GREE : FY2023 3Q Presentation (Transcript)

Toshiki Oya, Senior Vice President, CFO:

Thank you for joining the FY2023 third quarter financial results briefing of GREE, Inc. I am Toshiki Oya.

Please refer to the Executive Summary on page 2.

Net sales was ¥22.2 billion, operating income was ¥4.2 billion, and EBITDA was ¥4.3 billion. The Internet and Entertainment Business operating income of ¥1.8 billion surpassed our forecast despite sizable upfront investments in promotional activities. The Investment and Incubation Business operating income of ¥2.4 billion contributed to companywide earnings growth.

Going to business topics, regarding the Game business, we saw continued strong performance from Heaven Burns Red driven by two major initiatives. First, we conducted successful one-year anniversary event for the Japanese version and maintained strong performance including achieving No. 1 sales ranking. Second, we began global distribution and got off to a smooth start. In the Metaverse Business, we diversified our business portfolio by establishing new companies to handle our VTuber Business and B2B Metaverse Business respectively.

The outlook for FY23 has not changed. Let me add some comments about the fourth quarter. Due to the winding down of contribution from anniversary events for the Japanese version of Heaven Burns Red and the release of overseas versions, we expect operating income in the Internet and Entertainment Business in the fourth quarter of roughly ¥1.5 billion. And in the Investment and Incubation Business, we expect to post operating income from already-secured sources of roughly ¥0.5 billion, because we have received dividend income from CVC funds in the fourth quarter. The total will be the sum of these two segments.

Let me go to the overview of consolidated financial results on page 5. Net sales and operating income will be covered later in more detail. Regarding ordinary income and below, there are no major topics to mention.

Page 6 illustrates the trends in net sales and operating income. Sales and income rose quarter on quarter in the Internet and Entertainment Business thanks to the strong

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performance from Heaven Burns Red. The Investment and Incubation Business sales and income also rose substantially due to large distributions from investment funds.

Page 7 is the operating income analysis. As I said, sales rose both in the Internet and Entertainment Business and Investment and Incubation Business. On the other hand, we conducted upfront investments to promote Heaven Burns Red and other titles, targeting medium-term and long-term growth, which increased variable costs. As a result, operating income was ¥4.2 billion.

Page 8 shows the cost structure. As I have just said, variable costs increased by about ¥3 billion due to our investment in advertising. Commission fees, etc. also increased due to higher sales. Fixed costs remained mostly unchanged. Total costs were ¥17.9 billion.

Page 9 is the dividend forecast. Our dividend distribution policy has not changed and aims at DOE of 2.0% and consolidated dividend ratio of 20% or higher. We plan a dividend of ¥11 per share.

Now, let me move on to the operational overview. Page 11 is the summary of the third quarter. Overall business plan has not changed, and we continued to strengthen the three earnings pillars.

From page 12, let me look at the Game and Anime business. For Heaven Burns Red, we conducted successful one-year anniversary event for the Japanese version and maintained strong performance including achieving No. 1 sales ranking in the App Store. Meanwhile, we also conducted aggressive promotional activities aimed at maximizing medium-term and long-term earnings from this title.

Page 13 is about global distribution of Heaven Burns Red. We started distribution of the Korean and traditional Chinese versions on February 10th, reaching No. 1 App Store sales ranking in Taiwan and Hong Kong. We made progress in global distribution.

Page 14 is about existing titles. We ran a campaign celebrating over 4.5 million downloads of That Time I Got Reincarnated as a Slime. For Assault Lily: Last Bullet, we energized fan community by running a two-year anniversary campaign.

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Page 15 shows the pipeline. There are no major updates here. We are planning and developing multiple titles and conducting aggressive global distribution of titles to further strengthen our earnings potential.

From page 16, let us look at the Metaverse business. As a measure to expand content by leveraging REALITY's world functions, we held a world event in collaboration with Sanrio Company, Ltd. In North America, the number of users continued to grow steadily and approximately doubled year on year, which was another good progress in global distribution.

Page 17 is about strengthened VTuber Business. We established a subsidiary called REALITY Studios Inc. and through the subsidiary we established a new VTuber talent agency called FIRST STAGE PRODUCTION. They already held auditions and conducted the debut streaming of the first generation of VTubers selected from a large pool of applicants. The first generation VTubers achieved YouTube monetization criteria in their debut month, off to a strong start.

Page 18 is about the B2B Metaverse Business, for which we established REALITY XR cloud, Inc. This company delivers to our corporate clients a "Metaverse filled with people" as REALITY Worlds. Annual visitor traffic for REALITY Worlds topped 42 million. In terms of collaboration, they signed a letter of intent with West Japan Marketing Communications Inc. regarding a strategic business alliance. All of this will accelerate business growth further.

Page 19 is about the Commerce business. Our mainstay travel media, aumo, ranked among top travel industry websites, which shows the steady progress we have made in strengthening media potential. Meanwhile, we continued to work to grow the business further, for example contributing to regional revitalization by sponsoring events with our marketing SaaS, aumo My Business.

Page 20 is about the DX business. We made progress in DX collaboration with other companies such as THE NISHINIPPON SHIMBUN CO.,LTD., Confidence Inc. and TOYOTA Connected Corporation.

From page 21, let us look at the Investment and Incubation business. Regarding the total assets under management, there was a ¥4.0 billion decrease by distributions as you see in

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the middle of the chart. This is earnings distributions from the VC funds, which contributed to our P/L substantially but reduced the total AUM.

Please turn to Page 22. During the third quarter, we continued to invest in VC funds and in startups via CVC. Operational investment securities are shown on the left. In terms of the book value, the balance decreased to ¥16.6 billion due to earnings distributions. Meanwhile, valuation of investments, which incorporates the valuation of unlisted companies, stayed at about ¥30 billion.

The last slide shows the status of our FoF and CVC investment results. There are no major updates. Our portfolio continues to be of high quality.

That concludes my explanation. Thank you very much.

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