Gree Inc

TSE:3632

Earnings Call Transcript 2020-Q2

[Toshiki Oya, executive]

Hello. I am Oya of GREE Inc. Please go to the second page of the presentation. I will start with the executive summary. Net sales was JPY 16.4 billion. Operating income was JPY 0.8 billion, and EBITDA was JPY 1.1 billion. Operating income surpassed our forecast.

There are 3 key topics about the business. First, as I mentioned it previously, a third-party distributed title was released back in November. This was global release both in Japan and overseas. The new title made a smooth start. The second point is Another Eden, our first-party IP. Its overseas sales grew across the United States, Europe and Asia, thanks to the strengthened global marketing. I will give more details later on this. The third point is the progress of the live entertainment business. REALITY is our virtual live distribution platform, and we continue to enhance its functionality.

Now let me talk about the outlook of our earnings. Based on the global operation of existing titles, we expect solid profit to continue. The third quarter operating income is expected to be somewhere between around JPY 0.5 billion and just under JPY 1.0 billion.

Please turn to Page 5. This is the overview of the second quarter financial results. I already touched upon sales and operating income earlier. Please look at ordinary income and net income. In this quarter, net income reached JPY 2.6 billion, owing to JPY 3.0 billion of gain on sale of investment securities and others. On both quarter-on-quarter and year-on-year basis, our profit grew substantially.

Now please look at Page 6. This chart is the trends in net sales, EBITDA and operating income.

Page 7, this is the analysis of the second quarter operating income. The first quarter operating income was JPY 1.18 billion. Thanks to the release of the new title, net sales increased from the previous quarter. However, due to increased royalties and advertising cost, variable costs went up. As we managed to control fixed cost almost flat, operating income was JPY 0.81 billion.

Please go to Page 8, cost structure in the second quarter. As I said on the previous slide, on the back of growing net sales, commission fees, et cetera, increased which drove up the total variable costs. As for fixed costs, there is one point to note. We conducted accelerated depreciation for office relocations in the business, which pushed up the total depreciation by JPY 0.16 billion quarter-on-quarter, but that was a onetime event.

Please go to Page 9, the investment securities held. The numbers in the chart do not change from the previous quarter. At the end of September, the book value was JPY 19 billion, while the assessed value was JPY 36 billion. In this quarter, we posted JPY 3.0 billion from gain on sale of investment securities and others. Our investment performance remains strong since the first quarter.

Now let me give you an overview of the business on Page 11. The overall directions have not changed. We have 3 main earnings pillars which continue to be our focus. As for this particular quarter in the game business, the new title took off smoothly.

Please turn to Page 12, coin consumption. Coin consumption increased from the previous quarter. The key drivers were the powerful third-party distributed title released in November and Another Eden, which grew in overseas markets.

Page 13 is the development pipeline of games. Let me just focus on changes. For the releases scheduled for FY '20, as we released 1 title back in November, there is 1 more remaining in development. Regarding FY '21 and onward, 4 to 6 titles are in the planning and development phase. For future growth, we continue to invest in new titles.

Please go to Page 14, the new titles in development. Here, I picked up 2 of them. Those are among the 4 to 6 titles in the previous slide, which are planned for release in FY '21 and onward. The first one is Heaven Burns Red. VISUAL ARTS have produced many hit game and animation content such as AIR. We partner with their game brand Key on this title. For Mr. Maeda, the chief producer, this will be the first brand-new title in 13 years and expectations are high.

Page 15. This is another title in development, Assault Lily: Last Bullet. For Symphogear, we collaborated with Bushiroad, and again, we worked with them on this title. A wide-ranging media mix is planned, including animation and on-stage entertainment, to create excitement around the IP.

Page 16, the overseas distribution of our games. For Another Eden, we stepped up global marketing efforts while adding new chapters and conducting IP collaborations concurrently. Thanks to those efforts, its overseas sales shot up 2.7x from November to December, achieving substantial growth across the United States, Europe and Asia.

Please turn to Page 17. This is our plan for future overseas distribution. The blue parts indicate the changes in this quarter. DanMachi was released in Europe in October. The third-party distributed title was released on November 20 globally. The green boxes indicate future expansions planned.

Page 18, our existing titles in the game business. For SINoALICE and DanMachi, we continue to expand and energize fan communities through large-scale campaigns.

Please turn to Page 19. Again, there's our existing titles. Symphogear and Shoumetsu Toshi featured IP collaborations aimed at expanding fan base. That was about our game business.

On Page 20, let me turn to our live entertainment business. We continue to grow our distribution platform, REALITY. One of the key topics is functional enhancement. We launched low-latency mode. With latency and data volume dramatically reduced, high-quality image transmission is now possible. On top of in-house development, we entered into a capital and operational tie-up with Cluster, Inc., who runs cluster, a virtual event platform, and we jointly developed integrated avatar functionality.

Last section is the advertising and media business. We continue to strengthen our media potential to expand our user base. As you see some examples here, campaigns and partnerships are used to energize user communities.

This concludes my presentation. Thank you very much.