Good afternoon. This is Tang Li from Netmarble's IR team. I thank the investors and analysts for taking time out of their busy schedules to attend the Q2 2022 earnings release session of Netmarble. Today, here with us are CEOs Kwon Young-sik and Do Ki-wook and Lee Seung-won, President of Global Headquarters. They will be addressing questions after the results presentation. Please note that the content presented today have yet to undergo an independent auditor's review and could be subject to changes upon such review. Now CEO Do will give us the results presentation. Good afternoon. This is Do Ki-wook. I will start with an overall results presentation for Q2. Please refer to page three. Q2 revenue at KRW 660.6 billion grew 14.4% YOY and 4.6% QOQ with new title launches, including Ni no Kuni Global.
With marketing expense increase with the new titles, EBITDA at KRW 21.5 billion saw a decrease by 48.6% YOY and 53% QOQ. EBITDA margin rate was at 3.3%. Next page is on operating profit and net profit. In Q2, the company recorded an operating loss of KRW 34.7 billion, net profit loss of KRW 120.5 billion, and controlling shareholders' net loss of KRW 118.3 billion. Non-operating profit decreased by KRW 86 billion over the previous quarter. This was mainly due to the won depreciation and the resulting FX loss related to foreign currency borrowings. Next page is on revenue based on geography. Overseas revenue in Q2 was at KRW 558.5 billion. Overseas revenue contribution rose one percentage point QOQ at 85%.
The regional breakdown is as follows: North America 49%, Korea 15%, Europe 12%, Southeast Asia 11%, Japan 8%, and others at 5%. Next page is breakdown by genres. In Q2, our portfolio remains diversified with casual games 47%, MMORPG 22%, RPG 22%, and others at 9%. Next page is on our diversified games portfolio. As of end of Q2, Ni no Kuni: Cross Worlds accounted for 10% of revenue, MARVEL Contest of Champions 10%, Cash Frenzy 8%, Jackpot World 8%, and Lotsa Slots 8%, The Seven Deadly Sins: Grand Cross 7%. Next page is on major cost structure.
Q2's operating expense was at KRW 695.3 billion, which is a 23.9% increase YOY and 8.1% increase QOQ. Fees and commissions paid was at KRW 260.8 billion. With increase in revenue, it increased 7.1% YOY and 6.2% QOQ. Labor cost was at KRW 189.7 billion. With more headcount with our new title development, it saw a 22.7% increase YOY and 1.5% increase QOQ. Marketing expense recorded KRW 144.4 billion. With multiple new title launches, including Ni no Kuni, it increased 43.8% YOY and 28.0% QOQ.
Lastly on our lineup. In the second half of the year, there will be introduction of six new games, of which three uses blockchain technology. They are Meta World: My City, Monster Arena Ultimate Battle, and The King of Fighters Arena. The other titles are Paragon: The Overprime, BTS Dream: TinyTAN House, and Charlotte's Table.
The company has accumulated experience and know-how related to blockchain and laid the foundation for blockchain ecosystem creation. Since the market is quite young, the company continues to make various attempts. The gained experience and learning will positively affect future games to come.
New titles of different genres and platforms will be launched in the second half, and the company hopes to add much sophistication to them through various attempts and tests. The staff and management will further accelerate our efforts to show added development, and we look forward to your interest and support.
This concludes my presentation. Now we will be entertaining your questions.
Now Q&A session will begin. Please press star one, 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. The first question will be provided by Junhyun Kim from HSBC. Please go ahead with your question.
Yes, I will give you the translation of the two questions first. First question is related to marketing expense. Your marketing expense saw a rise in the Q2 with launch of several new titles. I, from your presentation, gather that you also have plans to launch new titles in the Q3 plus the second half of this year. What is your forecast on marketing expenses going forward? Could you give us your expectation for the overall revenue in the second half of this year as well? My second question, what is the major lineup that the company has high expectations for in the second half and also going into the year 2023?
Yes, this is CEO Kwon addressing your question. Well, it's true that we saw a rise in our marketing costs in the Q2. It was due to the pre-launch marketing activities for Ni no Kuni, and also with the launch marketing activities related to new titles. Well, there was the pre-launch marketing activity for Seven Knights Revolution as well as there was also marketing activities after the launch. Going into the Q3, there won't be any pre-launch marketing activities. There won't be much pre-launch activity in the Q3. We do foresee the marketing expenses to we'll see a slowdown in the Q3. With the new titles that were launched in the Q2, it will be reflected in full starting the Q3.
We do hope to see some rise in our revenue numbers as well.
Our expectations for new launches in the second half. As was mentioned during the presentation, we will be launching three new titles that makes use of blockchain. Of them, we have big expectations for Meta World: My City. As for our expectations in the first half of 2023, we have plans to launch and introduce Arthdal Chronicles and Solo Leveling: Arise, and Tower of God: New World, and Paragon: The Overprime, and HypeSquad. They're all big titles, and with that, we do expect to see good revenue numbers going forward.
We will entertain the next question. The following question will be presented by Eui-hoon Lee from Eugene Investment & Securities. Please go ahead with your question.
Yes. I have two questions. First is on your labor cost. I believe that your labor cost was more or less similar to the level that you witnessed in the Q1. Do you expect this level to maintain going into the Q2? Will there be any hefty incentive payments at end of year, which will influence your labor cost? The Seven Knights Revolution that you introduced. I believe the results from Seven Knights Revolution will be reflected starting Q3. How is it performing to date? Do you have any future forecasts or expectations for Seven Knights Revolution? My second question is related to your lineup that will be introduced in the second half of the year.
You've given us some taste of your future titles lineup, but could you be please more specific and divide it into Q3 introductions and Q4 introductions?
Yes, this is CEO Do addressing your question related to our labor cost. Well, until recently, the development companies, the producing companies, they actively recruited new personnel in order to invest in their new title. However, going forward, we will be giving more consideration to the macro aspects, and on a group level, we will be seeing a limit to how much the headcount could grow. Going forward, there won't be much of an headcount increase, and our labor cost will be maintained at the current level.
Seven Knights Revolution.
Yes. This is CEO Kwon addressing your second question. Well, when it comes to Seven Knights Revolution, it's a bit less than what we have internally expected, but it is being serviced in a very stable way, and we are readying ourselves for an update. With that, so we believe the results from Seven Knights Revolution will stabilize going forward. As to the breakdown by quarters. In the Q3, according to the test results, Charlotte's Table could be launched in September. As for the Q4 lineup, it will be mainly the blockchain technology using titles that we have mentioned.
Next question, please. The following question will be presented by Lim Hee-seok from Mirae Asset Securities. Please go ahead with your question.
Yes, you have, as you've mentioned, launched Ni no Kuni: Cross Worlds globally, and with that launch, were there any meaningful changes to your pathway, any meaningful results? My second question is also related to blockchain games and is associated to traffic. With titles such as Golden Bros, did you witness any meaningful traffic changes?
Yes. This is CEO Kwon addressing your blockchain-related question. To date, we have launched three titles that makes the use of and adopts blockchain technology. The first was A3: Still Alive. The traffic started low, but it has grown by tenfolds, and the tenfolds growth has also translated into revenue. The second title that used the blockchain, it's Ni no Kuni: Cross Worlds global. The traffic is to our expectation, and especially retention is good in Southeast Asia region. Our third attempt was with Golden Bros, and it was an attempt with a different genre. To be honest, the result is not really to our expectations.
We have made these three attempts to date, and with that, we are studying in-depth the crypto market and also the P2E market from the user's point of view. We have learned about acquisition and also on blockchain operation and management. With all these learnings and know-how accumulation, we believe that we could improve our attempts further when it comes to building a good, healthy blockchain system.
Next question. The following question will be presented by Young-Sam Kwon from Daiwa. Please go ahead with your question.
Uh,
Yes. This is CEO Kwon addressing your question. Yes, my question is related to your debt structure. Well, do you have any plans to see an improvement to your debt structure, maybe perhaps to the end of this year or even further going into next year, with the given global inflation situation? Well, do you feel additional pinch when it comes to your financial situation and there being attempts or efforts to, adjust your debt level? My second question is related to your previous answer related to your subsidiaries. You've mentioned in your answer that, labor costs would be curbed. Well, do you have any plans to downsize, any of your studios or any of your subsidiaries? Yes. This is CEO Kwon addressing your borrowings question.
Yes, it's true that we have foreign currency denominated borrowings, and whenever there is a foreign currency exchange rate fluctuation, it does have an influence to our financials. Having said that, our debt ratio is not at a precarious level. It's not much of a stretch. When we can roll over, we will be rolling over our borrowings. When we can service our debts, well, if that's a possibility, we will be servicing them. As was disclosed, well, we are going to see a reduction of capital for SpinX and using that, funding, we will be leveling down our foreign currency denominated borrowings. We could also use dividends from our subsidiary companies to service our existing debts. Also, if it's a possibility, we could see some divestment of our assets, for the purpose of servicing our debts.
At this given point in time, we do not have any specific plans for asset sales, but we will be looking at the market, also the share moves and also the results of our assets. If there is a possibility that arises, we could, perhaps sell some of the assets that we hold. To address your second question, well, I did mention that we are going to control our labor costs going forward, but it means that we won't be adding on additional headcount. It does not indicate any restructuring or downsizing efforts. If I may add, well, especially for our developers, we're going to see an added efficiency. Next question.
Currently, there are no participants with questions. Please press star one, star and one to give your question. The following question will be presented by Junhyun Kim from HSBC. Please go ahead with your question.
Yes, I have an additional question related to your blockchain forecast. Well, recently the cryptocurrency market has seen a downfall. What do you think? What does the management think about the blockchain environment or the blockchain market as a whole? How much of a success do you think you can enjoy in the blockchain environment? My next question is related to game ability of MetaWorld. Could you please describe the game ability of MetaWorld?
사실 가상화폐 시장을 제가 전망한다는 건 굉장히 어려운 것 같습니다. 근데 이제 초기 5월 초에 이 시장 충격이 굉장히 컸었는데, 그나마 지금 한 2개월 정도 지난 이후 시점을 보면 조금 안정화를 찾아가는 걸로 보여지고 있고요. 또 하나는 이제 저희들이 게임 서비스를 그 이후에 시작해서, 제2의 나라 론칭을 해보면서 느낀 건데, 과거 대비 크립토 유저가 게임에 진입하는 수가 좀 줄었다라는 거는 느끼고 있습니다. 근데 이거는 결국은 저희들이 서비스를 하고 있는 콘텐츠 사업자가 시장에 얼마만큼 좋은 신뢰를 가져가느냐의 문제라고 보고 있고, 그래서 저희들은 게임을 서비스하면서 이 크립토 시장에서 신뢰 회복을 하기 위한 다양한 운영에 대한 준비들을 해나가고 있습니다.
Yes, this is CEO Kwon addressing your very difficult question. Well, it's close to impossible that I give a forecast on how the cryptocurrency market will move. Well, as we are all aware, there was a tremendous shock to the market in the early part of May. Two months after that, we are seeing some stabilization in the cryptocurrency market. Well, Ni no Kuni Global was launched after all that, and we began servicing our game after the big crash. Well, it's true that the crypto users coming into play our game, the number has seen somewhat of a decrease. But as a content player, well, it's winning the trust of the market itself. It's up to us to build the trust with the crypto market.
Metaverse World 플랫폼에 대한 얘기를 좀 드리겠습니다. Metaverse World 플랫폼은 현재 저희들 자회사인 넷마블F&C에서 운영을 하고 있는 상황입니다. 지금 Metaverse World는 게임을 온보딩시키는 방식의 서비스를 하고 있습니다. 넷마블은 게임 퍼블리싱 형태의 사업을 한다면 Metaverse World에서는 온보딩 형태를 준비를 하고 있고, 아직은 이번에 Golden Bros 외에 여러 개 게임들을 지금 준비를 하고 있지만, 첫 번째로 Golden Bros를 론칭을 한 거고요. 향후에 추가적인 게임들을 계속 온보딩해 나갈 계획입니다.
Some more word on Metaverse World platform. It's currently run by Netmarble F&C, our subsidiary. What they do is onboarding services. We are the publishers and they engage in onboarding services. Their first attempt was with title Golden Bros. They are planning for additional launches as well.
그리고 Metaverse World 안에 Metaverse 게임을 준비하고 있는 게 있는데, Metaverse 게임은 아직 그 초기 기획 단계다 보니까 구체적으로 어떤 형태의 게임이 만들어질 거라는 거에 대해서는 현재는 사실 공유해 드리기 좀 어려운 것 같습니다.
Within the Metaverse World, the subsidiary has plans to prepare and produce games, but it's still very early in the planning stage. At this given point in time, it's very difficult for me to give you more detail.
다음 질문 받겠습니다.
Next question.
현재 질문을 요청하신 분은 없습니다. 질문을 요청하실 때까지 잠시 기다리겠습니다. Currently, there are no participants with questions. We will wait for a second until there is another question.
이것으로 넷마블 2022년 2분기 실적 발표를 마치겠습니다. 추가 질문 있으신 분들은 당사 IR팀으로 연락 주시기 바랍니다. 참석해 주신 여러분께 진심으로 감사드립니다.
This concludes the results presentation for Q2 year 2022. Should you have any further questions, please don't hesitate in contacting the IR team. Thank you.