Gree Inc

TSE:3632

Earnings Call Transcript 2021-Q2

[Toshiki Oya, executive]

Thank you for joining the FY 2021 Second Quarter Financial Results Briefing of GREE, Inc. Let me start with the executive summary on Page 2.

Net sales was JPY 13.7 billion, operating income was JPY 0.6 billion, and EBITDA was JPY 0.8 billion. Operating income was in line with our forecast.

There are 3 topics. As for the new title release, we started distribution of Assault Lily: Last Bullet last month. In China, the Chinese version of Another Eden was launched in November last year. In the live entertainment business, we continue to expand the contents for reality.

Regarding the outlook for profit, we expect firm profit to continue. For the third quarter, operating income is expected to be around JPY 1 billion.

Please go to Page 5. We will talk about net sales and operating income later in more details. In the second quarter, ordinary income and net income increased significantly to approximately JPY 3 billion due to the posting of profit from the investment fund operation business.

Next, Page 6 shows you the trends in net sales, EBITDA and operating income. Net sales decreased from the first quarter, mainly due to seasonal decline in the game business. Operating income, on the other hand, remained firm. Although the second quarter was a little sluggish, from the third quarter onward, we had the release of Assault Lily and will have anniversary celebrations in the fourth quarter. The business is continuing to make steady progress.

Page 7 shows the analysis of operating income in comparison with the previous quarter. Earlier, I explained our sales had decreased, which in turn, brought down commission fees, et cetera, resulting in a corresponding decrease in variable costs. As for fixed costs, as we were in the final stages of development of Assault Lily, outsourcing costs were a little higher. With that, overall fixed costs increased slightly compared to the previous quarter, and operating income was JPY 0.56 billion.

Page 8 shows the cost structure for the second quarter as for variable costs, commission fees, et cetera, decreased, while advertising cost increased quarter-on-quarter due to higher advertising cost for game apps, including a new title. Fixed costs increased due to increased outsourcing costs, which is under the other category for the outsourcing of development, as I said earlier.

Page 9 is about stock repurchase. The repurchase is progressing as planned, on scale, in line with what we had announced.

Now let me move on to operational overview. Page 11 has the review and summary of the quarter. Overall, based on our long-term strategy, we continue to strengthen the 3 earnings pillars of our business, which has not changed, and we made progress on them in the second quarter too. I will talk about each topic in more detail in later pages.

Page 12 shows the coin consumption. As I mentioned in the sales section, coin consumption has decreased from the first quarter. One of the reasons is the decline in SINoALICE after the strong growth following its global launch in the first quarter. In addition, there were seasonal factors, particularly from the anniversary events, which had continued strong effects into the first quarter. With that, existing titles had slightly weaker performance. But overall, we maintained stable coin consumption. For the next quarter onward, we started distribution of Assault Lily and aim to release games on a continual basis.

From Page 13, let me talk about the release of new titles. This is Assault Lily: Last Bullet, a collaborative title with Bushiroad, TBS and SHAFT. It was launched on January 20, off to a strong start. For this title, we are developing a variety of media mix plans, including TV anime story integration, aiming to nurture it as a major title for the future.

Page 14 shows another new title released, the domestic launch of One-Punch Man Ichigeki Maji Fight. The distribution started in late October, off to a smooth start.

This is our development pipeline of games. Two titles have been released. Next, we plan to release Heaven Burns Red and then Knights of Sidonia, both in-house developed titles in 2021. On top of that, we are working on planning and development to release 2 to 3 new in-house developed titles per year.

Next, let's look at our overseas distribution in China. The Chinese version of Another Eden was released on November 5. We will continue to work with X.D. Network, our local distribution partner, to expand it further.

Next, operation of existing titles. Let me share two examples of IP collaboration. Another Eden is in collaboration with Tales of series, and Symphogear is in collaboration with Gamera. Here are some campaigns we conducted. For SINoALICE, we held major campaigns, including a Christmas campaign, along with social media events. As for DanMachi, for its 3.5-year anniversary campaign, we conducted anime tie-in and revived popular gacha offerings.

Next is the live entertainment business. We expanded content on our community platform, REALITY. We are pleased to tell you that REALITY was selected for Google Play Best of 2020 in the entertainment category. We will continue to expand its contents to meet the needs of users. In addition, we expanded the lineup of avatar variations by adding avatar gacha offerings.

Lastly, the advertising and media business. Here, again, we continues to expand contents to meet the needs of users. As for aumo, we published a special issue on the GoTo campaign, and LIMIA featured a photo posting contest. Despite various restrictions with COVID-19, we are expanding our contents, adapting to the changing needs of users.

This concludes my presentation. Thank you very much.

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