Good morning, and good evening. Thank you all for joining this conference call for the earnings results by Netmarble. This conference will start with a presentation, followed by a Q&A session. If you have a question, please press star one, star and one on your phone during the Q&A. Now, we will begin the conference of the fiscal year 2024 first quarter earnings results by Netmarble.
Good afternoon. This is Dong-won Kim, Head of Finance and Planning at Netmarble. I thank the analysts and investors for taking time out of their busy schedules to attend our Q1 2024 earnings session. Today, we have here with us CEOs Young-sik Kwon and Byung-gyu Kim, and CFO Gi-wook Do. They will address your major questions after the results presentation. Please note that the contents presented have yet to undergo an independent audited review and could be subject to changes upon such review. Now, CFO Gi-wook Do will deliver you the results. [Foreign language]
Good afternoon. This is Gi-wook Do. I will give you the overall results for Q1 2024. Please refer to page 2. Revenue in Q1 decreased 12.0% QoQ and 2.9% YoY at KRW 585.4 billion. EBITDA decreased 30.6% QoQ and increased 112.4% YoY at KRW 42.7 billion. EBITDA margin rate was at 7.3%. Revenue and EBITDA decreased over the previous quarter, with no new releases. [Foreign language]
Next page is on operating and net income. OP recorded KRW 3.7 billion, and net loss KRW 9.9 billion in Q1. Controlling shareholders' loss was at KRW 400 million. Net loss saw a significant decrease because of the base effect of corporate tax recognition with asset divestment in the last quarter. [Foreign language]. Next page is on games portfolio. At Q1 end, three top-ranking titles were Jackpot World with 10%, Lotsa Slots with 9%, and Cash Frenzy at 9%. With updates on St. Patrick's Day and Valentine's Day, revenue increased over the previous quarter. Marvel Contest of Champions was at 8%, and Seven Deadly Sins: Grand Cross 7%, Seven Knights Idle Adventure, 5%. The portfolio continues to remain well diversified. Next is on regional and genre breakdown.
With the mentioned update effect for SpinX Games, North America's revenue contribution increased 3% QoQ, and casual games revenue proportion increased 7% QoQ. Q1 regional breakdown of revenue contribution was North America's 48%, Korea 17%, Europe 13%, Southeast Asia 9%, Japan 6%, and others at 7%. Casual games accounted for forty-seven percent of the revenue, followed by RPG at 33% and MMO RPG 9%, and others 11%.
[Foreign language]
Next is on cost structure. Q1 operating cost recorded KRW 581.7 billion, which is a decrease of 10.1% QoQ and 7.8% YoY. Fees and commissions paid was at KRW 227.4 billion, which is a 10.3% QoQ and 8.0% YoY decrease with reduced revenue. Labor costs recorded KRW 179.5 billion. With labor force rationalization, it decreased 1.8% QoQ and 4.3% YoY. Lastly, marketing costs recorded KRW 101.5 billion. With lack of new releases, it decreased 20.5% QoQ, and increased 1.2% YoY.
[Foreign language]
Now, on new releases. The company is planning to launch RAVEN 2 on May 29th. After that, we have plans to introduce four new titles, which are Seven Deadly Sins: Idle Adventure, King Arthur: Legends Rise, RF Online Next, and DEMIS RE:BORN.
[Foreign language]
Even with an absence of new releases, with continued cost rationalization efforts, the company was able to deliver an operating profit. In the second quarter, we will consecutively introduce new titles with different IPs, genres, and platforms to give new fun and experience to our users. With many new releases and thorough cost management, the company expects to see earnest profit expansion. So please keep your interest alive for our new leap forward.
[Foreign language]
This concludes our earnings presentation. Should you have any questions, we will be glad to entertain them. Thank you!
[Foreign language]
Now Q&A session will begin. Please press star one and star one if you have any questions. Questions will be taken according to the order you have pressed star one for translation please press star two that is star and two on your phone.
[Foreign language]
The first question will be presented by Dong-Hwan Kim from Kyobo Securities
Yes, yes. The first question was on Solo Leveling. You have recently launched Solo Leveling, and how do you view the early success? And what is your expectation for this new title going forward? And I would also like to hear your expectation for the second quarter and also the second half.
[Foreign language] 안녕하십니까? 권영식입니다. 나 혼자만 레벨업을 어제 론칭을 했습니다. 지금 하루 정도 지난 상황이라서, 현재 성과를 판단하기에는 좀 조심스럽지만, 전반적으로 사전 가입이 좀 만족스러웠고, 오비티를 저희들이 약 50일 진행했는데, 오비티 지표를 통해서 다양한 개선 사항을 적용을 했습니다. 그리고 이제 론칭을 하면서 스토리를 비롯해서 추가적인 콘텐츠 업데이트를 해서 론칭을 한 상황이라서 긍정적인 결과가 앞으로 나올 것으로 예상을 하고 있습니다.
... Yes, this is CEO Kwon addressing your question. As you're fully aware of, the title was launched yesterday, and it's only a day old, so it, I am rather cautious to be delivering definite expectation or forecast for this title. But as was witnessed through the pre-subscription or pre-registration process, we do have high hopes for it. And we've conducted 50 days open beta test, and we've made various improvements based on the results from the beta test. And accordingly, we've made updates on the content and the story. And with that, I believe that this title is quite competitive. So, it's only been a day old, but since its introduction, it recorded, the title recorded number one in many countries download numbers, and it also made top ranking in the Apple App Store.
Twenty-four hours into the birth of the game, we saw a daily average user of 5 million and a revenue number of KRW 14 billion, which is much higher than our initial expectations. And I can safely say that this was the best result from a new title ever.
[Foreign language]
Yes, this is CFO Gi-wook Do. He will be addressing the second question, which is on expectations for second quarter and second half results.
[Foreign language]
So if I may talk about the cost side of things first, we do expect to see an increase in the absolute amount of marketing costs with new title introductions, but we will be executing our marketing, efforts while keeping a keen eye on the results. And with that, we hope to thoroughly manage the percentage of marketing costs to revenue.
[Foreign language]
And now I will talk on our fixed costs. Labor costs accounts for a huge portion of the fixed costs, as does others. And as you would have seen from our results presentation, we are going to maintain our fixed cost spending going forward, so there won't be a significant rise to our fixed cost. And we will be maintaining this stance until the end of this year.
Well, if we see a revenue increase, we hope to directly translate this into profitability improvement. So, Arthdal Chronicles and the Solo Leveling games, which were recently introduced, well, the results from these new titles will be reflected in the second quarter, and with the reflection, you'll be able to witness significant improvement in our results.
[Foreign language]
And in the second half, our expectations for the second half, well, the two titles, the two new titles will be reflected for the full term in the second half, and we will also be introducing new titles, additional new titles. So for the year as a whole, we do expect to see a significant improvement in our results.
[Foreign language]
[Foreign language] The following question will be presented by Junhyun Kim from HSBC Securities. Please go ahead with your question.
[Foreign language]
...Yes, first of all, congratulations on the results. I have two questions. First is on differentiation. Well, you have RAVEN 2 and Arthdal Chronicles, and what's the difference between the two games? And is there any concerns about cannibalization between the two titles? This is my first question. And my second question pertains to your marketing endeavors. So, do you have any targeted percentage as to how much you would spend on new titles? Well, to revenue. So do you have any matrix that you go by? So this is my second question.
[Foreign language]
Yes, this is CEO Kwon addressing your first question. Well, what's the difference between RAVEN 2 and Arthdal Chronicles? That we have illustrated those differentiating points through our online showcase. Well, of all the MMORPGs out in the market, RAVEN 2 is associated with superior quality and triple-A level production and a very strong story and outstanding actions. So with simple manipulation, you could engage in massive warfare.
[Foreign language]
Now on the possible cannibalization between RAVEN 2 and Arthdal Chronicles. Actually, this is quite a frequently asked question, but the Korean MMORPG market as a whole is rather sluggish nowadays, and we need to grow the pie of the MMORPG market itself by introducing diverse concepts for the MMORPG genre.
[Foreign language]
Now on the guidance on the marketing spend of our new titles. Well, yes, we do go by a certain guideline. For the larger, productions, larger titles, we spend prior to launching a marketing expense somewhere around KRW 5 billion-KRW 10 billion. And after the launch, we execute marketing spending according to the results. So, within 2 to 3 months timeframe, right after the launch, it's under 20% of the revenue.
[Foreign language]
The following question will be presented by Yeji Yoon from Hi Investment & Securities. Please go ahead with your question.
[Foreign language]
Yes, I have two questions. Well, first one is, in regards to Solo Leveling. I have a question on the life cycle of the title. It's an action RPG game, and there are concerns of content stagnation. So for this title, how are you going to supply additional new content? This is my first question. And, now, the second question is on your webtoon usage strategy. As a larger game company, you are quite active in using external IP, especially the webtoon IPs, and you have proven quite a success with Solo Leveling. So what is your plan going forward in using external webtoon IPs?
[Foreign language] 그래서 저희들이 그 기본적으로는 스토리를 지속적으로 업데이트를 해가면서, 스토리가 끝난 유저들이 잠시 이탈을 하더라도 다시 새로운 스토리가 나오면 게임에 접속해서 할 수 있는 그런 구조로 준비를 하고 있고요. 그리고 현재는 약 20개월분의 스토리가 개발이 어느 정도 완료가 된 상황이라서, 그 이후에 대한 업데이트를 지금 준비를 해가고 있습니다.
Yes, now on your first question, a PLC related question. Well, the company is fully aware of the difficulties with PLC when it comes to action RPG titles, so we are going to continuously update the story. There may be some users who leave the game for a while when they have come to the end of the story, but when a new story is introduced, these existing users will come back to the title. And we have developed six months' worth of story already for the game, and after that we will be, of course, updating it.
[Foreign language] 그리고 두 번째로는 그 PLC를 꼭 그 단일 플랫폼 게임에서만 장기적으로 가져가는 것도 중요하겠지만, 현재 저희들이 모바일과 PC에서만 제공을 하고 있습니다. 그러나 향후 하반기에 스팀 플랫폼을 통한 출시, 그리고 내년쯤에는 콘솔 플랫폼에 대한 출시를 통해서 게임의 PLC를 장기화할 수 있도록 준비할 예정입니다.
And of course, it's important to maintain a product life, a longer product life cycle on a single platform. However, we currently only provide this title on the mobile platform and the PC type, PC platform. So in the second half, we could introduce a Steam platform version, and in year 2025, we could also launch the console version. And with all these activities, we will be able to prolong the PLC.
[Foreign language] 그리고 그 웹툰 IP 활용 방안에 대한 질문인데요. 사실 저희들이 이 IP를 활용하는 데 있어서 꼭 뭐 웹툰, 애니메이션 이렇게 딱 단정 짓지 않고, 게임을 개발하는 데 있어서 적합한 IP면 늘 검토를 하고 있는 상황입니다. 그래서 현재, 애니메이션 샹그릴라 프론티어를 비롯해서 다양한 IP를 통한 게임 개발을 진행을 하고 있습니다.
And now to the second part of your question, which is related to our usage of external IPs. Yes, we do use IPs from anime and webtoon, but we don't stop there. We are on a constant outlook for suitable IPs for the game titles. So one of them increased, Shangri-La Frontier.
[Foreign language] 네, 이런 게임들에 대해서는 향후 기회가 되면, 시장에 공개를 해서, 공개를 해드리도록 하겠습니다.
If there is an opportunity in the future, we will be giving you more information to the market.
[Foreign language] 다음 질문 받겠습니다.
Next question, please.
[Foreign language] 현재 질문을 요청하신 분은 없습니다. 질문을 하실 분은 전화기 버튼의 별표와 일번을 누르시기 바랍니다. Currently, there are no participants with questions. Please press star one, star and one to give your question.
[Foreign language]
This concludes the earnings presentation session of Netmarble. I thank you for your participation, and should you have any follow-up questions, please don't hesitate in contacting our IR team.