Good morning and good evening. Thank you all for joining the conference call for the Netmarble earnings results. This conference will start with a presentation, followed by a Q&A session. If you have a question, please press star one on your phone during the Q&A. Now, we will begin the presentation on Netmarble's second quarter of fiscal year 2025 earnings results.
[Foreign language].
Hello, this is Jiwon Lee, Head of Netmarble IR . Thank you sincerely to all investors and analysts who have taken the time to attend our 2025 Q2 earnings conference call amidst your busy schedule. Present with us today are CEO Byung-Gyu Kim, CFO Ki-D o, and other members who will also be available to answer key questions following the earnings presentation. Please note that this presentation is prepared prior to the completion of our external audit. Therefore, some details may change based on the audit results. Now, I'll hand it over to CFO Ki-Do to proceed with the earnings presentation.
[Foregin language]
Good afternoon, this is Ki -Do. Let me begin by presenting our business results for the second quarter of 2025. Please refer to page two.
[Foreign language]
Q2 revenue came in at KRW 717.6 billion, up 15% quarter-over-quarter, and down 8.2% year-over-year. EBITDA was KRW 131.1 billion, up 60.7% quarter-over-quarter, and down 13.2% year-over-year. EBITDA margin was 18.3%. Both revenue and EBITDA saw a significant increase from the previous quarter, driven by the full quarter revenue recognition from RF Online Next and the successful launch of Seven Knights Rebirth.
[Foreign language]
The next page covers operating profit and net income. In Q2, operating profit was KRW 101.1 billion, net income was KRW 160.2 billion, and net income attributable to controlling shareholders was KRW 160.3 billion.
[Foreign language]
The following page provides an overview of our game portfolio. As of the end of Q2, revenue contribution by major titles was as follows: Seven Knights Rebirth 13%, RF Online Next 9%, and Marvel Contest of Champions 9%, demonstrating continued diversification of our game portfolio. Notably, Seven Knights Rebirth and RF Online Next both ranked No. one on the two major app markets within six days and five days of launch, respectively, and have continued to deliver solid performance to date. We plan to maintain this momentum through ongoing updates and regional expansion to drive long-term results.
[Foreign language]
Next is a breakdown of revenue by region and genre. In Q2, the full quarter contribution from RF Online Next, which was first launched in Korea, along with the release of Seven Knights Rebirth, led to a 16% increase in domestic revenue share compared to the previous quarter. Revenue contributions from the MMORPG and RPG genre also rose by 4% and 6%, respectively, quarter-over-quarter. For your reference, Q2 regional revenue breakdown was as follows: North America 35%, Korea 34%, Europe 12%, Southeast Asia 7%, Japan 6%, and others 6%. By genre, RPG accounted for 42% of revenue, casual games for 33%, MMORPG for 18%, and others for 7%.
[Foreign language]
The next page outlines our key cost structure. Operating expenses in Q2 amounted to KRW 616.5 billion, up 7.4% quarter-over-quarter, and down 8.1% year-over-year. Marketing expenses rose to KRW 135.4 billion due to the launch of new titles. However, marketing spend as a percentage of revenue remained at 18.9%, a level similar to the previous quarter, reflecting continued execution efficiency. Labor expenses were up 1.6% quarter-over-quarter, largely due to wage increases, but were down 4.3% YoY. Lastly, commission fees rose 10.6% quarter-over-quarter from increases in revenue, but the commission rate decreased by 1.3 percentage points to 33.8% as sales of self-developed IP titles increased.
[Foreign language]
Next, let me walk you through our upcoming game lineup. In the second half of the year, we plan to launch a total of seven new titles, including King of Fighters AFK, Vampires, and Stone Age Pet World. Among them, Vampires, which features a vampire concept, is scheduled for release on August 26. In addition to these new releases, we also plan to expand the regional availability of existing titles such as RF Online Next and Seven Knights in the second half.
[Foreign language]
Thanks to the consecutive success of new titles launched in the first half and the leverage effect from improved cost structure, we achieved solid results in the second quarter with both top line and profitability growth. In the second half, we will continue to manage the product lifecycle through operational capabilities based on user communication and global expansion. At the same time, we aim to maintain stable performance momentum by launching competitive new titles that reflect our unique success know-how.
[Foreign language]
That concludes our earnings presentation. We'll be happy to take any questions you may have. Thank you.
[Foreign language]
Now Q&A session will begin. Please press star one, that is star 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 two on your phone. The first question will be provided by Eui-hyun Chung from Yujin Investment & Securities. Please go ahead with your question.
[Foreign language]
Thank you for this opportunity. I would like to ask two questions. You have been able to post very favorable Q2 results, and that is why I am very much interested in whether or not the company has any plans to change its posture related to how it will manage its cost structure in the second half. Would there be any implications on the labor expenses or marketing expenses? If so, please elaborate. My second question is related to debt repayment. There is also talk about asset monetization and further divestitures that may be possible. If you can further elaborate on any plans related to debt repayment, that would be very helpful.
[Foreign language]
This is CFO D o. Let me first answer your first question. You asked whether or not there could be any possible change to how the company manages its cost structure. In respect to this, we have continuously been communicating with the market that we aim to continue making our cost structure more efficient. That stance remains unchanged and will continue to manage the labor expenses and marketing expenses. I think what's important is for you to actually look at the percentage of these expenses to our overall revenue rather than looking at the absolute amount of these respective items.
[Foreign language]
On your second question related to debt repayment, basically, when we're talking about debt repayment, this is very much tied to asset monetization, and we are very much mindful of the fact that we have to continue to look at the overall market situation in this area. We not only have to look at the global metrics such as the interest rate trend, but at the same time, we have to also monitor closely the trends in the capital markets. Whether or not we actually execute any monetization effort and how we actually time this, this is going to be something that we'll continue to monitor to identify what would be the appropriate timing for the company. At the present time, we do not have any specific plans related to any asset divestiture.
[Foreign language]
We'll move on to the next question.
[Foreign language]
Currently, there are no participants with questions. Please press star one, star one to give your question.
[Foreign language]
The following question will be presented by Sun Park from Morgan Stanley. Please go ahead with your question.
[Foreign language]
Good afternoon, and also thank you for this opportunity. I have two questions. My first question is related to the recent performance of your titles, Seven Knights Rebirth and RF Online Next, which have majorly contributed to the improved performance in Q2. As we move into Q3, we also can see that the revenue of these titles may actually decline. I'd like to hear from the company whether there could be a turnaround and you can actually provide additional opportunities to see revenue pick up again. Are you planning any specific updates that will be conducive to this? Moving to my second question, it's related to your earnings and assuming that non-operating profit has contributed also significantly to the performance that you are stating today. Can you be more specific as to exactly what was the non-operating profit factor that contributed to the overall improved profitability?
[Foreign language]
Hello, this is the CEO, Byung-Gyu Kim. With respect to your first question, we first look at the RF Online Next performance, and this is something that we actually see here becoming very stable in terms of the user uptake because it not only is based on the exchange, but we actually see that the overall economic system is well-rooted now with the game users. In terms of the revenue performance, it has entered, we believe, in a more stable phase. As you know, the genre, MMORPG, specifically in the Korean market, is a genre that is very fiercely competitive. Thus, some of the existing titles' performance will be impacted by potential new game releases as well as new titles that are scheduled to be released.
Nonetheless, we not only are planning to continue to provide updates, but at the same time, for Q4, we also have regional expansion planned in place. There will be additional game availability in markets such as Taiwan, Hong Kong, Macau, as well as Japan. That is going to actually continue to drive upwards the performance of RF Online Next. Moving to our outlook for Seven Knights Rebirth, as you know, Seven Knights, this is a remake of a well-known title, and there is always going to be a familiarity with the game users in respect to the legacy titles, but that is not always something that we can actually see as a boon or an upside because as you have a very strong user base, there is also a heightened expectation that you continue to have to satisfy as a game provider.
We not only will be planning various updates to continue to engage users for Seven Knights Rebirth, but more importantly, in the fourth quarter, we will have also the global launch, which is going to help to drive in the future the success of this title by being able to reach out to fans outside fans in various other regions as well.
[Foreign language]
This is CFO D o, and I will be answering your second question related to what was the driver for the increase in non-operating income. Of course, every quarter, we also have to recognize the equity method gains related to our holdings with HYBE and COE, but specifically for this quarter, one meaningful influence was the PRS contract that is in place related to the HYBE shares. Every quarter, we have to actually recognize the valuation gains and losses based on the PRS contract. If you look at the share prices of HYBE on a quarter-over-quarter basis, compared to the end of the fourth quarter, there was a much higher uplift at the end of the second quarter. Because of the higher share prices, we were able to post a higher non-operating profit.
[Foreign language]
We'll take the next question.
[Foreign language]
The following question will be presented by Junhyun Kim from HSBC. Please go ahead with your question.
[Foreign language]
I have two questions. Thank you for this opportunity. I would like to first ask about related to how your commission rate has been trending downward. This is also as a result, and at the same time, you have been able to also introduce your own PC payment options for your games as well. My first question is related to what portion does this take up? How much does the PC payment account out of the total? As you over time launch new titles, how will this portion be trending going forward? Moving to my second question, you have been very successful in releasing new titles, but of course, there is also a concern that whether or not the company can actually continue to sustain such success as well. I would like to ask about the further development that you have in place related to your game development pipeline.
Is there any possibility that there could be any delays in the schedule that you have related to releasing your new titles in the second half? Related to Seven [Knights Rebirth] as well as RF Online Next, are all the developments according to your schedule? Could there be any potential delay?
[Foreign language]
This is CFO Do. To answer your first question related to the commission rate, currently, we're actually being able—we have successfully introduced PC payment for 15 titles. Of course, as we launch new titles, our basic direction is that these new titles will also have the availability of making payments in the PC platform as well. Over time, you will continue to see as we implement this that there will be a downward trend related to how we manage the commission fees. When we do this, this is going to also have a positive impact on the company's bottom line.
[Foreign language]
[Foreign language]
This is CEO Kim. To answer your question related to the company being able to continue to perform and sustain these new title releases in 2025 and beyond, as we have mentioned previously, for this year and specifically for the second half, we are going to not only launch seven new titles, but for existing titles, for three of the existing titles, we will also do regional expansion as well. For these things that we have already announced, we believe that we can more than do these releases accordingly. In respect to that, we will be able to sustain our recent performance in being able to release these titles. Of course, you can actually look at our history, our track record, and I can say that we will be able to do this and sustain this without major problems and without major hurdles.
Now, in terms of the comment that you mentioned related to any concern about the delay in the release schedule, I think this is separate to the sustainability because in any games, there can always be a possibility that we may actually decide to reschedule the release date for a certain reason. There could be some last-minute optimization, polishing, or fine-tuning that we actually decide to do for the better performance of the games. From time to time, any delay that can happen in respect to the release schedule is something that does happen inevitably. Nonetheless, comparing ourselves to other companies, I can tell you that we can actually move very quickly. We'll make the right choices and prioritize accordingly so that we'll be able to do this in the most efficient fashion.
Moving to the 2026 games lineup, as we are currently discussing the 2025 game lineup, already we have to continue to support the release of seven new titles. We have to identify exactly when and what is the right timing to actually do the releases. With that, and this is something that we have to currently work on. At this point in time, to talk to you in Q2 about the lineup for Q2 2026, it is somewhat very difficult. We're not able to actually finalize the 2026 lineup as we still have to continue to successfully launch the upcoming titles in the second half of this year.
[Foreign language]
Next question, please.
[Foreign language] Daiwa Securities Capital Markets Korea [Foreign language]
The following question will be presented by Yeonseum Kwon from Daiwa Securities Capital Markets Korea. Please go ahead with your question . If you can hear me, we welcome your questions.
[Foreign language]
Thank you for this opportunity. I would like to just ask the CFO to clarify his comment related to which line item that the PRS contract contributed to. Is it non-operating income or is it operating income? Can you clarify?
[Foreign language]
Following the question that was asked earlier, it was asked to talk about and elaborate what was the reason for the change in the non-operating profit and loss. To clarify, this is related to the non-operating income.
[Foreign language]
We'll move on to the next question.
[Foreign language]
Currently, there are no participants with questions. Please press star one, star one to give your question.
[Foreign language]
If there are no further questions, we will conclude the 2025 Q2 earnings presentation at this time. For any additional inquiries, please feel free to reach out to our IR team. Thank you once again for your time.