Gree Inc

TSE:3632

Earnings Call Transcript 2021-Q1

[Toshiki Oya, executive]

Thank you for joining the FY 2021 first quarter financial results briefing of GREE, Inc.

I'm going to present based on the slides. Let me start with the executive summary on Page 2, the financial results overview.

Net sales was JPY 15.2 billion. Operating income was JPY 1.6 billion, and EBITDA was JPY 1.8 billion. Operating income surpassed our forecast with strong overall results.

Let me go to the business overview. The global version of SINoALICE was launched on July 1 in 139 countries and regions. It made a strong start and has contributed greatly to the results of the quarter. As for the expansion of our major titles into China, we began distribution of DanMachi on September 24 as planned. Another Eden is scheduled to be released in November. Thirdly, in the live entertainment business, we continues to expand the contents of our virtual life distribution app REALITY.

Regarding the outlook for profit, we expect firm profit to continue. For the second quarter, operating income is expect to be in the mid- to high-100 millions.

On the next page, Page 5. This is an overview of the first quarter financial results. We saw a top line growth and a significant bottom line growth.

Net sales was JPY 15.2 billion, and operating income was JPY 1.6 billion. Net income increased substantially by JPY 3.2 billion compares to the previous quarter, when we booked the valuation loss on investment securities and the partial reversal of deferred tax assets.

Page 6 shows you the trends in net sales, EBITDA and operating income. The operating income margin was over 10%.

Page 7 shows the analysis of operating income. In terms of sales, the game business did very well. Although it is common for sales to decline in the first quarter over the fourth quarter in reaction to anniversary events, this time around, in addition to the strong performance of the global version of SINoALICE, existing titles also performed well, resulting in rising sales. In addition, fixed costs decreased by JPY 1.41 billion. As I explained in the previous financial results, there were onetime costs of over JPY 800 million in the previous quarter. The figures on Page 8 are adjusted for those onetime costs. Even if you exclude those costs, fixed costs still decreased by JPY 580 million. This decrease is attributable to the restructuring efforts during the previous quarter. Lower outsourcing costs of games also contributed.

Page 9 shows the cost structure. There's nothing to note in variable costs. Fixed costs decreased significantly, as labor costs and other costs, including outsourcing, decreased as a reaction to the onetime costs in the fourth quarter and also thanks to the restructuring efforts.

On Page 10. As announced earlier, we have been repurchasing our stock, with the upper limit of 20 million shares or JPY 12 billion, to increase shareholder returns and to implement a flexible capital policy.

Please turn to Page 12 for operational overview. We have a review and summary of the first quarter. Based on our long-term strategy, we continue to strengthen the 3 earnings pillars of our business, which we did in the first quarter too.

Now let me talk about each business in more detail.

Starting from Page 13, I'd like to talk about the game business. Coin consumption in app games increased significantly compares to the fourth quarter. One of the topics is the solid performance of the global version of SINoALICE. In addition, major titles remained stable, keeping up the momentum created by the anniversary events in the fourth quarter.

Page 14, please. This is the status of the global version of SINoALICE. It was released on July 1 and have seen 1.4x increase in coin consumption compares to the fourth quarter. Next, let us look at our overseas distribution in China. We are collaborating with local distribution partners in China to expand our major titles in the country, with DanMachi released at the end of September and Another Eden scheduled to be released in November.

This is Page 16, development pipeline. Basically we plan to continue to release 2 to 3 new in-house-developed titles per year. Depending on how well those titles may perform, there could be some upsides in our results.

During this fiscal year, we plan to release Assault Lily: Last Bullet this winter. We will also be releasing a licensed title, One-Punch Man, [ The Day After Tomorrow ]. Other upcoming titles which we can name are Heaven Burns Red and Knights of Sidonia, both scheduled for release in 2021. In addition, multiple other titles are in planning or development.

Page 17, the status of existing titles. For our flagship titles Another Eden and SINoALICE, we added main story lines this quarter. We plan to energize our users through this.

Page 18, please. For DanMachi and Symphogear, we added storylines unique to the games. Those are IPs that have many hardcore fans, and we are trying to energize them further.

That was about our game business. Next, please turn to Page 19, the live entertainment business.

We are continuing to develop the REALITY platform. In this quarter, we aired an original program, [ REALITY Werewolf Party ]. And [ Avatar gacha ] expanded lineup of avatar variations in time for the summer. This is how we are developing our platform.

Lastly, on Page 20, the advertising and media business. Our continued focus is to energize user communities in order to strengthen our media potential. As for aumo, we have expanded our user base, now reaching over 10 million monthly users and 5 million app downloads. As for LIMIA, photo contests have been organized to energize the user community.

This concludes my presentation. Thank you very much.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]