Gree Inc

TSE:3632

Earnings Call Transcript 2021-Q3

[Yoshikazu Tanaka, executive]

Thank you for joining the FY 2021 Third Quarter Financial Results Briefing of GREE, Inc.

I'm going to explain based on the slides. Let me start with the executive summary on Page 2. Net sales was JPY 13.9 billion, operating income was JPY 1.7 billion, and EBITDA was JPY 1.9 billion. Operating income surpassed our forecast.

There are 3 topics: As for the release of new title, we started the distribution of Assault Lily: Last Bullet on January 20, off to a strong start; secondly, we made progress in developing a third-party distributor title, That Time I Got Reincarnated as a Slime, scheduled for launch in 2021; thirdly, in the live entertainment business, we continue to expand the contents for our virtual live distribution platform, REALITY.

Regarding the outlook for profit, we expect firm profit to continue. For the fourth quarter, operating income is expected to be around JPY 1 billion. For the full year of FY 2021, we expect growth in both operating income and net income.

Please go to Page 5, financial results overview. I will talk about net sales and operating income later in more details. Ordinary income was JPY 4.20 billion, and net income was JPY 5.08 billion, significant profits, thanks to the profit from the investment fund operation business, et cetera. Operating income and net income grew quarter-on-quarter as well as year-on-year.

Next, Page 6 shows you the trends in net sales, EBITDA and operating income. Net sales grew, thanks to the contribution from the new title, Assault Lily: Last Bullet. At the same time, cost-cutting and other improvements led to higher operating income margin, achieving growth in both sales and income.

Page 7 shows the analysis of operating income. Net sales grew, driven by the new title. Variable costs decreased due to lower advertising costs, et cetera, despite increased sales. Fixed cost also improved. As a result, operating income increased by JPY 1.2 billion from the previous quarter to JPY 1.72 billion.

Page 8 shows the cost structure for the third quarter. Variable cost declined, thanks to increased efficiency in advertising spending. In addition, royalties decreased due to the improved product mix of app games, driving down commission fees. Fixed costs also improved in labor costs and outsourcing costs for app games. As a result, total cost decreased by JPY 0.9 billion quarter-on-quarter to JPY 12.2 billion.

Page 9 is about stock repurchase. Stock repurchase has been underway with an upper limit of 20 million shares with up to JPY 12.0 billion. The cumulative repurchases as of the end of April 2021 is shown on the slide. The progress is about 60% in terms of both the number of shares and the amount and proportionate to the period past.

Page 10 shows the dividend forecast. Our dividend distribution policy is to maintain DOE at around 2%, with consolidated payout ratio of 20% or higher, which we continue to maintain. The dividend forecast for FY 2021 is JPY 11 per share.

Now let me move on to operational overview. Page 12 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. Let me share the progress in each business one by one.

From Page 13 onwards, I'll be talking about games for a while. First, the coin consumption in app games increased from the second quarter to the third quarter. As for topics, Assault Lily: Last Bullet was released on January 20, off to a strong start as one of our mainstay titles. Another Eden, our first-party IP title, also performed smoothly. On the other hand, some of our long-term titles had weak performance, which led to the overall coin consumption as you see on the slide.

On Page 14, let me talk about the launch of a new title. Assault Lily: Last Bullet is off to a strong start. It reached the 16th in app sales ranking, and we have multiple media mix plans for it in collaboration with Bushiroad and other partners.

Page 15 is our development pipeline of games. We are planning to continue to release 2 to 3 new in-house developed titles per year, aiming to generate hits. In this fiscal year, Assault Lily: Last Bullet and One-Punch Man were released. Other upcoming titles include Heaven Burns Red, Knights of Sidonia and That Time I Got Reincarnated as a Slime, all of which are scheduled for release in 2021. We are also planning and developing multiple other titles.

Page 16 is about expanding and energizing the fan communities of existing titles. We added more original content to energize users. For Another Eden, we have added a new episode to its long-form scenario. Symphogear has added new chapters to the storyline unique to the game.

Page 17 is about energizing users through collaboration with popular IPs. SINoALICE collaborated with That Time I Got Reincarnated as a Slime. DanMachi collaborated with Strike The Blood. That is all for the games.

Page 18 is the live entertainment business. To grow the platform further, we have been expanding the contents on REALITY by adding avatar gacha offerings and hosting events. During the quarter, we expanded the lineup of avatar variations and held user participation events such as the Valentine's Day event.

Lastly, the advertising and media business. We continue to strengthen our media potential by energizing the communities through campaigns. In this quarter, we held photo posting contests for both aumo and LIMIA to energize 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.]