Good afternoon. This is Sophie Lee from KRAFTON's IR team.

Thank you, all investors and analysts joining us from home and abroad, for being with us today on today's Q2 2026 earnings call. With me today are CEO Changhan Kim and CFO Dongkeun Bae.

For the convenience of our investors joining from home and abroad, the CEO highlights and financial results will be presented through simultaneous interpretation, and the Q&A that follows will be done through consecutive interpretation. Today's results are based on preliminary consolidated figures under K-IFRS and may be subject to change following the external auditor's review.

Now let me turn things over to CEO Changhan Kim for the CEO highlights.

Good afternoon. This is Changhan Kim, CEO of KRAFTON.

Thank you, everyone, for joining KRAFTON's Q2 and first-half 2026 earnings call, both here in Korea and from abroad. In Q2 2026, we proved out the strength of our core IPs and moved into full execution of our franchise IP-based growth framework.

First, our PUBG franchise is expanding beyond a single battle royale game into a platform that brings together diverse gameplay and content. In Q2, PUBG PC reenergized its core fanbase through well-made modes, and we saw firsthand that high-quality content can translate directly into user growth and revenue.

In Q3, we'll expand the UGC ecosystem on mobile, further refining the models that we've already validated. On the new franchise IP front, the early performance of Subnautica 2's early access launch confirmed both our scale-up capabilities and its potential to become our second franchise IP.

Subnautica 2 delivered a highly successful early access launch, both in the numbers and in how users responded. That tells us Subnautica is a franchise IP with a strong fanbase and real global growth potential.

Going forward, we'll continue to prioritize community trust and game quality, maintaining stable service through to full launch. At the same time, we'll continue to scale up the Subnautica IP with a long-term perspective.

Under our five-year growth plan centered on securing franchise IPs, we'll further strengthen our repeatable growth system for acquiring and nurturing franchise IPs, building on the experience and decision-making capabilities gained through this launch. Let me first dive into our PUBG franchise.

In Q2, PUBG franchise once again confirmed the structural effect of content platformization, driving both user and revenue growth. PUBG PC reenergized its core fanbase and drove traffic growth through the Xeno Point and Payday well-made modes.

Xeno Point drove sustained increase in traffic and user engagement time well beyond the initial launch spike, and Payday validated the same effect. On monetization, we expanded revenue through strategic collaborations that pair existing content with proven IPs.

Thanks to this content platformization effect, Q2 PUBG PC and console MAU grew more than 20% year-over-year, and revenue grew more than 70% over the same period. In Q3, we'll take our mobile UGC ecosystem a step further.

Since launching World of Wonder in 2023, PUBG MOBILE has steadily expanded its creator base and in-play ecosystem. To date, cumulative user-created maps have surpassed 5.4 million, with more than 33 billion matches played, establishing a solid foundation for the UGC ecosystem.

In Q3, we'll upgrade our creation tools and expand global IP collaborations and creator monetization opportunities. We'll offer users a new experience of creating and in-playing content using global IPs, and combine in-map purchases with creator rewards to build a growth structure where creator participation drives both content supply and play time.

Next, let me turn to new franchise IP. Subnautica 2, which we launched on May 15th, has had a successful early access debut and is growing into our second franchise IP.

Subnautica 2 has recorded cumulative sales of 5 million units and maintained a very positive rating on Steam, turning high anticipation from its core fanbase into a global hit. In particular, its co-op content confirmed the potential to expand beyond the existing fanbase to new user groups.

This stems from our success in identifying an IP with a strong genre moat and scaling it up by expanding co-op and content volume while preserving the core gameplay of the original. Going forward, through to full launch, we'll prioritize game quality and community trust while also shaping our franchise extension direction from a long-term product lifecycle perspective.

In August at gamescom, we'll unveil five new titles targeting launch by 2027 and begin full-scale market validation of the investment we've built up over time. First, PUBG STUDIOS will unveil for the first time at gamescom a new project built on PUBG franchise with a new setting and gameplay.

No Law, an immersive open-world FPS RPG being developed by Neon Giant, where players can complete missions their own way through stealth, direct assault, and a variety of tools, targeting core Western gamers. Project Zeta is a multi-team tactical arena game where four teams compete on a single battlefield.

We'll validate its live-service scalability through open dev and early access. Age of Twisters is a two-player co-op puzzle adventure for families and friends.

Tale of the Unbound is an isometric action RPG combining an Eastern fantasy with action combat. Through these, we'll explore the market potential of co-op titles and differentiated action RPGs, respectively.

Through PUBG and Subnautica, we've built multiple growth pillars based on franchise IPs. Going forward, we'll increase our strategic focus on core IPs and secure new franchise IPs through a repeatable growth system of discovering, validating, and scaling up IPs.

That concludes my presentation. Thank you.

Next,

our CFO, Dongkeun Bae, will walk us through KRAFTON's Q2 and first-half 2026 financial results.

Good afternoon. This is Dongkeun Bae, CFO of KRAFTON.

In the first half of 2026, we posted revenue of 2 trillion 661.6 billion won and operating profit of 972.5 billion won, our highest-ever half-year revenue and operating profit. First-half revenue grew 73% year-over-year on PUBG franchise growth and Subnautica 2's early access launch, and operating profit reached 92% of full-year 2025's total.

PUBG franchise expanded in traffic and paying user base, with revenue up 25% year-over-year, putting us on track for our double-digit annual growth target. Subnautica 2 surpassed 5 million units sold within 22 days of its May 15th launch, a top-tier debut among major global hits.

It also boosted sales of the legacy titles, Subnautica 1 and Below Zero, both about 10 years old, brought in roughly 42 billion won, showing the IP's lasting earning power. We'll keep driving Subnautica's long-term success through stable service and ongoing updates.

Next, platform and other revenue. Q2 PC revenue was 560.4 billion won, up 155% year-over-year and 54% quarter-over-quarter.

PUBG PC grew sharply year-over-year thanks to positive user response to both the Stellar Blade Eve Contender collaboration and the Black Market. With Subnautica 2's launch also factored in, PC revenue topped 500 billion won in a single quarter for the first time ever.

First-half PC revenue came to 924.2 billion won, up 70% from the first half of 2025. Q2 mobile revenue was 451 billion won, up 5% year-over-year, down 36% quarter-over-quarter.

The drop was seasonal, but the new X-Suit Finitra hit record single-day revenue, driving year-over-year growth for both PUBG MOBILE and BGMI. First-half mobile revenue came to 1 trillion 153.7 billion won, up 20% from the first half of 2025.

Q2 console revenue was 23.8 billion won, up 143% year-over-year and 72% quarter-over-quarter, reflecting console sales of Subnautica 2. First-half console revenue came to 37.7 billion won, up 65% from the first half of 2025.

Q2 other revenue was 255 billion won, including 240.5 billion won from ADK's advertisement and content business. First-half other revenue totaled 546 billion won.

Next, PUBG franchise's Q3 content. In Q3, PUBG franchise keeps growing on two pillars: IP collaborations and UGC expansion.

First, on IP collaborations, PUBG MOBILE and BGMI are running their biggest collaborations yet with the globally popular anime IP, Naruto. Beyond simple skins, we've built the original's locations, combat, and boss battles right into battle royale, where our users are used to.

PUBG PC is also running its first global anime collaboration this year. Following cars and K-pop artists, we're now expanding into anime, broadening our reach across global fandoms.

PUBG MOBILE and BGMI are also running their first-ever Ferrari collaboration: four signature models, custom looks, in-game items, a new brand experience for users. On the UGC side, we'll build on World of Wonder with stronger creation tools and monetization.

We'll upgrade WOW's creation tools, bring Naruto and Spider-Man collaborations into WOW content, and let users create and in-play with global IPs. We'll also roll out World of Wonder Tokens, expanding purchase and creator monetization options step-by-step.

Next, I'll explain Q2's key operating expenses. Labor cost came to 237.4 billion won, up year-over-year on ADK's consolidation and down 14% quarter-over-quarter, reflecting the base effect of Q1 severance payments.

App fees and cost of revenue came to 166.5 billion won, up both year-over-year and quarter-over-quarter, driven by the early access launch of Subnautica 2 and revenue growth in PUBG PC, both of which we self-publish. Paid commission came to 342.5 billion won, up year-over-year on ADK's consolidation and up quarter-over-quarter on production costs and esports.

Marketing expense came to 44.9 billion won, up year-over-year on Neptune's consolidation. Q2 operating profit was 410.9 billion won, up 67% year-over-year.

First-half operating profit was 972.5 billion won, up 38% from the first half of 2025. Turning to non-operating items, Q2 posted a loss of 316.7 billion won, reflecting expenses related to Unknown Worlds.

As a result, Q2 posted a net loss of 29.9 billion won, while first-half net profit reached 484.2 billion won, up 25% from the first half of 2025. Finally, shareholder returns.

First, what we've done in the first half of 2026. We completed 300 billion won in buybacks and a 99.6 billion won capital reduction dividend, 399.6 billion won total, up 23% from all of 2025.

As for share retirement, we retired 336.2 billion won on April 27th, combining newly acquired and existing shares. The board today approved retiring the 95.3 billion won acquired in Q2.

That brings total retirement this year to 431.5 billion won, 3.5% of shares outstanding. Next, our Q3 plan.

The board sees share price as still undervalued and approved acquiring another 100 billion won in treasury shares to be retired in full. As outlined in our three-year policy, we're also considering acquisitions of above 700 billion won, timed flexibly with the market, and fully retired once acquired.

That concludes my presentation. Thank you.

We will now begin the Q&A session. If you have any questions, please use the raise hand icon at the bottom of the screen.

The first question will be from Eric Cha of Goldman Sachs. Please go ahead.

Thank you for taking my question. My first question is in regards to PUBG PC and well-made modes.

I can see that well-made modes are posting very favorable performance. Could you provide more color on related update schedules for more well-made modes and the general direction planned for the second half of the year?

My second question is in regards to PUBG MOBILE and World of Wonder or WOW mode. Could you provide more color on some of the metrics that were impacted with the introduction of WOW and whether there were any drivers in terms of engagement?

I would also like to receive more detail on the tokens that were introduced to the game and how you expect they will impact the ecosystem. First, regarding your question on well-made modes, Xeno Point received very positive response, and so we are preparing another version of that mode after seeing the impact on metrics.

We are also considering making it a permanent mode. In the second half of the year, we also have two modes that are scheduled for release, and in 2027 and 2028, we are going to update multiple new modes that are currently in development.

The CEO answered the first question. This is the CFO.

I will answer your second question. Although we are unable to disclose any detailed metrics, regarding World of Wonder or WOW, we can speak toward the regions that KRAFTON services directly, namely PUBG MOBILE Korea and Japan.

For the UGC mode, the engagement rate or total time spent is in the mid-teens, and for classic battle royale, 20% of total time spent is attributable to that mode. We have confirmed that even aside from classic battle royale, there is some meaningful consumption and appeal for other modes.

For UGC mode, we plan to sequentially update collaborations with well-known and popular IPs like Brainrot and new maps and also new monetization methods to drive up total time spent and also enhance the inflow of new users. Regarding the WOW tokens, we aimed to make possible in-map item purchases, as in users would be able to purchase directly from the map the creations of the creators, and we aimed to create a virtuous cycle that runs between the consumption, repeat play, and also monetization.

We are early in the stages on the road to monetization, and that is why rather than focus on short-term returns, we are going to prioritize expanding on the creator ecosystem and also driving up user time spent. We plan to operate this separately from the existing battle royale tokens that we have in the game.

The next question will be from Seung Choi of Hyundai Motor Securities. Please go ahead.

Thank you for taking my question. My first question is in regards to Subnautica 2.

Could you provide more color on any future plans regarding Subnautica 2? Specifically, I would like to know the timeline for a full launch and also any plans to scale up Subnautica 2 into a franchise IP.

My second question is in regards to PUBG Ally. I have seen videos of PUBG Ally, and I believe that user feedback was that the Ally would add a very interesting element to the game.

Could you share any specific indicators that we can use to assess the impact of the Ally on the game, and also could you share any future update plans for PUBG Ally? I would also like to know whether the goal of these AI research and developments are for profitability and monetization or perhaps to drive traffic up.

If you could provide more color on future plans, I would very much appreciate it. My next question is in regards to talent recruitment for affiliates and subsidiaries.

Today, I noticed the news that you have released a new voice LLM model. Could you share any achievements in the area of AI research, and also do you plan to have any further investments in the domain?

This is the CEO. I will take your question on Subnautica 2.

We are currently in open dev, and so it is difficult to confirm exactly when the full launch will happen, but our current plan is to continue to expand on the game's content for the upcoming 2 years. The title had about 12 million, at least 12 million fans in the game, and now we have confirmed that with Subnautica 2, about half of the players had not played the legacy titles, and so we have seen some meaningful expansion into a new user base.

At the same time, we aim to expand on the IP so that we can realize our vision of making it into a franchise. For your second question on PUBG Ally, as you have seen, we have received some favorable responses from users regarding the introduction of PUBG Ally.

PUBG Ally was technically significant in that it utilized a small model and ran on-device, and we were able to validate that it runs smoothly through technical tests and that it had a service potential. Based on feedback from users, we are continuously upgrading on the current version, and we are reviewing on what impact PUBG Ally might have once it is added to the game.

Would it add a new type of fun, or would it contribute beyond that? That is something that we are still looking into and reviewing actively.

KRAFTON has proved, through its many research results, that it is a top player in the domain of AI. With the foundation that we have built, we plan to continue to develop toward making bigger models, and we will expand into areas like multimodal LLMs or world models, and this will help us in our further research into game production and physical AI.

You mentioned the topic of talents hired for our subsidiaries. For Ludo Robotics, we have recruited many globally renowned scholars and engineers and also other additional talents that will help us in our endeavor.

The next question will be from Jun-ho Lee of Hana Securities. Please go ahead.

Thank you for taking my question. My two questions will be about ADK.

First, I would like to have more detail on whether the PUBG PC collaborations with anime and also mobile collaborations were products of a synergy effect with ADK, and if that was not the case, I'm wondering whether there are any further plans to pursue this route. Second, in regards to returns from ADK, I have noticed that in the second quarter compared to the fourth quarter of last year and the first quarter of this year, there was some pullback, and so I would like to know or receive more color on the reason why this was the case.

Regarding your first question on synergy with ADK, one of the reasons that we acquired ADK was to have that synergy effect with the anime IP that ADK holds, like you mentioned. Such projects are in the works, we are preparing for these projects.

Nothing is visible as of yet, but we are exploring ways to have that synergy effect with the anime and games. This is the CFO.

I will take your second question. Comparing last year's results with the first quarter and second quarter of this year, there is some pullback, like you mentioned.

ADK's business is made up of two pillars: the first pillar is the ad business, and the second pillar is content production. Content production was strong, as it had been in previous years, but for ad business, there was some slight decrease, as you mentioned.

We do believe the ad business had some impact from the situation in the Middle East involving the US and Iran, and so we do believe that this impacted the purchasing and positioning of ads, but we do believe that this will not last for long. We will continue to monitor the situation and take measures as necessary.

The next question will be from Stanley Yang of J.P. Morgan.

Please go ahead. Thank you for taking my question.

I have two questions. My first question is in regards to new titles.

You mentioned that a new PUBG IP game will be showcased soon. Is this a game of which the information has been released previously, or is it an entirely new title?

Could you also provide more color into what games we can expect from the new title pipeline that might be released next year? My second question is in regards to the shareholder return policy and other relevant policies.

I believe there were many positive points that you mentioned in your presentation, but there is also investor concern surrounding M&A strategies and other ways into new business. My question specifically would be about physical AI.

Could you provide more detail on the status of the research in the domain, and especially on the local talents that you have hired in the team? I was wondering whether you have plans to scale up the team, whether you plan to increase the investments in this domain and entity, and do you have any concerns about returns from that investment?

This is the CEO. Let me answer your first question.

Because we will be showcasing the game for the first time at gamescom, I ask for your understanding that I cannot provide any further details on the status or about the title itself. As for titles that we have scheduled for 2027, we have the five titles that we are showcasing at gamescom, and we also have the mobile projects that we have previously announced.

In regards to physical AI, physical AI has been garnering attention as the next big AI domain following LLMs, and there are many market opportunities that are being discovered along the way. As a part of physical AI, world models have also been gaining much attention, and it has become more apparent with the developments that in building world models, game data is necessary, has a large correlation, and gives a competitive edge to game companies.

We will continue to focus on research and developments in the robotics domain, and in regards to AI investment sizes, I understand that because of the nature of AI investments, the size of the investments cannot help but be quite substantial, but we will continue to look for ways to mitigate any risks by looking for other external investments and employing many other methods. The last question will be from Hyo-jin Lee of Meritz Securities.

Please go ahead. This concludes KRAFTON's second quarter and first-half 2026 earnings presentation.

We sincerely thank all the investors and analysts for your continued support.