NEXON : Q1 2024 Earnings Prepared Remarks

NEXON Co., Ltd.

Q1 2024 Earnings Prepared Remarks

May 14th, 2024

Junghun Lee, Representative Director, President and Chief Executive Officer, NEXON Co., Ltd.

Thank you, Kawai-san and good afternoon to everyone joining our call - my first, since being appointed CEO of Nexon in March. Before we take your questions, I would like to offer some perspective on our results and outlook, including our excitement about the launch of Dungeon&Fighter Mobile in China on May 21st.

As you read in the Earnings Letter we posted earlier today, Nexon's performance in the First Quarter was better than expected. Revenue came in at ¥108.4 billion, driven by strong performances in FC ONLINE, FC MOBILE and Blue Archive. Also, we made progress in enhancing the player engagement of MapleStory in Korea while we have been sharply focused on improving the in-game economy and have developed a long- term roadmap for re-energizing growth in Dungeon&Fighter in China.

Our better-than-expected revenue combined with careful management of marketing and HR costs, resulted in operating income of ¥29.1 billion and net income of ¥35.9 billion, both of which exceeded our expectations.

In China, Dungeon&Fighter revenue came in at the high end of our guidance. Following an imbalance in the in-game economy which arose late in Q4, we have been sharply focused on improving the game's economy, with recognition that it will take time to completely restore the balance and recover both revenue momentum and the number of active players. In the meantime, we are planning a content update in Q2 and onward which we expect will further improve the in-game economy.

For MapleStory in Korea, our ongoing focus on improving player satisfaction and engagement over monetization resulted in Q1 revenue slightly below our forecast, but enabled us to expect Q2 revenue to return close to the level of the previous year and to grow sequentially despite the typical weak seasonality in Q2.

The biggest event in Q2 is the May 21 release of Dungeon&Fighter Mobile in China. Given the enormous popularity of this franchise and the current scarcity of quality action mobile games in China, getting this game into the hands of players has been a priority. The recent successful Beta Test and the strong marketing campaign planned by Tencent give us confidence that Dungeon&Fighter Mobile has the potential to energize our large base of existing players in China and bring new players to the franchise.

Also, our outlook for Q2 includes contributions from promising new titles, like HIT2 in Japan, THE FINALS and the official launch of MapleStory Worlds in Korea - however these are expected to be offset by weakness in PC Dungeon&Fighter in China as well as year-over-year decreases from Wars of Prasia and FC ONLINE due to tough comparisons following strong performances in Q2 2023.

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Next I'll hand the call over to Uemura-san to discuss our financial results and outlook in more detail.

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Shiro Uemura, Representative Director and Chief Financial Officer, NEXON Co., Ltd.

Thank you, Junghun.

In Q1, we delivered stronger-than-expected results, driven by FC ONLINE and FC MOBILE as well as Blue Archive. On the other hand, revenue from THE FINALS was lower than expected..

Q1 operating income was above our expectations. In addition to the revenue outperformance, HR costs, marketing expenses, and cloud service costs were lower than expected.

Q1 net income was also above our outlook, primarily due to better-than-expected operating income and an FX gain of ¥10.7 billion on cash deposits.

Looking ahead, we expect group revenues in Q2 to be in the range of ¥92.3 billion to ¥104.7 billion, representing a 2% decrease to 11% increase on an as-reported basis or a 10% decrease to 2% increase on a constant-currency basis year over year. We expect contributions from Dungeon&Fighter Mobile in China and other new games to be offset by year-over-year decreases in PC Dungeon&Fighter in China as well as Wars of Prasia and FC ONLINE due to tough year-over-year comparisons in Q2 2023.

For PC Dungeon&Fighter in China, although we are sharply focused on improving the in-game economy, further adjustments are needed and will be made in the months ahead. Additionally, packaged-item sales of the Labor Day update have not performed well compared to Q2 last year. Ongoing content updates in Q2 and onward are expected to further improve the in-game economy.

On the other hand, in Korea, our strategy of prioritizing the improvement of player engagement and satisfaction in MapleStory delivered early good progress. As a result, we now expect MapleStory's Q2 revenue to increase quarter over quarter and return close to year ago levels.

We expect Q2 operating income to be in the range of ¥17.3 billion to ¥27.7 billion, representing a 37% decrease to flat on an as-reported basis or 44% to 9% decrease on a constant-currency basis year over year. We anticipate higher HR costs primarily due to increased headcount and annual salary hike. We also expect increased cloud service costs and fees to creators in MapleStory Worlds as well as a one-time loss that is likely to occur due to reorganization in Q2. These expenses are expected to be partially offset by lower royalties, platform gateway fees, and marketing costs.

Accordingly, we expect Q2 net income to decrease year over year.

Finally, I'd like to provide an update on our capital allocation. Today, the Board of Directors authorized a ¥2.5 increase to the ¥5 semi-annual dividend which represents a per-share dividend of ¥7.5 semi-annually

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or ¥15 annually.

Also, regarding our three-year ¥100 billion share repurchase policy, the Board of Directors authorized an execution of ¥30 billion share repurchase in the market during the period of May 15 to July 19.

Looking ahead, we will continue to evaluate opportunities to enhance shareholder return.

I'll now turn the call over to Junghun.

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Junghun Lee, Representative Director, President and Chief Executive Officer, NEXON Co., Ltd.

Thank you Uemura-san.

I want to take a moment to offer some perspective on the priorities I've set for my first months as Nexon's CEO.

Much of the agenda for our first half of the year was set in January with a well-defined set of challenges and opportunities.

In recent weeks, much of my time has been sharply focused on two, near-term initiatives: re-energizingDungeon&Fighter in China and MapleStory in Korea, plus preparing for a successful launch of Dungeon&Fighter Mobile in China.

We have also placed a high priority on the development of new games and IP with the potential to become enduring pillars. This includes an exciting pipeline of new games scheduled for release in the upcoming quarters, including:

• The First Descendant - a dynamic looter-shooter scheduled for launch this summer.
• The First Berserker: Khazan - a hardcore action RPG based on Dungeon&Fighter IP which aims to attract new players worldwide.
• MABINOGI MOBILE - a mobile version of the beloved PC game, MABINOGI.
• And that's not all. Players and investors can expect much more new games and content in 2025.

Longer term, we have also prioritized the development of a franchise management strategy aimed at driving greater efficiency, profitability and fun for players from our global blockbusters. We're starting with the MapleStory franchise, which recently integrated teams and operations for greater alignment, efficiency, and creative synergy. We are also expanding the MapleStory franchise with new experiences such as MapleStory M and MapleStory Worlds with unique content creation features that appeal to players.

And critical lessons learned in expanding the MapleStory franchise can be valuable in unlocking the enormous potential in our most popular IP.

Finally, we've established a long-term priority to improve Nexon's profit margins through top-line growth, careful cost management, and operating efficiency as we sharpen our focus on franchise management and improve the speed of decision making.

In the months ahead, we will provide a more comprehensive report on how new strategies will be integrated into our plans for delivering more engaging games for our players and strong results for our investors.

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With that, we are ready to take your questions.

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