NEXON Co., Ltd.

[Interpreted] Hello, everyone, and welcome to NEXON's earnings conference call. Thank you for joining us today.

With me are Junghun Lee, President and CEO of NEXON; and Shiro Uemura, CFO. Today's call will contain forward-looking statements, including statements about our results of operation and financial condition such as revenues attributable to our key titles, growth prospects, including, with respect to the online games industry, our ability to compete effectively, adapt to new technologies and address new technical challenges, our use of intellectual property and other statements that are not historical facts.

These statements represent our predictions, projections and expectations about future events, which we believe are reasonable or based on reasonable assumptions. However, numerous risks and uncertainties could cause actual results to differ materially from those expressed or implied in the forward-looking statements.

Information on some of these risks and uncertainties can be found in our earnings-related IR documents. We assume no obligation to update or alter any forward-looking statements.

Please note, net income refers to net income attributable to owners of the parent, as stated in NEXON's consolidated financial results. Furthermore, this conference call is intended to provide investors and analysts with financial and operational information about NEXON, not to solicit or recommend any sale or purchase of stock or other securities of NEXON.

A recording of this conference call will be available on our Investor Relations website following this call. Unauthorized recording of this conference call is not permitted.

Now I'll pass the call to...

[Interpreted] Thank you, Kawai-san. Good afternoon, and thank you to those joining today's call.

Earlier today, NEXON posted a letter and slide deck with details on our recent performance and outlook. On today's call, I will start with some context on our progress, then hand over to Uemura-san, who will review the financials.

NEXON's first quarter revenue grew 5% year-over-year and came within our expectations at JPY 113.9 billion. Operating income increased by 43% to JPY 41.6 billion, exceeding our outlook.

NEXON has begun the year with a clear demonstration of our commitment to our 2025 priorities and multiyear IP growth initiative. Last quarter, we identified the need to strengthen and regain momentum in key franchises while maintaining steady progress on developing and releasing new games.

I am pleased to report that our progress to date in 2025 checks each of those boxes. In Q1, our 3 biggest franchises, Dungeon&Fighter, MapleStory and FC together delivered a meaningful 21% year-over-year growth, up from 8% in Q4.

This included a clear turnaround for PC Dungeon&Fighter in Korea and a strong performance for MapleStory. Dungeon&Fighter in Korea more than doubled its MAUs and PUs versus a year ago, achieving record high quarterly revenue.

Also in Korea, MapleStory achieved strong improvements to DAUs, pay rate and ARPPU to deliver year-over-year revenue growth of 43%. Additionally, we launched 2 new games in the quarter.

The first was Khazan is a strategic first step in our initiative for introducing the Dungeon&Fighter franchise to a global audience. Players around the world, particularly in the West, recognized the high quality and gave Khazan on PC a Metacritic score of 83.

The game also earned an 88 on Steam and a 90 on OpenCritic. Khazan delivered on our strategic goals and set the stage for 2 related games expected by 2027.

The second new game, MABINOGI MOBILE outperformed our expectations in its debut in Korea. Enjoyed by a broad range of players, the game charted in the launch window is the #1 most popular and #3 grossing game on Android and the #1 grossing game on iOS.

This success creates potential for rollout in additional markets. And finally, we are excited about our progress on partnerships with Tencent, which includes new co-developed content for Dungeon&Fighter Mobile coming to China later this year.

Additionally, last month, Tencent announced preregistrations for Khazan and THE FINALS, specifically adaptive to match the tastes of millions of players in the region. Looking to our second quarter guidance, we begin with the recognition of a difficult comparison, which includes the explosively successful launch of Dungeon&Fighter Mobile in China last year.

Nevertheless, we expect our Q2 revenue to be largely similar to last year on a constant currency basis. This is attributable to strong growth expected from PC Dungeon&Fighter and MapleStory, plus a solid traction from new games, particularly MABINOGI MOBILE.

Our second quarter is also notable for updates on 2 new and highly innovative games, ARC Raiders and MapleStory N. Earlier this month, Embark Studios hosted a large global tech test for ARC Raiders, which, for the first time, revealed the game's intense, tactile PvPvE gameplay and progression system.

The response to the test on player forums was deeply gratifying, and test metrics widely exceeded our expectations. We set a goal for 5 million YouTube views and got more than 20 million.

We set a goal to be a top 10 viewed game on Twitch and reached top 6. We exceeded our wish list goal on Steam by more than 50%.

The game performed well, particularly in Western markets, and the early retention rate showed a 25-point improvement over the previous test in Q4 last year. The Embark team is now hands down on integrating test feedback and polishing the game.

Next, MapleStory N, the first game in our MapleStory universe initiative, which adapt blockchain technology to reward player engagement, is scheduled for release on May 15. MapleStory N features a user-driven economy with rewards based on digital ownership of NFTs rather than cash shop.

The game will be available in select markets around the world. To summarize the last 4 months, we achieved turnaround performances in our biggest franchises, successfully launched new games, built on partnerships and continue to make steady progress in developing all new games with potential to break out as hits.

NEXON is delivering on its promises to our players and to our investors. With that, I will hand off to Uemura-san.

[Interpreted] Our first quarter result offer a clear reflection of our priorities and longer-term IP growth initiatives with turnaround performances in Dungeon&Fighter and MapleStory as well as strategic progress in IP expansion, which is included successful launches of 2 new games, The First Berserker: Khazan and MABINOGI MOBILE. Q1 revenue came within the expected range at JPY 113.9 billion.

Year-on-year, it was up 5% on an as-reported basis and up 9% on a constant currency basis driven by the collective growth in our 3 largest franchises and contributions from new games. Operating income was JPY 41.6 billion, exceeding our outlook.

Stronger-than-expected performances of our major titles like Dungeon&Fighter PC and MapleStory drove higher margin. Plus, cost came in below our plan.

Year-on-year, operating income increased by 43% driven by the collective strong growth of our 3 key franchises and a Q1 2024 onetime impairment loss of JPY 6.2 billion, which did not repeat this year. This was achieved while investing to expand our IP portfolio.

Despite the operating income outperformance, net income within the expected range at JPY 26.3 billion due to an FX loss of JPY 4.2 billion and an impairment loss of JPY 1.6 billion on an investment accounted for using the equity method Y-o-Y. It was down 27% due to an FX loss of JPY 4.2 billion recorded in Q1 2025 while recording an FX gain of JPY 10.7 billion in Q1 2024.

Turning to performance by franchise. In Q1, our Dungeon&Fighter franchise grew 60% Y-o-Y driven by contributions from Dungeon&Fighter Mobile in China and The First Berserker: Khazan, which released in March, plus strong growth from PC Dungeon&Fighter in Korea, which nearly doubled revenue from a year ago.

In China, PC Dungeon&Fighter came in at the high end of our outlook driven by the new year update, which provided solid improvements to the in-game economic balance and generated an increase in DAUs throughout the quarter. In Korea, the new year updates more than doubled both MAUs and PUs, driving record high quarterly revenue.

For Dungeon&Fighter Mobile, DAUs tracked below our expectations in China, resulting in Q1 revenue, which fell short of our outlook. The First Berserker: Khazan made a global debut on March 28 with great ratings from both players and credits.

While revenue in Q1 was below our outlook, the game achieved our objective as a strategic first step to introduce and expand Dungeon&Fighter IP to a global audience. Next, our MapleStory franchise returned to growth, increased 8% Y-o-Y driven by the strong performance of its PC version in Korea on the West.

In Korea, the successful large winter update introduced in December drove strong improvements to player engagement represented by key metrics, including DAUs, pay rate and ARPPU. As a result, Q1 revenue in Korea marked 43% year-over-year growth, exceeding our expectations.

Global MapleStory also exceeded our outlook but declined Y-o-Y compared to the record high sales in Q1 2024 driven by a large and highly anticipated update. However, service in Western markets continued to demonstrate strength with a 35% Y-o-Y revenue growth driven by the hyper-localized content developed by our team in Los Angeles.

For MapleStory Worlds, Q1 revenue increased by 11% Y-o-Y as we expanded the service region into Europe. Turning to our FC franchise.

FC ONLINE exceeded our outlook driven by the well-received Team of the Year feature, while FC MOBILE fell short of expectations. Overall, franchise revenue declined Y-o-Y but came within the expected range.

And finally, MABINOGI MOBILE, a new experience on established franchise launched on March 27 and significantly outperformed our expectations, demonstrating broad appeal with strongly positive feedback. MABINOGI MOBILE is a cross-platform game available both on PC and mobile.

Moving on to our second quarter 2025 outlook. We expect FX to negatively impact revenue by roughly 10%.

Our Q2 revenue is expected to be in the range of JPY 99.6 billion to JPY 110.3 billion, representing a 19% to 10% decrease on as-reported basis or 9% decrease to 1% increase on a constant currency basis Y-o-Y. Despite an extremely high comparison with Q2 2024 driven by the explosively successful launch of Dungeon&Fighter Mobile in China last year, we expect our Q2 revenue to be largely similar to last year on a constant currency basis.

This is attributable to strong growth expected from PC Dungeon&Fighter and MapleStory as well as solid contribution from MABINOGI MOBILE. We expect the Dungeon&Fighter franchise to decline by about 40% this year versus last year -- versus a year ago.

This is due to the difficult comparison with the last Q2 when the franchise revenue increased by 162% with the launch of Dungeon&Fighter Mobile. However, the result will be partially offset by the growth from PC Dungeon&Fighter and a contribution from The First Berserker: Khazan.

Dungeon&Fighter Mobile will host a 1-year anniversary event to energize the base and attract new players. However, we anticipate a sequential decline in revenue due to seasonality.

For the PC version of Dungeon&Fighter, we expect revenue to return to growth Y-o-Y in China and momentum to continue in Korea. Moving to MapleStory.

We expect the franchise to accelerate growth to roughly 20% year-over-year. For the PC version of MapleStory in Korea, we expect the revenue increase year-on-year.

In April, we celebrated its 22nd anniversary with a major content update and event. In the coming months, we will release a rich pipeline of new content, including a large-scale summer update.

We also expect Y-o-Y growth in global MapleStory and MapleStory Worlds. The May 15 launch of our innovative blockchain project, MapleStory N, will generate valuable learnings about player rewards, but is not expected to deliver significant revenue in the second quarter.

Revenues from our FC franchise are expected to decrease Y-o-Y. However, we anticipate increased player excitement as we get closer to the World Cup in the summer of 2026.

MABINOGI MOBILE is expected to make a significant contribution in Q2, although we anticipate its momentum to settle down following a successful launch. We expect Q2 operating income to be in the range of JPY 22.5 billion to JPY 31.1 billion, representing a 50% to 30% -- 31% decrease on as-reported basis or 45% to 24% decrease on a constant currency basis Y-o-Y.

Regarding cost, we anticipate increase of royalty expenses and platform fees due to MABINOGI MOBILE, which is developed by our joint venture studio. Also, we expect increased marketing expenses associated with the promotions for new titles and increased fees to creators tied to revenue growth.

In MapleStory Worlds, however, we expect a decrease in HR costs due to lower performance-based bonuses. We anticipate net income to be in the range of JPY 16.8 billion to JPY 23.3 billion, representing a 58% to 42% decrease on as-reported basis or 54% to 36% decrease on a constant currency basis Y-o-Y.

And in Q2 '24, we recorded an FX gain of JPY 8.2 billion. Finally, I would like to provide an update on our shareholder return.

We started the execution of a JPY 50 billion share repurchase from February 14 as a part of the 1 year JPY 100 billion share repurchase policy. Through the end of April, we have acquired approximately 14.8 million shares for JPY 30.3 billion.

We are scheduled to complete the purchase of the remaining JPY 19.7 billion worth of shares by June 30, 2025. After the acquisition of the first JPY 50 billion of the plan, we intend to buy the remaining JPY 50 billion by February 2026 with the consideration of factors, including investment opportunities, financial conditions and the market environment.

I'll now turn the call over to Junghun for a quick summary ahead of taking your questions.

[Interpreted] Thank you, Uemura-san. Before we take your questions, I want to offer some perspective on how NEXON plans to navigate the volatile economic climate that is currently disrupting global markets.

We believe NEXON is insulated from much of the economic volatility and positioned for stability and growth. To start, games have been historically resistant to macroeconomic challenges, and our portfolio of digital entertainment is not expected to be impacted by tariffs.

More importantly, our company is anchored by recurring revenue from multiple, established franchises, a clearly defined growth plan, a robust pipeline of new games in development, strategic partnership for capturing new growth opportunities in large markets, world-class live operations, and a balance sheet with approximately JPY 600 billion in cash that can be used to drive new opportunities and to enhance shareholder returns. Come what may, our company is well-built, resilient and positioned for sustained growth.

NEXON can and will continue to deliver on our promises to players and to our investors. Operator, we are ready to take questions.

I have 2 questions. The first question is on D&F.

My impression is that the company and management feels a little bit more confident on the progress D&F has made when comparing with the commentary from the previous earnings call. Can you confirm this?

And if so, maybe elaborate a little bit on where you are seeing better engagement with players. I know it's -- Korea seems to be more apparent, but a little bit of color of what you're seeing on the ground in China would be much appreciated.

The second question is -- I was originally planning to ask on our creators, but if -- given that you've already provided some color, I wanted to ask on the 1Q results, the revenue was within your guidance, but the operating profit was meaningfully above guidance. And I wanted to see -- or I'm curious whether this is due to maybe lower spend on OpEx or it's more a function of the higher-margin services doing better than some of your lower-margin services.

[Interpreted] Thank you very much, Seyon, for your question. I understood that your question is mostly about Dungeon&Fighter as well as the cost in the second quarter.

I think for the Dungeon&Fighter PC in China, I will be able to provide some colors on that and -- while Uemura-san will be also able to add some comments on that. He will be able to give some more explanations on the cost aspects.

Now to begin with, when it comes to Dungeon&Fighter PC in China, our first quarter results and the second quarter outlook, I'll begin with the recognition of a clear improvement in the PC game in both Korea and China. So while the Korea service delivered immediate growth, we do expect gradual improvement for China as we are just recovering from challenges that we faced last year.

So I would like to maybe take a note on one factor that we are also taking a close look at, which is the market size difference in China and Korea. So when it comes to China, the user volume of those who enjoy Dungeon&Fighter PC is around -- or more than 10x bigger than that in South Korea, which obviously represents how big the China market is.

Therefore, we believe it will take some time physically to have our content that we produce throughout the year to have its momentum spread throughout this entire community. However, what we believe is clear is that the content that we have prepared very carefully throughout last year, throughout the past 1 year, this update that we provided for Dungeon&Fighter was greatly loved by Korea users.

It was received very well. And we believe that it is a clear evidence that the content itself is a great content.

Therefore, we do hope to maintain a favorable trend in China as well. And then in addition, as we have shared during our last earnings call, we have the co-developed content with Tencent, which will be introduced later this year.

So all in all, we will continue to make our best effort to make sure that we maintain this great momentum and continue to deliver good performance. Now that would be it for my inputs for the Dungeon&Fighter.

I would like to ask Uemura-san for his inputs for the second question.

[Interpreted] With respect to the Dungeon&Fighter, it is -- for what CEO said, I shared his viewpoint, but if I may add some comments. Towards the second half of the year, we find that in Korea, Dungeon&Fighter shows a healthy growth.

And we -- when we look into the older KPIs, it shows a very good result. So I do believe that it is a very solid performance.

Now if I may talk about the Dungeon&Fighter in China, we see there is a sign of improvement. And according to the KPI analysis, in -- we -- in Q1, the number of users is not coming back as we thought, not to the extent that we've assumed.

But through the content update as well as the progression system improvement and also in-game economic balance improvement, this will be contributable to the uptick of our outlook. So with that, if I talk about the current situation, including the trend, including DAU, we find a turnaround.

And also, there is an update during the Labor Day period. So I do believe that sales is quite strong.

With that, we think that there will be an expansion in the second quarter. That will be helpful for idle users, or the users who have not returned would come back.

The second question is around cost. Now in the first quarter, there was a better result in terms of the profit.

It was not just the -- contributed by the revenue mix, but this is because of the marketing costs or expenses that we do not spend as we thought. In addition to that, due to the lower result of the Dungeon&Fighter than what we expected, we did not spend as much as for what we thought in terms of the performance-based bonus.

This is the Dungeon&Fighter Mobile. So this concludes my response.

[Interpreted] I do have 3 questions, but 2 questions are actually a little bit overlapping for what earlier question by Mr. Park Seyon.

But even that is the case, let me add some questions. First question is in regards to the Dungeon&Fighter Mobile in China.

I do believe that first anniversary is nearing, and I was wondering how the revenue will be tied to -- with what background. For example, is that the user activities is more galvanized or there is an increased number of users who are not utilizing at the moment, but coming back?

So coming back users number is going up or the number of users per se is increasing. So how are you focusing on monetizing this service?

[Interpreted] With respect to Dungeon&Fighter Mobile in China, we did the release of the level cap the end of last year, that is the last quarter in order to stave off for those users to leave the game. And also, we did a new year update.

And we thought that we were expecting to have an expansion. Having said that, such update was not working in the way that we thought.

Given such situation, we -- the result of the Q1 was lower than our expectations. Under such circumstance, it's very clear that what we need to do with Dungeon&Fighter Mobile.

Now first point is in order to make sure we will accommodate the changing Chinese market, we are going to implement a hyper-localization. And with respect to the game, we will add some other languages in order to expand diversity so that we'll be able to attract more users.

In order to address those 2 issues, currently, we are under discussion with Tencent, and also co-development is underway with Tencent. Since first anniversary is nearing, we would like to focus on improving or elevating user engagement and also try to stave off the users to leave our game.

[Interpreted] The second question, this is the additional question, but I'd like to ask on cost. You mentioned that marketing expenses were controlled, and it was lower than your plan in the first quarter.

And in the second quarter, I think that you provided guidance on cost, too. But are there any factors that would be turning into upside or downside?

[Interpreted] With respect to the marketing expenses -- and of course, we have in our mind how it would generate effect or how return will be generated. Always we are thinking about that.

Now we are working over the marketing expenses, not just the new titles, but also existing titles and evaluating whether or not it is exacting sufficient impact and effect. And if we find that it is not necessary to spend further marketing expenses, then we will refrain from doing so.

So now the question over the -- how you can interpret the cost for second -- for the second quarter, now we see -- as I said earlier, the performance-based bonus titles show some calmness. And I -- with respect to the marketing expenses going up or down, we see in the second quarter's marketing expenses, there is no such massive upside or downside factors.

[Interpreted] Let me quickly ask this question. For a title called MABINOGI, it is also linked to the performance-based bonus?

[Interpreted] With respect to MABINOGI, it is the joint -- it is a joint venture developed title. And what we, NEXON, is involved is for publishing services.

Therefore, there is no performance-based bonus in place with this MABINOGI.

[Interpreted] My -- this is my last question. This is regarding The First Berserker: Khazan.

And I do believe that it has a very highly risk received. Even though the rate -- the score shows that it is very well-received, but did not reach to the unit sales, it is not so high as the unit sales.

So I would like to know the reason for that. And have you analyzed the reason for that?

In addition to that, if I tell you the competitors are new IPs, and also they enjoy a high score or high review results, but their sales are not growing, as the review score shows. So do you think that you will be able to improve this situation or you have some leeway to improve this situation through marketing activities?

[Interpreted] I'll be able to give answers from my end. Now as we have constantly communicated through our earnings communications throughout last year, Khazan is our strategic project that is designed to introduce the Dungeon&Fighter franchise to a global audience, especially those in the West.

So as such, since this title was very strategic project for us, as mentioned, internally, rather than the volume of sales itself, for us, our higher priority actually was on user reception in the Western market as well as the global market. As I have mentioned during the call, a lot of great and positive rating on the rating platforms really exceeded our internal anticipation that we set initially.

So we believe that Khazan was able to deliver on its objective as the very first step -- as very first strategic step for the franchise. And we also believe that the title has successfully set the stage for 2 upcoming new titles, which will follow by 2027, Project OVERKILL and Dungeon&Fighter: ARAD.

I would like to also reiterate on 2 further aspects, first of which is our partnership with Tencent in regards to the localization of Khazan. We have initiated preregistration since April.

So with that, we are looking forward to this vast opportunities within this large market of China. And secondly, we remain highly committed to our fans and community as we continue on with updating Khazan with quality improvements as well as some future content updates to increase the overall value of the specific title.

Moreover, in order to expand our user base, we plan to -- and we are exploring some sales and marketing strategies -- full-on sales and marketing strategies for the second half. So that would be it for my answer.

Thank you.

[Interpreted] Thank you. If there are no further questions, I would like to take this opportunity to thank you for your participation in this call.

Please feel free to contact the NEXON Investor Relations at [email protected] should you have any further questions. We appreciate your interest in NEXON and look forward to meeting with you whether it is here in Tokyo or in your corner of the world.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]