishing a new dividend policy for 2025, we are planning to announce a shareholder return policy incorporating the utilization of treasury stocks and cash dividends, as well as considering the retirement of treasury stocks for the amount exceeding 10% of the ownership.
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Lastly, as I explained so far today, we've been ramping up our efforts to carry out the key initiatives we announced during the last earnings conference. We are committed to pushing forward and making sure to deliver tangible results, which we'll continue to communicate with the market. On that note, let us wrap up the earnings call presentation for the second quarter of 2024, and we will answer your questions. Thank you.
[Foreign language] 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. [Foreign language] The first question will be provided by Eric Cha from Goldman Sachs. Please go ahead with your question.
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Hi, I'm Eric Cha from Goldman Sachs. Thank you for taking my questions. I have two questions. First one is about the sustained sales growth. After the successful update for Lineage M, you said you will apply similar approaches to the Lineage 2M, Lineage W. As far as I understand, Lineage M showed stable revenue, stable sales from the past, whereas Lineage 2M and Lineage W's structural weaknesses have already been exposed. What do you think is the difference that makes these differences in the sales? Is it the strength of the IP itself? Is it monetization scheme, or is it because of the competitors? If you have that answer, how will you stabilize the sales for the other titles apart from Lineage M? When will be the timeline for that to be made possible? The second question is about your strategy. You mentioned a lot about M&As, and I understand those volumes of M&As aren't that significant. That guarantees lower risk, but I was wondering if that could generate enough returns to fundamentally address NCSOFT's issues. You seem to be focusing on expansion to new genres of game. NCSOFT has been very successful in MMORPG space, and I believe the internal resources are all centered towards developing an MMORPG game. I was wondering if the resources are aligned to develop another kind of genres. In a nutshell, what are the reasons or background for focusing on the diversification, and why do you think it's the better choice?
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Thank you for your question, Eric. To answer your first question, we admit that there is a difference between Lineage M and Lineage 2M and Lineage W. It is also true that the other two Lineage titles were affected by fierce competition. But we clearly identified there is a clear upward trend in the traffic with the recent successful update for Lineage M. By applying a similar approach to Lineage 2M, Lineage W, we can attract more new users as well as having those lost users coming back to play the game. We will add new content and open a new server so that players can find it more accessible to play the game again, which will, we believe, result in a significant rebound for sales and traffic.
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To answer your second question, this is also related to my answers to the first question: NCSOFT has significantly grown with the success of its MMORPG titles, and this is the field that NCSOFT can really excel in. But diversification doesn't mean that our focus and efforts for the MMORPG genre will be affected. With our expertise, know-how, technical prowess for existing IPs, as well as user-friendly approach, we will allow ourselves to achieve higher sales and profitability, and we will keep doing this with the legacy IPs as well as MMORPG games that we have expertise in.
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Regarding the diversification, recently there has been an organizational restructuring inside, and I can say that apart from the legacy IPs, we have separate organizations to develop new genres of game, and we have chiefs overseeing those organizations. We have sufficient numbers of developers and resources as well as support functions for these new projects. I can say that we have enough resources to venture into new genres of game. If there is a need for any collaboration with outside partners for regional expansion or developing a new genre of game, we will definitely collaborate with our partners as well as investing in certain game developers. I'd like to emphasize that there is a clear distinction between investment and M&A, and I don't want you to confuse the two initiatives from our side, which is that investment can be a seed round investment or investing in publishing rights, whereas M&A is an initiative that we'd like to take in a sizable volume considering the overall direction as well as overall profitability. This is a two-track strategy which will be carried out in parallel, and we will communicate with the market once we have tangible outcomes.
[Foreign language] The following question will be presented by Dong-geon Lee from Macquarie Securities. Please go ahead with your question.
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Thank you for taking my question. I have two questions. First one is about M&A. I understand you've been making efforts in this regard from a while ago, and like you communicated during the last conference call, M&A is an important initiative for NCSOFT, and I was wondering if any criteria or standard for selecting the potential M&A candidates have changed. Secondly, regarding the labor cost, what was the amount related to the recommended resignation for the second quarter? Are there any additional cost savings or number of recommended resignations for the third quarter?
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Thank you for your questions. The criteria for M&A hasn't changed at all. We are looking for potential M&A candidates from home and abroad in the gaming industry. When we look at the overseas game studios, regional implication is something that we've been taking into consideration a lot. Whether the management capacity can be maintained is an important criteria that we take into consideration for M&A. When the management pool leaves the company, it can become a shell. Most importantly, the price of acquisition is critical, and it should be in the interest of our shareholders. We will make sure that M&A will not disrupt the value, and we will also care about the EPS accretion The same approach is applied to the M&As in the domestic industries. Rather than any changes regarding the criteria, we've been more selective in choosing our potential partner.
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And.
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To answer your second question regarding the headcounts, we first reduced the scale of executives at HQ. Earlier this year, we cut 20% or one-fifth of HQ executives, and we started a recommended resignation program from the month of May, which will be ongoing until the end of this year. Like I said during the last conference call, the number of headcounts at HQ will be around mid-4,000 around the end of 2024. Regarding the cost, the labor cost dropped by 7% in the second quarter compared to the previous quarter to stand at KRW180 billion, which is a 10% decline year-on-year. This includes severance packages for the recommended resignation and long-term reserves, which I can't disclose in detail. This is the cost report for your question.
[Foreign language] The following question will be presented by Donghwan Oh from Samsung Securities. Please go ahead with your question.
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Thank you for taking my question. I have two questions. First one is about the disappointing results from the recent launch of Battle Crush. What do you think are the reasons for the disappointing results? Also, despite the new lineup of new games, including Hoyeon, it seems very challenging to achieve any successful records. What will be the success factors in your opinion? Secondly, you mentioned blockbuster games to be released, including TACTAN and AION 2. How can these blockbuster titles be successful in your opinion? These are my questions.
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Thank you for your question. Regarding the Battle Crush, whether it was disappointing or not depends on your expectations. But what I would like to share is that when we try new genres of game, we don't necessarily always expect perfect and most successful financial results. The management's philosophy is that we are open to new projects, and if we can find successful projects, then we can support them further. If there are any financial achievements from those new projects, that will be great. Regarding Hoyeon, now we are in the process of finally polishing the game, and we are also waging marketing campaigns as well as carrying out additional testing. I understand that some communities had mixed response to the game, but those players who actually experienced the gameplay were very positive about the game build. So we are excited about the new content and the achievements it will generate.
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Regarding the second part of your questions, the most anticipated blockbuster IPs. For LLL and AION 2, the dev team for these two projects have a strong understanding of the genre and technical expertise as well as experiences. We are excited for the project teams to finally come up with the new games. For Project G, which is officially named TACTAN , this is a new genre of game that combines a strategy game with a simulation. Compared to the existing strategy games that are focused on simple tactics, it has unique selling points that emphasize its gameplay. How to fully monetize the game is something that we are deeply discussing internally and externally. We will communicate the details about these new releases and anticipated titles going forward.
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Thank you all for your participation despite the market conditions today. On top of the earnings conference call, we will keep communicating with you guys and the market about our development timeline as well as release timelines. Thank you again for your participation.