NCsoft Aktie

Good morning, everyone. This is Sun-Hwa Park, Head of IR at NC. Thank you for joining us today to discuss our 2026 Q1 financial results. Joining me on the call today are Co-CEO, BM Park; and CFO, Jun Hong. Now let me begin with the financial highlights.

Q1 revenue totaled KRW 557.4 billion, up 55% Y-o-Y and 38% sequentially. NC revenue reached KRW 318.4 billion, while mobile revenue came in at KRW 182.8 billion. Following the consolidation of Lihuhu and Springcomes, Mobile Casual contributed KRW 35.5 billion to the top line.

As a reporting note, starting this quarter, we have integrated royalty revenue into their respective IP categories. As we continue to shift toward a first-party global publishing model, the distinction of royalty revenue has become less meaningful. Furthermore, this reclassification allows us to more clearly demonstrate the success of our strategy, expand the value of our legacy IPs, which remains a critical pillar of our growth.

Turning to our PC segment. We delivered record-breaking quarterly revenue, driven by the sustained performance of Aion 2 and the successful launch of Lineage Classic. Aion 2 generated KRW 136.8 billion in revenue, while Lineage Classic delivered KRW 108.8 billion in billings and KRW 83.5 billion in revenue under our revenue deferral policy. In the 90 days following its launch through May 11, Lineage Classic reached KRW 192.4 billion in billings, significantly exceeding expectations. Thanks to the launch of Lineage Classic, the PC Lineage IP revenue grew more than fourfold year-over-year, demonstrating the enduring brand competitiveness and long-term scalability of our legacy IP.

Our 3 mobile titles maintained robust user traffic and stable performance without the cannibalization impact from Lineage Classic. Lineage M generated KRW 112.8 billion in revenue with both revenue and traffic increasing Q-o-Q.

Turning to the expense side. Q1 operating expenses were KRW 444.1 billion and personnel expenses totaled KRW 244 billion, reflecting pre-recognition of incentives based on our strong 2026 profit outlook as well as treasury stock-based compensation.

Marketing expenses reached KRW 37.8 billion, given the distinct nature of the Mobile Casual business, we have categorized marketing expenses into 2 segments: core games at KRW 16.5 billion and Mobile Casual at KRW 21.2 billion.

Q1 operating income closed at KRW 113.3 billion, representing an operating margin of 20%. Pretax income and net income totaled KRW 187.3 billion and KRW 152.4 billion, respectively, reflecting foreign exchange gains following higher exchange rates.

Good morning, this is CFO, Willy Hong. As we have consistently emphasized in previous earnings calls, this year represents an inflection point where years of strategic transformation begin to manifest as tangible growth. Our first quarter results serve as the official starting point for this growth, providing us with clear visibility into achieving our annual revenue guidance of KRW 2.5 trillion. I'd like to briefly outline our performance and strategic roadmap of 3 cores.

First, our fundamental growth is being reinforced by the sustained performance of our legacy IPs and the success of new initiatives. Lineage Classic is currently exceeding expectations, thanks to exceptional player engagement, significantly bolstering our confidence in its long-term success. Looking forward, we are systematically executing a spin-off and regional expansion strategy. This includes the Southeast Asia launch of Lineage W on May 27, the entry of Lineage M and Lineage 2M into the Chinese market and the upcoming China launch of Aion Mobile currently in development with Shengqu Games. These initiatives will solidify a robust and predictable revenue base.

Secondly, regarding our new IP pipeline, Aion 2 is on track for a global launch in the third quarter. Building on our proven success in expanding the MMO footprint in Korea and Taiwan, we are leveraging a specialized Western publishing team to ensure massive user acquisition and high retention in global markets. By combining Localized LiveOps with industry-leading content, we aim to establish Aion 2 not just as a hit, but as a global flagship MMO.

Additionally, our upcoming titles, Cinder City, Time Takers and Breakers have officially entered the global testing phase. We are rigorously validating these titles to ensure the gameplay is optimized for global audiences in the open-world shooter represented by Cinder City and shooter genre by TT and subculture genre by our Breakers. Furthermore, our long-term pipeline, including Horizon Steel Frontiers, [indiscernible] and [indiscernible] currently under development by [indiscernible] is already undergoing systemic testing to ensure quality ahead of their 2027 plus release windows.

Thirdly, our strategic pivot into the Mobile Casual sector, a key driver of our future growth is progressing exactly along the trajectory we anticipated. Q1 saw the full quarter contribution of Lihuhu and Springcomes. Starting in Q2, we will begin consolidating results from JustPlay, which will serve as a cornerstone of this business unit. Notably, JustPlay's Q1 revenue grew 76% Y-o-Y, demonstrating momentum that far exceeds our initial forecast. As JustPlay is integrated into our financials, we expect a meaningful increase in the scale of our Mobile Casual revenue. Furthermore, we are carefully evaluating additional M&A synergy plays between our portfolio studios to achieve greater economies of scale.

Across these 3 strategic pillars, we are committed to delivering consistent quarterly top line growth and solid profitability. To ensure this growth is sustainable, we will continue to diversify our portfolio and optimize our cost structure to build a predictable long-term business model.

Our Co-CEO, BM Park, and I will now provide further details during the Q&A session. Thank you.

[Operator Instructions]

The first question will be provided by Joon Ho Lee from Hana Securities.

I have one question. It seems like the earnings for Lineage Classic and Aion 2 are very positive. So I was wondering if you could give us more visibility into your Q2 outlook and also the life cycle of these titles.

So regarding the life cycle, I cannot disclose any details for individual titles, but I would like to talk about the Lineage Classic first. Currently, the DAU trend is remaining strong. And I think an important milestone for us is the new server update called Valakas on April 22, and it has achieved the best daily average revenue on this day, and we are confident that the title will be able to running for the longer period of time. And there has been some concerns over cannibalization impact potentially. But after the release of Lineage Classic, the impact was made on PC Lineage Remastered pretty limited, which was 30% Y-o-Y decline. But overall, the Lineage IP franchise was seeing increases in both revenue and user base.

This is BM speaking. Regarding Lineage Classic, it has been 3 months since its launch, but rather in terms of MAU and its share on the PC cafes, the traffic is remaining strong. So we believe that the title will be long running.

And especially for Lineage Classic, not only the returning fans, but also we are able to attract new users from those in their 20s and 30s. So we have high confidence in this title.

Regarding Aion 2 traffic-wise, it is slightly declining, which is expected. But since we have long history of life service and based on that experience in June, we are going to release 6-month anniversary event and also Season 4 to attract returning fans. And we will be able to achieve both life cycle [indiscernible] revenue that are already expected in Korea and Taiwan.

Regarding Aion 2, as you may know, Aion 2 Global will be released in Q3 this year. And already compared to other titles, including TL, it is showing good metrics even considering that we haven't really kicked off the official marketing events. So major marketing events will start beginning in early June through Summer Games Fest. And we will -- it will be followed by Live Streams and UA marketing. Once these happen, we think that more positive results will be garnered through Aion 2.

The following question will be presented by Junhyun Kim from HSBC.

I have 2 questions. My question is related to the growth potential of JustPlay. I believe that Mobile Casual business will be the core pillars of growth. And it seems like the JustPlay's MAU is growing rapidly compared to the peers. So what are the major competitive edges from your perspective? And regarding Q1, could you give us more visibility into its margin? And I believe the company is more focused on IP first-party titles. So probably margin will be higher, but I would love to get your outlook regarding this.

And my second question is about variable cost. It seems like it has declined. I believe that's due to the increases in revenues of PC titles. Do you think that there will be any impact coming from Mobile Casual business? Or since Mobile Casual business is more focused on IAA, do you think that there will be no impact on that? And could you give us more visibility into the new title lineup for your studios of Mobile Casual business, including Lihuhu.

So regarding Justplay, I will give you more details for our next earnings call conference. However, for the last year figures, revenue was KRW 250 billion and operating profit was KRW 28 billion and operating margin was 11%. And the margin was kind of pressured by the iOS policy last year. But for Q1 revenue, JustPlay recorded KRW 98.3 billion, which is a 70% Y-o-Y increase and operating profit was recorded KRW 13.6 billion in Q1, which is 130% Y-o-Y growth.

In terms of competitiveness, the most important thing that we need to notice is that compared to other Mobile Casual companies, JustPlay has first-party data because it's a rewarded app. So based on the data, we'll be able to have more accurate sophisticated UA marketing spend, and it will increase the efficiency.

So you mentioned about declining variable costs. It's true that variable costs have declined compared to fixed costs, and this is mainly due to PC revenues. However, as we grow our business for the Mobile Casual sector, we believe that there will be impact coming from UA spend. And so compared to the past where we only focus on the legacy titles because we are putting more focus on the Mobile Casual sector as well, there will be chances that variable cost will change. But it will be changed that significantly, for the Mobile Casual business, we are expecting UA spend to be around mid-range of KRW 300 billion for this year.

So BM will talk about this in detail. But for UA spend, even if there will be UA spend after Q1 and Q2, revenue will increase. So this is relevant to our revenue. So I hope you consider this factor when it comes to modeling our projections.

Regarding JustPlay, so far, there has been -- there is no synergy effect considered. But for this year, we expect that the growth will be 70% Y-o-Y. But starting from Q3, we'll be able to realize synergy effects with our portfolio studios. So we expect much more higher Y-o-Y growth for this year. And for variable costs, JustPlay is focusing on IAA. So most likely, the commission fees are not occurring through platforms like Google. But as we focus our business model in IAP, we want to minimize the impact by utilizing the D2C payment system.

Regarding the new title lineup for our studios, for example, Lihuhu is currently planning for 20 new titles. But what is more important is about having a selective approach towards the games after it is released. So although we have like 20 titles in the lineup, but we will go through a more selective marketing approach. So every quarter, there will be around 1 to 2 core titles that will have this extensive marketing, and the numbers will be similar for other studios.

The following question will be presented by Joshua Kim from CGSI.

I have 2 questions. First is about JP's growth rates. It seems like from 2024 to 2025, JustPlay's growth rate has declined. But for Q1 growth rate, it has increased significantly. So could you explain the background behind this at the top line level? And for the second question, could you give us more color on to the personnel expenses in Q1 and the full year?

Regarding JustPlay, last year, the business was mostly focusing on AOS because there was uncertainties regarding iOS policies. However, starting from Q4, iOS started to support rewarded apps and the share of iOS has increased rapidly starting from Q4. So that's why we are expecting positive outlook for both Q1, Q2, Q3 for this year.

So for the personnel expenses, I guess it's 2-parter question. We can divide that into fixed costs and variable costs. Fixed cost-wise, it is relevant to headcount and salary increases, and I can emphasize that it will be similar to last year. For variable items, it includes rewards for our tech teams and also incentives due to high operating profit.

The variable expenses will be related to operating profit and contribution income, meaning that we are expecting higher variable costs because we are expecting higher profit. And starting from Q1, even if we consider such increases in variable expenses for the personnel expenses, we are still seeing high profit growth trends.

The following question will be presented by Min Uh Cha from Goldman Sachs Securities.

I have 2 questions. First is about the revenue mix of Aion 2. Could you give us more color on to the specific revenue mix between membership and MTX items? And do you think the mix will be similar when the Aion 2 will be released in the global market? And [Technical Difficulty] for I think this is an important title because it will strongly contribute to the increases in brand awareness of NC in the global market. So could you give us more high-level guidance regarding the marketing roadmap?

So roughly speaking, 25% [Technical Difficulty] membership, while 25% will come from [indiscernible] and rest of them will be related to [ kuna ], meaning that for the remaining 50%, 25% to 30% will be the items that will be purchased by [ kuna ].

So that's the rough trend that we could give at the moment.

And for the global release, I believe the overall competition would be similar, but the share-wise, we're currently monitoring the feedback and responses from the Western market. We are discussing this with the debt team, and it's not confirmed yet. But ahead of the launch, we will be able to provide more details into the roadmap. And also it will be aligned with the balance with the Korean and Taiwanese markets.

And for Horizon Steel Frontiers, we are planning to have global test in second half of this year, and we will focus on viral marketing campaigns as well. But currently, it's not about development issues, but our IP holder, which is Sony is highly excited about this title. So we are currently discussing about the specific release time lines. So once it's confirmed, we will communicate this to the market.

The following question will be presented by Junhyun Kim from HSBC.

I have one more question regarding JustPlay. When it comes to competition, including JustPlay, it seems like competitions are mostly only using AOS, but JustPlay is also supporting iOS. So could you give us the background behind this? And what will be the expected next steps for JustPlay?

We cannot disclose any details because it's our own know-how. But when it comes to iOS, the platform is very sensitive to entities and abusive behaviors, but JustPlay has its own specialized systemic structure. So that's why they are able to support on iOS unlike other rewarded platforms. So I cannot give you the details because it's our own know-how.

Without any further questions, I will now begin my closing remarks.

As I mentioned from last year this year, based upon the efforts that we have made over the past 2 years, we are aiming to have accelerate growth and innovation.

We're not just resting on those laurels that we have made in Q1 this year. Every quarter, we're going to achieve Y-o-Y and Q-o-Q revenue and operating profit growth.

Of course, operating profit margin could be fluctuated across quarters because of the timing of the incentives. However, operating profit-wise, we will continue to level up and achieve sequential growth.

And as our CFO mentioned, we are having more visibility into the upper bound of the revenue guidance, which is KRW 2.5 trillion. But internally speaking, we are aiming much higher revenue targets and operating profit targets.

And many of you were curious about Aion 2 and Lineage Classic. But as I mentioned before, as of next year, we have 10 new titles, including spin-offs and new IPs. And based on that, we are expecting much higher growth next year. And previously, I mentioned about the revenue guidance of KRW 5 trillion by 2030. And since we have our lineup ready for 20 titles by 2030 and since we have clear growth strategies for Mobile Casual business, we believe that we are on track of achieving this revenue guidance for 2030.

As I mentioned, instead of just focusing on individual title success and failure, we're going to continue to pursue more predictable and sustainable business model. And I hope that you continue to see our efforts in this regard throughout this year.

Thank you.

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

[Interpreted] Good morning and good evening. Thank you all for joining the conference call for the NCSOFT Earnings Results. This conference will start with a presentation followed by a Q&A session. [Operator Instructions]

Now we will begin the presentation on NCSOFT's Fourth Quarter of Fiscal Year 2025 Earnings results.

[Interpreted] Good afternoon, everyone. This is [ Sona ] Park, Head of IR at NCSOFT. Thank you for joining us today to discuss our fourth quarter and full year 2025 financial results. Joining me on the call today are Co-CEO, BM Park; and CFO, Willy Hong.

Now let me begin with the financial highlights. Revenue for the fourth quarter totaled KRW 404.2 billion. Mobile revenue accounted for KRW 178.1 billion, and PC revenue reached KRW 168.2 billion. Effective this quarter, Blade & Soul 2 has been removed from the mobile segment, while revenue from Aion 2 is now recognized in our PC business.

The PC segment saw significant growth this quarter, catalyzed by the successful launch of Aion 2. While gross billings for Aion 2 reached KRW 94.1 billion in the quarter, reported revenue was recognized at KRW 77.4 billion in accordance with our revenue deferral accounting policy. Even excluding the contribution from Aion 2, our 5 legacy PC titles demonstrated sequential growth, primarily driven by strong expansion pack sales for Guild Wars 2.

Q4 operating expenses were KRW 401 billion. Personnel expenses came in at KRW 197.9 billion, and marketing expenses were KRW 52.9 billion. We saw a sequential decline in onetime severance payments. However, this was offset by increased marketing spend related to new title launches and our presence at G-STAR.

Q4 operating income was KRW 3.2 billion with a net loss of KRW 1.5 billion. It was primarily driven by a spike in corporate tax expenses for the quarter resulted from a timing difference where deferred revenue from Aion 2 was recognized as taxable income.

For the full year 2025, total revenue was KRW 1.5069 trillion. Mobile revenue contributed KRW 794.4 billion and PC revenue totaled KRW 430.9 billion. On an annual basis, our legacy PC portfolio grew year-over-year even without the inclusion of Aion 2, reaffirming the enduring strength of our core IPs.

Throughout the year, we remained disciplined in our company-wide cost efficiency efforts. As a result, annual operating expenses decreased 12% year-over-year. Personnel and marketing expenses declined by 14% and 18%, respectively, while variable costs and depreciation also trended lower.

Consequently, operating income turned profitable, recording KRW 16.1 billion. Excluding the impact of approximately KRW 20 billion in onetime severance payments, full year 2025 operating income stood at KRW 36.9 billion. Pretax income and net income were KRW 461.4 billion and KRW 347.4 billion, respectively. These figures reflect a onetime gain from the sale of the Samseong-dong NC Tower, along with the associated tax impact.

That concludes our financial review.

[Interpreted] Hello, everyone. This is CFO Willy Hong. Before we start our Q&A session joined by our Co-CEO, BM Park, I'm going to briefly cover our targets for this year.

If 2025 was a turnaround year for NCSOFT, 2026 marks the beginning of accelerated growth. We are aiming for the upper bound of our previously issued revenue guidance ranging from KRW 2 trillion to KRW 2.5 trillion. We expect to drive this through 3 primary pillars: expanding the revenue of our existing IP, launching new IP globally and accelerating our mobile casual business.

First, expanding the revenue of our core IP. This year, we'll see the first full year revenue contribution from Aion 2. Furthermore, we are targeting a major global launch for Aion 2 in the third quarter. To spearhead this effort, we have recruited Merv, who previously led the Lost Ark and TL business units at Amazon Games, and we are scaling our internal global publishing capabilities to ensure top-tier executions.

Additionally, we are set to fortify our legacy IP base through regional expansion and spin-offs. This includes the official launch of Lineage Classic Tomorrow along with Guild Wars Reforged Mobile and the Shengqu Games developed Aion Mobile. In total, we plan to release 5 spin-off titles this year. We are also expanding our geographic footprint by bringing Lineage W to Southeast Asia, Lineage 2M and Lineage M to China and TL and Lineage W to the Russian market.

Second, releasing global new IP. Time Takers, Breakers and Cinder City are entering the final stages of production. We will commence global CBT in March and throughout Q2. Based on these results, we anticipate a staggered global rollout starting late in the second quarter. This marks a pivotal shift as we target new user bases in territories across the PVP shooter subculture and [ MMORPGs ] genres.

First, accelerating our mobile casual business. We are aggressively building the mobile casual ecosystem by acquiring high-growth studios in the global market. Our strategy is to create a virtuous cycle where ad creative, UA, data analytics and tech layer are organically integrated to maximize synergies between individual studios and our central platform.

Our recent acquisitions, Lihuhu in Vietnam and Springcomes in Korea, will be reflected in our financial results starting in Q1. Furthermore, our long-pursued M&A activity in Europe is in its final stages with an expected financial impact as early as Q2. We are committed to converting our idle cash reserves into operating assets that will generate meaningful revenue and earnings starting this year.

Looking ahead, our momentum continues into 2027 and beyond. This includes Horizon Steel Frontiers, which is an MMO based on the Horizon IP, our next-generation shooter Bonfire, the subculture titled Project AT by Dynamis One and the new MMO Project R developed by Dexa Studio. We will also continue to diversify our portfolio with additional Roguelike and FPS titles through both in-house development and third-party publishing.

I look forward to discussing these initiatives in more detail alongside our Co-CEO, BM Park.

[Interpreted] So before I move on to our Q&A session, I would like to talk about the prospects for this year and next year. As I promised before, as of 2025, we focused on preparing ourselves for the accelerated growth, and we focused on our initiatives for optimizing cost and organization and improving the quality of our games. As you may know, starting with Aion 2, which was released in Q4 last year, we have started to gain trust back from our users. And with our new IPs, we are going to continuously operate our titles with user-friendly policy.

As Willy just mentioned, our company will drive 3 pillars of revenue growth, which includes MMORPG, shooter subculture cluster and mobile casual business. For our mobile casual business, it is not just about beginning, but we are going to solidify our efforts to accelerate such business so that next year, we're going to make sure that this accounts for 1/3 of total revenues of our company.

So as I've mentioned, our sales guidance was ranging from KRW 2 trillion to KRW 2.5 trillion, but we think that there's a high possibility that we can achieve the upper end of our sales guidance, which is KRW 2.5 trillion, through 3 pillars of revenue that I just mentioned. Through these efforts, we will be able to not only achieve sequential growth but achieve Y-o-Y growth this year. And as a result, our operating margin will improve as well.

Having said that, in order to achieve revenue growth, we need to also make more spending on investments such as in incentives and marketing spend and UA spend for our mobile casual business growth and as well as our M&A opportunities. And for every quarter, however, we were going to achieve growth for the operating income perspective.

We're currently discussing M&A deals. Such valuation could be reflected in both intangible and operating assets. And if we decide to have more emphasis on intangible assets, we're going to communicate through IR events, including not only operating income but also EBITDA.

So far, NCSOFT has worked as a traditional content company, which means that our individual game title successes and failures have greatly affected our share prices. But looking forward, you may know from our quarterly results, we will be able to achieve more predictable revenue and profit growth. And I hope that when you are analyzing our share prices, you'll look through the lens of profitability and sustainability of our revenues.

That concludes my opening remarks. Now moving on to our Q&A session.

[Interpreted] [Operator Instructions] The first question will be provided by Eric Cha from Goldman Sachs.

[Interpreted] I have 2 questions. My first question is about Aion 2. You mentioned about the system being more sustainable and predictable for revenue, and I believe that the business model that Aion 2 is taking is aligned with that strategy. And I believe that recently there was a news saying that the retention membership was around 500,000 to 600,000. I was wondering if you could give us more visibility into this retention trend. And how much do you think the revenue will be generated based on the retention number that is gathered this time for Korea and Taiwan? And you mentioned that the Aion 2 will be released globally in the third quarter. So based on the first 12 months period, do you think the revenue will be much bigger than the size of Korea and Taiwan?

And my second question is about the mobile casual business that you mentioned as one of the 3 pillars. And you mentioned that it will account for 1/3 of the total revenue that will be generated next year. So is this mainly about organic growth driven by new titles? Or would it be contributed by inorganic growth? And what will be the key success factors of this business? And could you give us your insights why do you think that NCSOFT will be good at mobile casual sector?

[Interpreted] So regarding your first question, because of our Korea's disclosure policy, we cannot give you detailed numbers about the indicators, but I would like to give you some details regarding our metrics. As of January 3, we announced that the characters who bought membership was amounted to 1 million. And as of February 9, this number increased to 1.5 million. And revenue-wise, starting from the launch, which was made on November 19, to the end of December, gross billings have recorded KRW 94.1 billion, while the accounted revenue was KRW 77.4 billion. And starting from January 1 to up to today, we expect the revenue will be around KRW 70 billion.

Unlike the traditional trend of MMORPGs where we usually see a natural decline of the user numbers, Aion 2 is significantly maintaining the user base. And this is promising considering the fact that we have suspended getting new users over the past 2 weeks because of the bot issues.

And regarding Korea and Taiwanese market, I think you can assume the revenues based on the numbers that I gave you right now. And for the 12 months of release of the global launch of Aion 2, although considering that the Throne and Liberty had lower indicators initially compared to Aion 2, when it comes to Throne and Liberty, within th 3 months in Amazon, revenue was generated up to KRW 150 billion. And since Aion 2 has better indicators than that, I believe that you will be able to expect great revenues, which will be released probably in September or in the third quarter of this year.

And regarding mobile casual sector, we actually started to pursue M&A opportunities 2 years ago. And starting with July last year, we have changed our strategy for mobile casual business by recruiting Anel, who has great industry expertise and know-how, and we have appointed Anel as the Mobile Casual Center Head.

And regarding mobile casual sector, more important elements beyond IP is data analytics capabilities and how we can well operate UA marketing and monetization and live ops based on such data. Since NCSOFT has a 30-year history of data analytics and great AI capabilities, we think that we are well positioned to pursue this business. And once Anel joined our company, the first thing he did was not about acquiring gaming businesses, but focused on acquiring the software of the tech platform for mobile casual business, and we are currently working on developing our own tech platform based on the software.

And in order to make the tech platform successful, we believe that critical mass is important when it comes to data analytics. And that's why we have acquired studios like Lihuhu and Springcomes last year. That was just the beginning. And as Willy just mentioned, we are currently in the final stages of acquiring a sizable mobile casual studio, and we hope that we will be able to communicate this soon to the market.

And hopefully, for the first quarter, we will be able to secure critical mass, and then we will be able to create synergy effects with our acquired studios through our tech platform. And we will go through PMI strategies and not only improving our fundamentals, but hopefully, we want to make additional revenues coming from these studios this year.

And we are confident that we will be able to secure critical mass and more know-how in this sector. And starting from the second half of this year, we will be able to start our publishing efforts for a big sized mobile casual IP. And we are already making conversations with potential target studios. And probably within the second quarter or third quarter, we will be able to finish POC and continue to initiate our publishing efforts.

So to circle back to your question about the mobile casual sector, we'll be able to achieve the 1/3 of total revenue next year. The starting point will be achieved through inorganic growth through M&A opportunities. However, we are going to pursue efforts to increase organic growth as well. And if needed, we will be able to add more new titles in this portfolio.

And as I've mentioned before, for the mobile casual business, we think it's not about successfully executing brand marketing for the IP, but it is about successfully analyzing big data and automating the development through AI technologies. I believe these 2 elements are the key success factors. Since NCSOFT has a 30-year history of operating live service games with great data analytics skills, combined with our advanced AI technologies, we will be able to achieve successful launches of mobile games. And with the know-how gained by our mobile casual center head and additional talent that will be joining our team, we will be able to achieve this goal. I hope this helps.

I just want to emphasize that we -- this is the work that we have put our thoughts and heads over the past 2 years.

[Interpreted] The following question will be presented by Junhyun Kim from HSBC.

[Interpreted] I have a question regarding the sales guidance that you have just mentioned, which was about the upper end of KRW 2.5 trillion. I expect that you're assuming that you will be able to achieve great revenue growth. I was wondering what will be the biggest contribution, coming from which title? And what will be the revenue mix between the existing IPs and new IPs? And considering the history of delays in the previous titles, I was wondering how confident are you with the slate of the new releases that are in your lineup? And is the delay risk reflected in your guidance?

And since there is a short cycle of releases, I was wondering maybe you have to increase the publishing capabilities. So what is your strategy on that? And regarding the casual side, the competition is quite fierce in the market, and due to AI advancements, many developers, including independent developers are joining the market. So there is a lot of supply of games that are in the market. So I was wondering what would be your differentiating factors for your games in this market?

[Interpreted] And regarding your first question, as I mentioned last year, we have conducted cost optimization programs, which means that even if the revenues will go -- has gone down to KRW 1.5 trillion range, we will be able to achieve breakeven points. And this includes our strategies for new regional launches and spin-offs. And the remaining ones will be contributed from new IPs. And the biggest contribution will likely come from Aion 2 and some of them will come from Cinder City. And Cinder City and Breakers and Time Takers, their global CBT is scheduled for March and throughout the second quarter.

Depending on the results of CBT, there could be some changes to our time line of releases. However, I want to reemphasize that before we conduct our global CBT, already we have done multiple FFTs internally and externally. So we believe that the results will be positive from global CBTs. And we expect that mobile casual sector will also have meaningful contributions to our KRW 2.5 trillion revenue guidance.

[Interpreted] So regarding your second question, which was about whether we have the publishing capabilities, I believe that your question is geared towards our global publishing capabilities. With that in mind, as I've mentioned before, for NCA, we have appointed Jeonghee Jin as the CEO to make sure that we have the front line of publishing capabilities in the North America and European regions.

And as we have announced today, Merv from -- who previously served the global publishing unit at Amazon Games, have joined today for our company. And with his network, we will be able to secure more talent in terms of global publishing capabilities. And he is already familiar with our NCSOFT games. And so the onboarding time will be pretty short because he already communicated well with our development teams.

And not only in NCA, but also in NC Europe, we have recruited [indiscernible], who was ex-employee at NCSOFT, to enhance our publishing capabilities in these regions. I hope that you continue to show interest in our future endeavors in terms of global publishing.

[Interpreted] And regarding your question about the mobile casual business, it's not about just keep supplying new games constantly, but it is about creating an ecosystem of mobile casual games. So for example, our Mobile Casual Head, Anel, he's a seasoned industry veteran who has specialties in ad tech. And for the studio that we are trying to acquire, they have great technologies in terms of delivering games to the exact user segments and improving live ops by -- in order to increase better retention.

So when it comes to AI advancements, I think it is better for us because I think more -- when more games are launched by the smaller-sized studios, it will be rather an advantage for us.

[Interpreted] The following question will be presented by Jin-Gu Kim from Kiwoom Securities.

[Interpreted] I have a question regarding Aion 2. Traditionally, I guess, typically, MMORPG tend to have rapid metrics trending downwards initially. But when it comes to Aion 2, they are maintaining stable metrics. So that's very promising, and thank you for sharing that.

So I have a question regarding that. Do you think that even though there will be some declines in revenues at a Q-o-Q level, do you think that the decreases will be stabilized in the future? And regarding the life cycle of the product, I guess it is more about how prepared -- well prepared are you in terms of pipeline of the content that can continuously engage our users. However, I was wondering if you could give us more visibility into the road map? And how long do you think that Aion 2 will be maintained? And do you have any visibility that you can share with us regarding your global release operation plans?

[Interpreted] So regarding your question, when it comes to sales breakdown, I cannot give you details regarding the numbers. However, most of the revenues are coming from membership at the moment. In January, mid-January, we have updated Season 2, and many of our users have bought cosmetics with that update and we recorded higher revenue even compared to the first day of release.

In terms of life cycle, as we mentioned in our live streams, the season will be updated every 2 months, and we will be providing a variety of content that can be enjoyed by our new users. And we will also reveal new work on a periodic basis so that our users can get continuously engaged with our game.

Traditionally, when it comes to MMORPGs, the business model focused on pay-to-win mechanics. Because of that, for a certain period of time, when a certain period of time has passed, high-level users remain while low-level users tend to leave. For Aion 2, we have PBE content. So regardless of their levels and skills, all types of players can enjoy our game. And plus, we have PBE content that can be enjoyed by high-level users. So we are currently making a good balance between the 2 factors, and we are also considering business model with that factor in mind.

So regarding content pipeline, I don't think that's an issue because we already have know-how in servicing our games for more than 20 years. But there are some minor issues such as bots. And in order to address those challenges, we're continuously sophisticating our strategy to suspend those bots. And we are continuously improving our gameplay experience so that new users can enjoy our game as well.

And regarding the global release of Aion 2, Aion 2's business model and game plan mechanics were designed from scratch with the global release in mind. So we believe that at a high level, it wouldn't significantly change. However, we will have some minor tweaks by communicating with Mervin.

[Interpreted] The following question will be presented by Seyon Park from Morgan Stanley.

[Interpreted] I have a question regarding Lineage Classic. It seems like the ranking in PC cafes is pretty high, but due to some negative feedback coming from our streamers, this, I think, have impacted your share prices. So I was wondering if you could give us your take on the user response and how much this could contribute to your revenue.

[Interpreted] Regarding Lineage Classic, the official launch will be happening tomorrow. So I believe that you will be able to gather meaningful indicators tomorrow. But personally, I think the negative feedback from our streamers is quite unfair, and this was -- the same thing happened for Aion 2 release. And from the management level, I'm tracking data in a real-time basis and the data at the moment is quite similar or even higher than our expectations. And I'm personally playing Aion 2 and Lineage Classic. It was quite fun for me. And please keep in mind that the target user of Lineage Classic is not younger audiences, but it is focused more on the returning users who have played the title IP before. So I hope that we will be able to communicate our metrics in detail once the game is released.

And to give you more guidance regarding our revenue, we are considering Lineage Classic as part of our PC Lineage IP. And there could be some minor cannibalization impact, but we believe that in the total aspect of PC Lineage, the revenue will be greater than last year.

[Interpreted] There are no questions in the queue right now.

[Interpreted] So lastly, as I -- I continuously joined earnings call conference in the past and I want to emphasize that I have fulfilled all the promises that I made in the previous calls. And I will do my best to achieve the upper end of the revenue guidance that was shared for this year. And I expect that we will be not only achieving sequential growth, but also achieving revenue growth in 2027 as well. I hope that you continue to see us not as the content company that focuses on individual games, but as a company who can generate sustainable growth. Thank you.

[Interpreted] The following question will be presented by Junhyun Kim from HSBC.

[Interpreted] I have 2 questions. First one is about costs. I was wondering if there's going to be any changes to the personnel expenses given that you are going to make new investments? Or whether you're going to continue to pursue the conservative approach to managing personnel expenses? And you mentioned that you have introduced proprietary payment system for the PC titles? And given the marketing spend of the new titles, could you give us more color on to your marketing spend and payment expenses going forward?

And the second question is about AI technologies. You mentioned that in the short-term impact wouldn't be made for AI technologies, but given the emerging technologies just like Project Genie, what's your take on the future impact of AI technologies?

[Interpreted] And regarding your first question, cost optimization-wise, we are strictly controlling. So even if we increase our investments, it doesn't mean that it will directly translate into increases in our personnel expenses. However, since we are expecting that many of our titles will be successful, there will be some incentives given to our dev teams. So headcount-wise, it will not increase, but incentive-wise, it may increase. And I think that's a positive thing.

And regarding the proprietary payment system, since Aion 2 has introduced the system from the beginning, the share of proprietary payment is around 80%. But for the 3 mobile titles, many of our users are still getting incentives by using Google and Apple. So the conversion rate is not that high, which is around 20% to 40%. But this year, by going through various efforts, we will try to increase the share of proprietary payment system.

And regarding marketing spend, last year, we have maintained a disciplined approach for our brand marketing activities. And this year, even with new title releases, we don't think that the marketing spend will greatly increase. However, for the mobile casual sector, in order to grow mobile casual titles, UA marketing is very important. So if we make more investments in the mobile casual sector, UA spend will likely to increase. However, these increases will be covered within the range that we can accommodate and control operating margin.

So regarding your question about AI technologies, I was actually on my business trip last week and I saw the news that Project Genie came out, and this impacted the share prices of companies like Unity, Take-Two and as well as our company. And I even asked AI about this. And I think personally, market is overreacting to this.

I guess there would be a 2 parter to this question. First, when it comes to AAA games, I don't think that AI completely -- cannot completely replace the development process because AAA games require sophisticated system design, characters, and still many users are not welcoming the assets created by AI. So this could, of course, contribute to the productivity enhancement, but still AI cannot create games like GTA 6.

And of course, we have our NC AI subsidiary. And this year, we are going to initiate a task force to increase productivity with AI technologies combined with our own AI models, plus open-source AI technologies.

And as for mobile casual side, of course, AI can generate a lot of different content. However, from our strategy perspective, what we are trying to do is building an ecosystem where our users and development teams can benefit from it through our advanced tech platform. So the more games will come out in the market, the better for us to have the leverages.

So all in all, I think market is kind of overreacting to Project Genie. And I believe that whether it's AAA games or mobile casual games, we think that AI technology will be a benefit for us.

So without further questions, thank you all for participating. And looking forward, I would love to have more meaningful conversations in the next earnings call results based on the -- how we can achieve quarterly growth. Thank you.

Good morning, everyone. This is Jason Lee, Head of IR at NCSOFT. Thank you for participating in the NCSOFT earnings conference call for the third quarter of 2025. We have co-CEO BM Park; and CFO, Willy Hong, joining us for today's conference. Now let me begin with the financial highlights.

Q3 sales totaled KRW 360 billion, down 6% Q-o-Q and 10% Y-o-Y driven by sales decline across live service games, which had been strong in the prior quarter. Operating loss came in at KRW 7.5 billion, reflecting weaker sales and onetime severance payments. Excluding the onetime item, operating profit would have been positive.

Pretax income and net income were KRW 435.1 billion and KRW 347.4 billion, respectively. The results included a gain of KRW 355.9 billion from the sale of NC Tower Samseong-dong along with increased foreign exchange gains driven by higher exchange rates.

Moving on to sales by game. First off, Q3 mobile game sales declined 10% sequentially to KRW 197.2 billion. Lineage M sales were down 13% Q-o-Q affected by our long-term plc extension strategy. That said, with key user metrics continuing to show Y-o-Y growth each quarter, we remain focused on extending the product life cycle and driving operations based on user traffic. Lineage2M sales declined 2% Q-o-Q, but increased 9% Y-o-Y as the impact of the Southeast Asian launch on May 20 was fully reflected in this quarter. Looking ahead, we plan to further enhance the IP value through its upcoming China release in 2026.

Lineage W sales fell 9% sequentially, reflecting our focus on enhancing user retention. Following the fourth anniversary major update on November 5, we aim to deliver improved results in Q4. PC online game sales in Q3 totaled KRW 87.7 billion, down 4% Q-o-Q, but up 9% Y-o-Y. Lineage I and presales of Guild Wars 2's sixth expansion pack delivered solid results, and it's encouraging to see PC online game sales achieving Y-o-Y growth for the second consecutive quarter.

Royalty sales recorded KRW 46.8 billion, up 11% Q-o-Q and 23% Y-o-Y, driven by royalty sales increase in Lineage M and Blade & Soul. In this quarter, overseas and royalty sales made up around 40% of total sales.

Now turning to operating costs. In Q3, operating costs totaled KRW 367.5 billion, roughly flat sequentially and 12% lower than a year ago, led by effective cost management. Labor costs were KRW 199.4 billion, a sequential 5% increase due to cancellation of some projects and workforce optimization onetime severance payments were reflected. Marketing spend recorded KRW 16 billion, down 32% Q-o-Q and 67% Y-o-Y, supported by adjustments in live game business efforts.

Depreciation expenses totaled KRW 21.4 billion, down 13% Q-o-Q and 19% Y-o-Y as depreciation for some mobile game server assets concluded. Variable costs and other expenses were KRW 130.7 billion, up 2% Q-o-Q and down 7% Y-o-Y.

This is CFO, Willy Hong. Before we move on to our Q&A session with BM Park, our CEO, I would like to talk about a few things that we would like to highlight on for the third Q.

AION 2 our highly anticipated [indiscernible] title launches in just 8 days. We are confident that the game will broaden our MMO player base through its excellent gameplay and execution, and we are very excited to start gearing up for its global launch in the second half of 2026.

Starting with AION 2, 2026 is really shaping up to be our year for global expansion. Three new IPs, including Limit Zero Breakers, Time Takers and Cinder City will enter the global market throughout the year. On top of that, we will be unveiling a next-generation MMORPG title at G-STAR for global audiences. We are confident that this game will demonstrate the work our team has been doing behind the scenes to build a strong foundation for long-term growth.

Beyond AION 2, our pipeline includes global expansion for existing titles. Lineage W will relaunch in Southeast Asia in the first half of 2026 and is planning to expand its service in North America and Russia within the same year. Lineage2M and Lineage M are also preparing for China releases with Lineage2M conducting a local user testing in late November.

Moreover, our legacy IP enhancement strategies will see more tangible results in 2026. Four spinoff titles slated for 2026 are on track, and one of them is actually coming earlier than expected, launching this December. This gives us the cadence of one release in December, one in Q1 and two in the second half of 2026.

Another news to share is that NCSOFT is teaming out with Shengqu Games to co-develop AION Mobile based on the PC [indiscernible]. Shengqu Games will publish the title in China in 2026. Likewise, we will continue to make various efforts to keep growing our legacy IPs.

Lastly, I'd like to share one more initiative aimed at enhancing profitability. So far, we focused on reducing fixed costs, but starting in November, we are also addressing variable costs by introducing a proprietary payment system mobile games. Any mobile game processes make their Purple PC platform will utilize this in-house system.

Everyone at NCSOFT is working hard to deliver better results each quarter. Now I'd like to open it up for the Q&A session led by BM to discuss more details. Thank you.

[Operator Instructions] The first question will be provided by Dong Hwan Oh from Samsung Securities.

You mentioned that MMORPG will be unveiled during G-STAR. I was wondering if you could give us more color on to the release date.

Internally, the development has been progressed pretty significantly. So we think that based on the development progress, it will be available to be launched either in next year or earlier two years from now, but we need to discuss the specific date with our IP holder. But what I want to emphasize is that the development progress has been done significantly. So with the refinements, we will be able to release the title soon.

And also, if you [visit G-STAR], you will definitely understand BM's comments.

We only have two days left, so we'll meet again. Everyone kind of gave us a round of applause after looking at the demonstration and play the games firsthand.

The following question will be presented by Jin-Gu Kim from Kiwoom Securities.

I have deep interest in the user base of AION 2. Based on the preregistration events and character and server registration events, it will be great if you could give us more visibility into your expected user base, possibly breaking down them into regions. And although you have some time left until the official launch in the Western side, but I was wondering if you can give us more visibility into the user feedback from the Western perspective as well.

So regarding the number of users, number wise, it was higher than our expectation, although I cannot give you more specific numbers. But because giving the numbers for the preregistration can distort the data. So I hope that you continue to wait for the official release, which will be made in just a week. And as we have mentioned through our live stream broadcast, the character registration and server registration was sold out pretty quickly. We have done it three times with 50 servers and it was sold out just within 2 minutes or 30 minutes. It was higher than our expectation.

And for the regions, the preregistration events were conducted solely for Korea and Taiwan. I think that number wise, it is close to the population of each country. And for the Western user feedback, we actually done the FTT in September and in October. And the feedback was quite similar from the user feedback we garnered from Korea and Taiwan. So it was very promising. Of course there were some specific points that were raised by the Western users, but I'm sure that our dev team will work hard to address those feedback until the official release.

The purpose of the FTT was to make sure whether we will be able to release our game as it is for the global launch and the result was quite promising. And as the CFO mentioned in his prepared remarks, we think that we will be able to release the game within the second half of next year.

I'm sorry for not giving the specific details regarding the numbers. You will be able to see the numbers within just a week through our official release.

The following question will be presented by Jae-min Ahn from NH Investment & Securities.

I have two questions. For the first question, you mentioned that you're going to have initiatives for mobile platform fee. I was wondering when this will be initiated and which games would this applied. Does this mean that all games on Purple will be applied with that policy? And for the second question, it is about AION 2. I understand that there is a market concern over the lighter BM. However, from the investment perspective, I think because of the lighter business model, this might lead to some concerns over the field. I was wondering how are you going to balance out the two factors?

For the question regarding the platform fee for mobile games, we actually have applied the proprietary payment system for smaller games and ready -- and have completed our testing. But for the big titles like Lineage M, Lineage2M and Lineage W, for the first two titles, as we have mentioned in our disclosure, it will be migrated to the proprietary repayment starting from tomorrow and for Lineage W, it will be applied at the end of November.

And for AION 2, since its launch on November 19, we're going to provide our proprietary system as a default. And of course, if users want to pay through Google and Apple, they will be able to pay through these platforms. So this means that most of our mobile games until November will be able to have the proprietary payments applied for the PC payment.

And for monetizing scheme regarding AION 2, we have decided to apply monetization schemes that is less aggressive and more user-friendly. And I believe that for sales, when it comes to sales, I think it's a combination of the user base acquired plus paying ratio. And we believe that for the lighter business model, we will be able to secure more user base.

So you will probably know within a week, once we release our title. But for your information, I would like to bring the case of TL. Over the one year, TL has -- we assume that the sales was around $200 million, and their paying ratio and user base was pretty high. And you could see from the stream data about their DAU and concurrent user base. And paying ratio was pretty high, and we believe that TL has accumulated $200 million sales within a year.

And second point is that in order to have this kind of sales, we think that the user base must be large and it needs to have high retention. And since AION 2 offers a vast amount of open world, dungeon and content, we believe that the retention will be high and it will be -- remain for a long period of time. I hope you consider these factors when it comes to predictions.

I hope you can make calculations based on my statement that I just made.

The following question will be presented by Joshua Kim from CGSI.

I have questions regarding the cost. It seems like the depreciation cost is getting down Q-o-Q and there will be additional costs. And in terms of onetime costs, do you think that this will affect the fourth quarter as well? And for the mobile game proprietary payment system, what is the share of the mobile games that will be applied with the system and when this system will be applied? And for the third question, it seems like even though your working [indiscernible] getting decreasing, but release timing is on track. So I was wondering what contributed to this factor? Was it due to AI?

And regarding the depreciation cost for Lineage W and Blade & Soul 2, the depreciation for their server assets has concluded. So that's why we have seen a decline Q-o-Q and Y-o-Y. And I believe that the same trend will continue.

For the labor cost, the last year, as you may know, KRW 100 billion was executed for labor costs. In this year, third quarter, we have done a onetime reduction. And I believe that there will be some items that will be reflected in the fourth quarter. So for the third quarter and fourth quarter this year, we believe that will be around KRW 20 billion. And I believe that BM will continue to mention this, but so far, we've focused on the surgical operations side, which means to improve our structure. And -- but looking forward, we're going to focus on functions and targeted approach to make further adjustments.

And as CFO mentioned, we are seeing continuous decline in terms of depreciation expenses. And for our efforts to reduce cost, we have done a broad-based activities starting from last year. For the server cost wise, we have looked into our games that are using either cloud or our own IDC servers. And based on our close calculations, we decided to allocate each game accordingly. And we will continue to make these kind of efforts to reduce costs.

To add on CFO's comments regarding the onetime severance payment, it is KRW 20 billion, but for the third quarter, 60% to 70% of the payments were already reflected and only the small amount of numbers will be reflected in the fourth quarter.

And regarding your question about the mobile game share relative to Purple payment, this is kind of confidential information, so I cannot disclose at the moment. However, I want to say that the payment ratio is pretty high for Purple. Of course, there could be some variances depending on the game.

Regarding your question about the release schedules getting on track despite the decrease in the workforce, there are two to three factors to this. First, although we have done large-scale voluntary resignation program last year, we have implemented such program based on the strategic decisions and we didn't apply to the products that are important for us in terms of live service games and strategic new titles that are developed by the teams. So we only conducted this program for redundant functions or the products getting dropped or for the support organizations.

And another factor is that we have changed our incentive scheme to be based on contribution income starting from last year after we made a spun off for the dev team. Now many developers are aware only with the appropriate number of size of teams and with a quick development schedule, they will be able to have greater contribution income, so that's why I believe that the teams are maintaining the optimal size and cost in order to follow their release timeline. That was all from my side.

The following question will be presented by Junhyun Kim from HSBC.

I have two questions. For the first question, which is regarding AION 2. I was wondering if you could give us more color on their target audiences. I believe that the audience will be different from the mobile and MMORPG games. And since younger audiences in their teens have preferred games that have shorter play time, I was wondering what will be the target audiences? And also, would that impact the service -- the game services that you are currently operating? And for the Shengqu Games collaboration, is this mainly about IP royalties? Or are you considering getting a government license for this game? And I believe that AION Mobile and AION 2 Mobile will be kind of similar. So I was wondering should this be a part of the strategy that you want to make regional extensions for AION 2?

For the AION 2 target audiences, what we have discovered through our FTT is that we are able to appeal this game to our younger audiences. And I think you will be able to see whether this is true when we actually release our game. And as you mentioned, we are fully aware that our younger audiences prefer short play time, and this has been considered in our development. So unlike vintage games that focused on TvP experience, AION 2 is also providing the best amount of PvE experience, which means that if players want to play PvE game instead of putting a lot of time to increase their [indiscernible], they can do so. So I think without explanation, I believe that you will be able to see this result within a week once we release our title.

Regarding your question about the AION Mobile that will be codeveloped by Shengqu Games, we hope you understand that this is a mobile game that is supporting the PC AION IP into a mobile platform. And for China release, Shengqu Games will be our publisher, and we will get royalty from them. And if we decide to do the global release for AION Mobile, then we will be the publisher. In that case, we'll have to pay royalty to Shengqu Games.

And for AION 2, as I've mentioned before, AION 2 is a title that inherits and build upon the AION IP, but at the same time, it has 36x larger open world map with new dungeons and new box mechanics. And so I believe that AION Mobile and AION 2 are completely different titles.

And of course, this is a new title, so we need to get the government license. And I think since the Shengqu Games is going to develop the mobile game of AION, I believe that we can acquire the domestic license. And since we're going to release the same next year by Shengqu Games, I think Shengqu will prepare, and they say that they can get the government license without an issue.

So if we don't have any further questions, I would like to start my closing remarks. So far, we've communicated the gains that we are going to publish and develop. And in order to continue to grow our business, we are going to continue to pursue building clusters for different genres, including thrillers and subculture. And since we are going to have release of AION 2 soon, I'm not going to disclose the information at the moment, but there are already the deals that have been confirmed.

Regarding subculture, there will be one studio that is prepared to launch the subculture game probably within next year, the end of next year or early two years from now, and we have acquired the investment and publishing deal for that and also MMORPG game as well. So these two deals will be communicated soon after the release of AION 2.

And as I've mentioned in the last quarter, we are continuing to making efforts to build cluster for mobile casual gaming sector and pursuing M&A deals. And as a part of that effort, we have recruited [now] and we have established the mobile casual center and currently looking for additional talent. And I believe that we can share more details in the next quarter. But we believe that our mobile casual business could be one of our revenue pillars in this company. And more importantly, we want to create a new ecosystem in the casual market and as a part of that effort, we decided to acquire a new tech platform developed by external company. And to test this platform, we decided to acquire add-on studios domestically and overseas, and we decided to acquire them. And after AION 2, we are going to announce more details.

And in order to continue to increase the size of our ecosystem, we decided -- we are currently in talks with two or three candidates for acquisition at a sizable size and we're currently negotiating publishing deals as well. So I hope that we can share more details later once they are solidified in the next quarter's conference call.

And so for those of you who are attending this conference, I ask you to come to G-STAR to see our announcements and our lineups and hope to follow -- continue to follow up our news regarding AION 2 that will be released next week. I hope you continue to show your interest and support in our company. Thank you.

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

[Interpreted] Good morning, everyone. This is Jason Lee, Head of IR at NCSOFT. Thank you for participating in the NCSOFT earnings conference call for the second quarter of 2025. We have Co-CEO, BM Park; and CFO, Willy Hong, joining us for today's conference. Now let me begin with the financial highlights.

Q2 sales totaled KRW 382.4 billion, up 6% Q-o-Q and 4% Y-o-Y due to the increase in sales across key PC and Mobile games. Operating profit rose by 189% Q-o-Q and 71% Y-o-Y to KRW 15.1 billion, driven by higher sales. Pretax income and net income swung to a loss due to lower foreign currency-related gains attributable to a Q-o-Q and Y-o-Y drop in the exchange rate. Moving on to sales by game.

In Q2, sales from both Mobile and PC online games increased quarter-over-quarter and year-over-year. First, Q2 Mobile Game sales came in at KRW 219 billion, up 6% from the previous quarter. Lineage M sales rose 7% Q-o-Q and 13% Y-o-Y, driven by the title's eighth anniversary update, once again showing that the title's life cycle is still expanding. Lineage2M sales rose 27% Q-o-Q and 13% Y-o-Y, supported by its steady performance in Korea and its Southeast Asia launch on May 20. Lineage W sales fell 10% from the previous quarter as the game entered a period of downward stabilization after 2 consecutive quarters of growth.

Q2 PC online game sales were KRW 91.7 billion, up 10% Q-o-Q and 6% Y-o-Y, driven by strong performances of Lineage 2, AION and Blade & Soul. Royalty sales fell 6% Q-o-Q to KRW 42.3 billion as the boost from Throne and Liberty's global release tapered and Lineage M's royalty sales declined. In Q2, [indiscernible] sales together made up 36% of total sales.

Now turning to operating costs. In Q2, operating costs totaled KRW 367.3 billion up 3% Q-o-Q and 2% Y-o-Y. Labor costs were KRW 190.8 billion, up 2% Q-o-Q due to higher valuation of stock price linked long-term incentives and up 1% Y-o-Y compared to the same period last year, which saw a one-off decrease in long-term incentive reserves. Marketing expenses came to KRW 23.4 billion, up 75% Q-o-Q and 35% Y-o-Y reflecting major updates and regional expansion for live games as well as the start of marketing activities for AION 2. Depreciation expenses totaled KRW 24.7 billion, down 2% Q-o-Q and 11% Y-o-Y. Variable costs and other expenses were KRW 128.4 billion, down 1% Q-o-Q and up 1% Y-o-Y.

[Interpreted] Good morning, everyone. This is CFO, Willy Hong. Jason just shared the financial highlights for the second quarter of 2025. But before we move on to the Q&A session with our co-CEO BM Park, I'd like to give you a briefing of the key direction of our company.

In our Q1 earnings call, we announced our top line growth strategy focusing on generating steady sales from Legacy IPs and additional sales from new title releases along with our sales guidance for 2026. Through our Q2 earnings, we were able to reaffirm the strength of our Legacy IPs. Lineage2M expanded its service into Southeast Asia and delivered remarkable growth, while PC Blade & Soul and AION Classic have also been posting solid performances as they ramp up their global activities. We believe our strategy of strengthening the foundation of our Legacy IPs through efforts such as regional expansion has been executed successfully.

We will continue to expand the value of our Legacy IPs in 2026 through regional expansion through the release of Lineage M and Lineage 2M in China and Lineage W in Southeast Asia. That was briefing about our regional expansion efforts. And now moving on to our new title releases.

As our flagship MMORPG AION 2 has kicked off marketing activities ahead of its launch in Korea and Taiwan in Q4, anticipation is gradually building around the title success. Starting with AION 2's launch in Q4, we plan to release 7 new titles in 2026, including Breakers, Time Takers, LLL and for spin-off games evenly spaced throughout the year quarter by quarter. On top of the stable performance of our legacy IPs driven by efforts such as the regional expansion mentioned earlier and sales from the multiple new titles, will help us fully achieve the 2026 sales guidance of KRW 2 trillion to KRW 2.5 trillion, our co-CEO, BM Park mentioned in our previous earnings call.

On top of these organic measures, we have been devising strategies for inorganic measures such as to move into new genres to secure new growth engines. So as part of this effort, we plan to actively pursue our Mobile Casual Game business initiative. Since securing mobile casual games is considered a key strategy for NCSOFT to reach the global mass market, we will continue to explore relevant M&A and investment opportunities.

We're also developing [indiscernible] that leverages NCSOFT's own AI technology to drive advanced business initiatives in this space, and we will share more details about our plans soon. With that, we ask for your continued interest and support as we work towards achieving the company's strategic goals. We will do our best to deliver more positive news. Thank you.

[Operator Instructions] The first question will be provided by Jin-Gu Kim from Kiwoom Securities.

[Interpreted] I have two questions beyond our financial highlights. Regarding AION 2, the news regarding AION 2 has been communicated with the external audience, and I think the interest is going higher. And as a result, I was wondering what kind of impact of this project is making to the morale of the teams within the HQ, including other teams? And also impact your recruitment of talent, from outside?

And Mr. BM Park, since your appointment 1.5 years ago, I was wondering -- how your business philosophy and management is reflecting the company's performance? And how is this affecting the organization?

[Interpreted] So regarding your question about AION 2, we are confirming the confidence within our company and externally. And just like a Squid Game on Netflix has garnered a huge popularity within the global audience and that led to the interest in the Korean content. We believe that if AION 2 acquires a lot of attention and good feedback from global audiences. We believe that this will positively impact our games that will be released next year. Although we haven't disclosed yet, we have seen a lot of good opportunities regarding investment in publishing this year compared to last year, and we are currently narrowing down the list. So I think that will also impact our company more positively. And I believe that user feedback around AION 2 is the key of our success. And based on the testing results, we are cautiously optimistic about the title, and we will make sure that our business model will have also positive impact on our game.

And for your second question, starting from the last -- from the end of last year and early this year, we have been establishing the philosophy, which means that we give more independence and responsibility of our game teams within our company and also our partner studios. And on top of that, we are trying to have data-driven testing approach. And already, we have formed a gameplay review committee conducting [indiscernible] and CBTs, and based on these results, we make a decision whether we drop the games or continue to develop our games.

And on top of that, we are also preparing a technical side of reviews as well. And unlike our past, we ask for our teams to submit more accurate production plans and continue to have regular management of their progress. So we continue to monitor their game quality and also the progress of the development, and we think that a more positive outcomes are seeing already this year.

[Interpreted] While we are waiting for other questions. I'm going to talk about the initiatives that we will be taking for the end of this year and next year. As we have mentioned in our press release for the revenues, we're going to build a cluster of Mobile Casual business and cluster for shooter and cluster for sub culture. And although while we are looking into various M&M opportunities, and some of them have been into the final round of review, but we haven't being able to make a final decision yet because of the valuation gap. So we will continue to have a discipline over the valuation to have a more effective M&A deals.

And as I mentioned yesterday, we have appointed announcement of the new -- as the leader of the mobile casual division, and he is an expert in this industry. And on top of that, we are going to utilize AI technology data center that we have. And for this Mobile Casual sector, we will also pursue investment in publishing deals. And on top of that, we will also pursue M&A opportunities while we maintain the initiatives to secure core Game businesses through M&A opportunities.

And using [indiscernible] leadership and his team, we will build know-how in the Mobile Casual business. And also, we hope that the know-how has translated to other teams within our company. That's one of the pillars that I wanted to announce today. And we are -- on top of that, we are also going to continue to build clusters for shooters and sub-culture. And secondly, I have mentioned that in the last year period, we have conducted surgical operations to optimize our head count and cost. And for this year and next year, we're going to have a more targeted approach regarding these areas.

And in the third quarter, I believe that already this year, in the first half of this year, we have affected 100 people within the overseas branches and subsidiaries for this optimization of head count, and probably in the second half of this year, 200 or 300 people will be affected by our optimization plan. So that we can have more efficiency in our organization.

And so for the third quarter and fourth quarter, we would like to ask for your understanding of the possibility that our operating profit might get disrupted or affected by this optimization plan, but we think that this is a necessary process that we need to go through to build up for our next -- for our future, including next year and years beyond.

[Interpreted] The following question will be presented by Dong Hwan Oh from Samsung Securities.

[Interpreted] I believe that there have been some changes to the release time line for your major titles, including TT. So it would be much appreciated if you could give us visibility into this time line?

[Interpreted] It's actually not far away from our original plan. So the Breakers title that was supposed to be released this year. It has been moved to the first quarter of next year, and LLL has been moved to the third quarter next year as well as time-takers. And we have changed the time line because we wanted to improve upon our game-play quality. And also, we wanted to make sure that our publishing schedules are not in conflict. So there is no delay. The delay hasn't been made because of the delay in our development of the games. So I want to emphasize that it hasn't changed greatly, but you might feel that our publishing plan has been changed quarter-by-quarter, but I want to emphasize that this is not a matter of game development delays.

So more specifically, for LLL, it will be released in the mid next year. By latest, it will be the third quarter. Depending on the release time line of GTA 6, there could be some changes.

So on top of that, there are two more new titles that are not announced yet. Within the end of this year, we're going to do the test rounds and reveal our games next year. For -- there are also 4 spin-off games in our lineup. And every quarter, we will release our spin-off and more details will be communicated later. So for the titles that are not revealed yet, one or two of them could be canceled depending on the testing results. However, I want to emphasize that we have prepared 7 new titles for next year as well as for spin-offs. .

[Interpreted] The following question will be presented by Junhyun Kim from HSBC.

[Interpreted] I have two questions. First, I saw the news report mentioning that project TACTAN has been dropped. And I was wondering if it was due to the publishing matters? Or is there any other reasons that you made the decision? Was it related to profit or other factors? And also, are you still going to release the spin-off that was supposed to be released in the fourth quarter this year?

And secondly, you have a transition towards a multi-studio system. And I believe that this will lead to a faster development of new IPs. And I was wondering when would we be able to see the tangible outcome impacting the development cycle getting much shorter for the new titles.

[Interpreted] So regarding your question about TACTAN. We have made that decision because we wanted to improve the game play quality. And our bar to evaluate the game-play quality has been raised. So we thought that maybe with the core game members based on their know-how that was accumulated for the RTS genre, we thought that it would be more effective to create a new game instead of developing -- continue to develop TACTAN. And this is also the outcome of our data-driven game-play review approach.

And for the spin-off title that was previously slated for the release in the fourth quarter, we also decided to move the schedule a little bit further back because we wanted to improve the quality of the game-play. We already have made some more decisions regarding the publishing side. We had made that decision because we wanted to improve the game quality as well as we need to coordinate the schedule with our publishers. So that's why the release schedule has been moved to the first quarter next year.

And regarding your question about the multi-studio system, it not only affects the external development studios, but it also affects our internal development teams and the biggest positive impact of this approach is that our team members are more committed and dedicated to each of their game titles. When we are designing our DPI, it is based on the contribution income and our members are fully aware of that. So a smaller scaler team will have a greater faster increase of the contribution income, and this has led to the increasement of the development speed. So that's why we are fully confident that we will be able to release our new titles next year. .

[Interpreted] The following question will be presented by Eric Cha from Goldman Sachs.

[Interpreted] I have one question. We noticed that the communication of AION 2 has been mostly positively well received. But as an analyst, it is quite difficult for us to assume sales and profits, if we don't have any visibility into your business model direction. And I believe that for your previous games, the feedback has been very positive on the gameplay side, but there have been some negative feedback over the business models.

So for the users who watched the live streams for AION 2, they also expressed their concerns over the business models. And I fully understand that there could be some dilemma balancing between user experience and profitability. But I was wondering if you could give us more opportunities to know more details about your monetization schemes? And I was wondering if you could if for the user experience and profitability, with that can go hand-in-hand together. So far, I believe that, that wasn't the case for NCSOFT, but I was wondering what's your sense and impression over this relationship?

[Interpreted] I believe that your question entails a lot of different aspects. So regarding AION 2, there will be another live stream held in September. And at this opportunity, we're going to talk about high-level information of our monetization scheme. And then when we are discussing more details regarding the launch timing, we will be able to share more information over this aspect. .

But I want to emphasize today that AION 2 is more focused on PBE and dungeon content and that is different from the PBP focused Lineage-like game. And also, we are fully aware that many users are concerned about our business model, but I want to reiterate that there will be no cultures. And in August, in our live stream in August, we mentioned about the Battle Pass customization and skins and these will be our priorities. And although there could be some elements of P2W content and monetizing scheme involved in AION 2.

And for your second question, I think that's the most important question, which was about the relationship between user experience and profitability. And for this question, I think I want to emphasize the profitability graph. So far, we've focused on heavy business models, which means that we see a high -- very high sales and user indicators at the beginning of the launch. And then we couldn't make the retention rates go further in the long-term perspective. But as we discussed with our development team and business team, we want to have a business model that can extend our PLC and extend our user rate for the long-term perspective. So all in all, when it come -- when we have a lot of user base in the game, we think that even with the lighter BM, the sales will increase. But if we don't have enough user base, that would also disrupt our sales. So we have to consider all of these factors together.

So at the end of the day, we want to emphasize that we will avoid the profitability graph, that will show the highest retention rate -- then the highest indicators and then we can't move on to the retention rates going forward. So we will have the opposite approach.

[Interpreted] The following question will be presented by Seyon Park from Morgan Stanley.

[Interpreted] I would like to ask a question regarding the Mobile Casual sector. I believe that the Mobile Casual market has big TAM and also has a lot of [indiscernible] and a lot of companies are involving in the market, which means that the competition is quite fierce, and they are very sensitive to the trend -- mainstream trend. Although there are a lot of long-running games, but also there are games that have disappeared soon. So I was wondering, since this is the sector that you haven't explored before. I was wondering what kind of [indiscernible] are you going to pursue? And what kind -- could you give us more visibility into your investment plan?

[Interpreted] Regarding your question about the cluster of Mobile Casual sector. We are now focusing on specific channels, but we want to create an ecosystem, combined with our data-driven approach using our AI and data technology. And [indiscernible] ecosystem, we want to have UA marketing and big [indiscernible], and this will organically connect it with our live ops service. And now who is our center leader. He is not an expert in a certain [indiscernible], but -- he is an expert in creating an overall ecosystem that can make this work.

And as you mentioned, we have noticed that there are a lot of games coming out of the mobile gaming sector. But one thing that doesn't change is that how we test and market our games. And that's the important part of our ecosystem. We want -- by doing so, we want to increase our UA marketing in [indiscernible] and increasing our PSC. And that will be the virtual cycle that we want to create. And we believe that our data and AI technologies can greatly advance this cycle. So in other words, we are not going to focus on certain channels, but we want to create an ecosystem we already seen a lot of cases that were happening in other companies. When we are looking into M&A opportunities, we saw a lot of companies who have specialized in the -- in creating the ecosystem, not the specific [indiscernible].

[Interpreted] And to add on with my comments regarding BM's response. When you look at the career highlights of announcement, you can see how our mobile gaming sector center will operate he has previous experience in the company who have developed a Talking Tom IP and also the British mobile casual game who have the best -- which has the best businesses regarding IAA and IAP. So I think when you look at his career highlights, you might get the sense of it. And additionally, more information will be shared with our IR team later. .

[Interpreted] Currently, there are no participants with questions.

[Interpreted] So this is BM speaking. I would emphasize that we have been able to fulfill the promises that we have made to our investors. And for example, we are now turning profitable only with our legacy IPs. For the the Q2 financials or whether or not they are good or bad. What I want to emphasize today is that we were able to make profit only with our Legacy IPs. Additionally, if we make sales through our new IPs next year, we will be able to see the great effect of the operating leverages.

And for list, we will continue to make initiatives and implement initiatives to optimize our cost for next year and to years from now. And on top of that, for the strategies of creating a cluster of share of games and subculture games, we will be able to release such draw titles next year. And for the mobile casual genre, we have been trying to have M&A deals starting from last year over the past 1.5 years. And our know-how has been accumulated a lot we want to make this know-how into our revenue stream. So we believe that we will be able to have a revenue stream with the mobile casual sector. And if we can, if we add our M&A opportunities side, then that would make the process much faster. So we hope that you continue to have trust and interest in our strategies going forward. Thank you.