Gree Inc

TSE:3632

Earnings Call Transcript 2020-Q3

[Toshiki Oya, executive]

We are starting the FY 2020 Third Quarter Results Briefing of GREE, Inc. Thank you for joining.

Let me start from Page 2, the executive summary. Net sales was JPY 15.4 billion, operating income was JPY 1.2 billion, and EBITDA was JPY 1.4 billion. Operating income surpassed our forecast.

There are 3 key topics about the business. First, one of our key first-party IPs, Another Eden, continues to show strong overseas sales. Our effort during the past 1 or 2 years to strengthen its global operations is starting to pay off.

The second point is about another key title, SINoALICE. We are making progress in preparing for its overseas distribution. The global version is in development and scheduled for release on July 1.

The third point is about the live entertainment business. Our virtual live distribution platform, REALITY, now offers an expanded lineup of original contents. We are making progress in developing this business.

Now let me talk about the outlook of our earnings. In the fourth quarter, both sales and profit are expected to be weak as COVID-19 is affecting some parts of the advertising and media business. Assuming the impact of COVID-19 will stay for the midterm, we look ahead to the next fiscal year and onward and we'll take various restructuring measures which may include reviewing of the business portfolio and reduction of fixed costs. Those efforts might lead to a onetime loss in the fourth quarter. By acting quickly, however, we aim to maintain solid earnings for the next fiscal year and onward.

Next is the overview of the third quarter consolidated financial results on Page 5. Net sales was JPY 15.4 billion and operating income was JPY 1.2 billion. Compared to the previous quarter, net sales decreased while profit increased. Net sales fell as we reviewed our game portfolio and closed some titles. COVID-19 also had impact on some parts of the advertising and media business, leading to soft performance.

Yet profit grew, thanks to strong performance of Another Eden, our first-party IP, and our efforts to optimize promotional activities. Ordinary income and net income are as shown on the slide.

Now please look at Page 6. This chart is the trends in the net sales, EBITDA and operating income. Operating income ratio went up by 3.0 percentage points from the previous quarter to 8.0%.

Page 7. This is the analysis of operating income compared to the second quarter. Although net sales decreased due to the reasons explained earlier, operating income increased by JPY 0.4 billion to JPY 1.2 billion, thanks to the strong performance of the first-party title and other factors.

Please go to Page 8, cost structure. In variable costs, we focused on efficiency and managed to spend our advertising budget efficiently. Depreciation costs improved quarter-on-quarter because the additional cost we had in the second quarter for office relocations decreased in the third quarter.

Overall, we continue to control our costs carefully and managed to reduce the total cost substantially, both on quarter-on-quarter and year-on-year basis.

Please go to Page 9. Here, we talk about shareholder returns. Stock repurchase is underway. In order to increase shareholder returns as well as to implement a flexible capital policy, we are repurchasing our stock up to 5 million shares or JPY 2.5 billion.

As of the end of April, 2.21 million shares had been repurchased, which represents over 40% progress.

Next, Page 10 is the dividend forecast. The dividend forecast is JPY 10 per share, which is the same as the previous year.

Now let me give you an overview of each business. Page 12 is the summary. The midterm business strategy described here guided our activities during the third quarter, too.

Page 13 is the development pipeline of games. Let me just focus on changes. As for the releases scheduled for FY '20, 1 title has been already released. There was another strong third-party IP title in development, but it will be postponed to FY '21 or later. Including that one, a total of 4 to 6 titles are in planning or development for release in FY '21 and onward. For future growth, we continue to invest in new titles.

Please go to Page 14. Here, let me talk about one of the new titles in development, Assault Lily: Last Bullet. This is our third collaboration with Bushiroad and now in preregistration. To make it a hit, a wide-ranging media mix is planned, including an animation scheduled for broadcast.

Please turn to Page 15, coin consumption. Enhanced global operations boosted the earnings potential of Another Eden, which was launched in additional 29 countries and territories. However, with some titles closed, as I mentioned earlier, overall coin consumption remained soft.

Page 16, the overseas distribution of our games. Reflecting the strong earnings potential, Another Eden grew overseas sales by 1.4x from the previous quarter. We stepped up its global operations, which allowed us to add more content. Its distribution expanded to more countries and now covers 71 countries and territories around the world.

Please turn to Page 17, the overseas distribution of SINoALICE. We started prelaunch promotion for its global distribution scheduled for July 1. With North America and Europe added on top of the existing countries and territories, SINoALICE will be distributed in 139 countries and territories around the world.

Page 18. This is our plan for future overseas distribution. An update from the last time is the global release of SINoALICE scheduled for July 1.

Page 19. Let me talk about our efforts for expanding and energizing fan communities through various initiatives. For SINoALICE, we hosted an interactive broadcast event with users participating live. DanMachi featured IP collaborations with Goblin Slayer.

Please turn to Page 20. Symphogear added a new scenario authored specifically for this game by Akifumi Kaneko, the original creator. Shoumetsu Toshi, which we operate for a long time, has the final chapter added to the main storyline.

On Page 21, let me give an update about a licensed title. We released the traditional Chinese version of One-Punch Man, which performed very well and reached the first place in sales ranking.

On Page 22, let me turn to our live entertainment business. We continue to enhance our distribution platform, REALITY, with original programs and events. Here, you see 2 of them. One is our original program titled Buion!!. It is our original music program featuring VTubers.

We also organized a ranking event for streamers to energize communication among users.

The last section is the advertising and media business on Page 23. We continue to energize communities through campaigns and other initiatives. For LIMIA, we hosted a photo contest to energize the user community. For aumo, we support restaurants by posting information on restaurants offering takeout or delivery services.

This concludes my presentation. Thank you very much.