Gree Inc

TSE:3632

Earnings Call Transcript 2019-Q3

[Toshiki Oya, executive]

This is Oya speaking. Good afternoon, everyone. Let me go over the presentation. Please turn to Page 2. We have an executive summary. Net sales were JPY 17.6 billion. Operating income was JPY 1.6 billion, an EBITDA was JPY 1.8 billion. The net sales were almost in line with our forecast and operating income exceeded our forecast. Business overview. In this quarter, we were focused on overseas distribution, and they trended smoothly.

Another Eden, it was the very first trial for us to introduce the first-party IP as overseas sales distribution product, and we did have a strong start. Management also believes it was a successful launch. At the same time, thanks to a simultaneous global collaboration, DanMachi also enjoyed a smooth and successful business. For the future investment, we have a new product called AFTERLOST. This is the latest title in the Shoumetsu Toshi series, which have been developed so far. And we started a preregistration. A new business, the Live Entertainment business, our VTuber viewing app REALITY. Now we have expanded the original program lineups.

The Q4 earnings forecast, we expect net sales to be JPY 17 billion to JPY 18 billion and operating income to be at JPY 1 billion to JPY 1.5 billion and supported by the anniversary events for mainstay titles, overseas distribution and new titles. Let me move on to Page 5. The Q3 financial results overview. Net sales and operating incomes are as you see on the slide. One thing to note, in this third quarter, we were affected by one-off events. The impact on net sales was JPY 390 million and JPY 460 million on operating income. Excluding these impacts, the Q3's net sales would have been JPY 17.25 billion and operating income would have been JPY 1.09 billion. Therefore, the net sales declined by about a few hundreds of millions of yen, but operating income stayed pretty much flat. I'll go over our organic business conditions in a later slide. Please turn to Page 6. Now the numbers all into the graphs and charts. So we -- our business was supported by the contribution from overseas deployment. Also, the improved cost efficiency on existing titles that allowed us to enjoy strong earnings. Please turn to Page 7. This is showing operating income Q-on-Q trend. Let me go one by one. So the net sales, as I explained earlier, net sales were affected by one-off event was JPY 400 million. Without them, the sales basically went down by several mid -- hundreds of millions yen. As we explained on previous briefings, it was due to the operation business. So we took care of some of the unprofitable businesses, which improved the structure of the business. So the sales number may look to go down by a few several hundreds of millions of yen. But at the same time, the fixed cost has gone down substantially. As a result, we were able to maintain the similar level of profit as the previous quarter. So the net sales were affected by the one-off events, but -- that was offset by the operations business restructuring. So it came out to be pretty much on the same level. On the browser business, it is gradually declining at this -- still now but the native game's been growing and driven by the overseas business. That's been sustaining the sales level. For the investment level, in variable costs, we have promotional cost. That was the overseas deployment for Another Eden, so we had the initial promotion included. And there's other factors to see the improvement. In the fixed cost, we improved the efficiency for the operation business. And also for the existing titles to see a substantial improvement. Please turn to Page 8. This is showing the cost structure. First, with advertising. As I just mentioned, advertising increased from overseas development. But at the same time, fixed cost reduced a lot by the outsourcing cost in operations business. Turning onto Page 9. Q4 earnings forecast, we expect net sales to be JPY 17 billion to JPY 18 billion, operating income to be JPY 1 billion to JPY 1.5 billion.

The Q3 results on an organic basis, net sales were JPY 17.2 billion and operating income was about JPY 1.1 billion. So Q4 is practically expected to grow and the operating income will trend solidly. So for major titles, we expect to have anniversary events as well as overseas distribution. And the release of new title such as AFTERLOST to have slight contribution to the performance. Investment. We will be implementing promotional anniversary events to broaden out user base. And we will continue to make investment into the new titles to the similar level. So we will be spending into promotions and development on new products in this coming quarter, but overall, the business will stay relatively stable to generate profits. And for next year beyond when those new products turn out to be hit games that can actually work as an upside to our business performance. Let me move on to operational overview. Please turn to Page 11. This is showing a review and summary of Q3. There is no change to the major policy. We continue to strengthen our 3 earnings pillar businesses. On Page 12, development pipeline, there is no change to the previous briefing results, and still 5 titles are under development. Page 13. This is showing current consumption for the game business. As you can see from Q2 into Q3, the coin consumption increased as a whole, mainly driven by the overseas business, such as Another Eden. We started self-distribution in 8 countries and regions. Also DanMachi, the global operation proceeding very smoothly so far. Page 14. The longtime development of our first-party IPs. This is mainly about the AFTERLOST. So along with the release of AFTERLOST, we have started broadcasting TV animation of Shoumetsu Toshi that was started on April 7. And we have also started preregistration for the game site for the AFTERLOST and we plan to release this game by the end of the fiscal year. On Page 15, the long term development of the first-party IPs. So Another Eden and Shoumetsu Toshi, those first-party IPs we have made updates as well as adding the contents tied to the TV animation series, so we could energize existing users. On Page 16, these are nonfirst-party IP games. Among our mainstay titles, we try to continue to expand the fan communities. With SINoALICE, we had a collaboration with NieR RepliCant. In DanMachi, we had a collaboration with Date A Live to acquire new fans. And this was about the global collaboration event which I would mention later on. But this actually contributed a lot to increase the number of users. Page 17. SYMPHOGEAR and In Love with NEWS. We continue to make efforts to operate better the implementing collaboration events, and we also had anniversary campaign as well. Page 18, our full-scale overseas distribution for Another Eden. On January 29, we began self-distribution in 8 countries and regions for the first time. And we are enjoying pretty good start so far. Compared to Q2, the overseas have actually grown to be -- the same size as the domestic business. So it contributed a lot in Q3 and we will continue to make the same efforts in the coming quarter as well.

And for DanMachi, as I mentioned, we had a collaboration event with Date A Live and we are showing a comparison of the number of users before and after the collaboration. The user has increased by 1.5x more. The global collaboration can be very effective when such a campaign becomes quite successful one. So that's something that we can tell. On Page 20, overseas distribution plans. Basically, there's no changes to the previous explanation. Another Eden are now released. And the second from the bottom, the AFTERLOST, in Japan also in Hong Kong and Taiwan, we plan to launch the AFTERLOST by the end of the fiscal year. On Page 21, the REALITY, this is a new business, the live entertainment business, and we are continuing to expand the contents lineups, so we're continuously adding the original programs dedicated to REALITY. And last page on 22, advertising and media business. Through tie-ups with major businesses, we are expanding the content portfolio in order to strengthen our media potential. This concludes my explanation. Thank you for your attention.