Gree Inc

TSE:3632

Earnings Call Transcript 2020-Q1

[Yoshikazu Tanaka, executive]

I am Tanaka. I am pleased to make a presentation on our fiscal year 2020 first quarter financial results. First, I will start with Page 2, executive summary. Regarding financial results overview. We posted net sales of JPY 15.8 billion, operating income of JPY 1.2 billion and EBITDA of JPY 1.3 billion, and operating income surpassed our forecast. Next, regarding business overview, I would like to highlight 3 points. The first point is that we made a steady progress in new title development and began preregistration for one partner-distributed title for impending delays. The second point is regarding our overseas distribution. DanMachi has been distributed in Japan, Asia and the U.S., and now we also launched it in Europe. The third point is regarding the live entertainment business. We have developed our REALITY virtual live entertainment platform, developing apps and expanding its lineup of original programs. Regarding the outlook, because we've been pushing a global operation of games, we expect our operating income to remain firm. Now I am handing over to Kimura to present our consolidated financial results overview.

[Motonori Kimura, executive]

Let me go through our consolidated financial results overview. Please turn to Page 5 for financial results overview. For Q1, we posted net sales of JPY 15.8 billion and operating income of JPY 1.2 billion. To offer a sense of Q1 operating income outlook, while our initial forecast of our operating income was in the mid- to high hundred millions of yen range, the actual result exceeded our expectation at JPY 1.2 billion. The reason we had a better-than-expected operating income was that although we had expected a decline from the previous quarter in which anniversary events were held intensively, the decline was not so significant. Regarding our net income, in connection with the listing of Bushiroad, we agreed to offer some of our equity for [ Uridashi ] and posted an extraordinary income in the quarter. Now on Page 6, quarterly development of net sales and operating income. In Q1, while net sales declined Q-on-Q due to the previous quarter's anniversary effect. Operating income remained strong on a quarterly basis and operating income margin maintained. I will go through quarterly changes in operating income in the next slide. Page 7 shows operating income analysis. Operating income remained more or less flat Q-on-Q. Some of the factors for net sales decline are reactionary impact after anniversary events for major titles, the transfer of the operation of some titles in our game operation business, with an aim of improving profitability and natural decline of our browser games. On the cost side, we continue to control our costs, such as advertising and fixed cost. Total cost was reduced by JPY 1.5 billion. As a result, operating income was basically flat. I will explain the cost structure in the next slide. Page 8 shows cost structure. Let me touch on major factors for cost reduction. Advertising cost in Q1 declined on the back of a previous quarter of Q4, when we actively invested in advertising for anniversary events of our major titles. And due to the transfer of the operation of some titles in our game operation business, expenses such as outsourcing cost and rental costs were reduced. These were major attributes for reduced cost. That's all for P&L in Q1. And I would like to comment on Q2 outlook, which is not described in the slide. We expect operating income of somewhere around JPY 0.5 billion in Q2. Regarding net sales, while we forecast contribution of major titles to remain solid, that our browser games to continue to decline. On the cost side, we plan to increase advertising spend Q-on-Q in order to activate the operation of promising titles. Accordingly, we expect Q2 operating income of somewhere around JPY 0.5 billion. Next, Page 9, on investment securities held. We believe the potential valuation of our investments have been steadily increasing and that there has been a steady progress in realizing potential value, as demonstrated by the listing of Bushiroad. That's all for consolidated financial results overview. Next, Tanaka will go through operational overview.

[Yoshikazu Tanaka, executive]

Operational overview is presented from Page 11. Regarding the progress in Q1, as an overall strategy, we continued to focus on growing 3 businesses: game, advertising and media and live entertainment. And first, on the gaming business. We have been working on developing new games and have begun preregistration for one partner-distributed title for impending release. We also launched DanMachi in 27 countries and territories in Europe. We continue to operate existing titles in a solid manner by adding main story lines and through collaborations. Regarding live entertainment centered around REALITY, we will continue to work on expanding the platform, such as content variety and apps functionalities. Regarding advertising and media, our focus is to strengthen the media potential. And through expanding content, we have been making efforts to strengthen our major potential. Now on the game business. Regarding the development pipeline, our plan is to release 2 titles during fiscal year 2020, ending June 2020. Of the 2 titles, we began preregistration for one title for impending release. And we also plan to launch these titles overseas in fiscal year 2020. Beyond fiscal year 2021, we just decided to plan and develop 4 to 6 titles to be released. Regarding the coin consumption, app games consumed approximately 10 billion coins. Despite the fact, coin consumption has come down after peaking in Q4 in the wake of anniversary events running its course. Existing titles operation remained stable. We added a main storyline for Another Eden. For SINoALICE, we hosted a collaboration event with Code Geass. We are also stepping up tie-ins with anime and released anime tie-in contents immediately after the airing of each anime episode for DanMachi. And for Symphogear, we held events related to its final anime episode. Shoumetsu Toshi saw over 10 million downloads, and a campaign to celebrate downloads topping 10 million was held. And for In Love with News, group formation anniversary event was held. Regarding the overseas distribution, DanMachi was launched in Europe. And with its addition to current operations in Japan, Asia and North America, we now operate it globally on our own. This table shows overseas distribution plans. We're continuing to work on Mainland China for approval process to be completed. But for other regions, it has been released sequentially. Regarding the REALITY platform, we held REALITY Festival in order to expand its contents and to develop a new program format. As a part of this initiative, we also hosted an event for Kenchikuo. On the media business, we are working on energizing user communities that add impetus to various media by launching advertising campaigns. That concludes my presentation. [Statements in English on this transcript were spoken by an interpreter present on the live call.]