KRAFTON Stock

[Interpreted]

Good afternoon. This is Sophie Lee from KRAFTON's IR team. Thank you to all investors and analysts joining us from home and abroad for being with us today on today's Q2 2026 Earnings Call.

With me today are CEO Changhan Kim and CFO Dongkeun Bae.

For the convenience of our investors joining from home and abroad, the CEO highlights and financial results will be presented through simultaneous interpretation, and the Q&A that follows will be conducted through consecutive interpretation.

Today's results are based on preliminary consolidated figures under K-IFRS and may be subject to change following the external auditor's review.

Now let me turn things over to our CEO, Changhan Kim, for the CEO highlights.

[Interpreted]

Good afternoon. This is Changhan Kim, CEO of KRAFTON.

Thank you, everyone, for joining KRAFTON's Q2 and First Half 2026 Earnings Call, both here in Korea and from abroad.

In Q2 2026, we proved the strength of our core IPs and moved into full execution of our franchise IP-based growth framework.

First, our PUBG franchise is expanding beyond a single battle royale game into a platform that brings together diverse gameplay and content.

In Q2, PUBG PC energized its core fan base through well-crafted game modes, and we saw firsthand that high-quality content can translate directly into user growth and revenue.

In Q3, we'll expand the UGC ecosystem on mobile, further refining the model that we've already validated.

On the new franchise IP front, the early performance of Subnautica 2's Early Access launch confirmed both our scale-up capabilities and its potential to become our second franchise IP.

Subnautica 2 delivered a highly successful Early Access launch, both in terms of numbers and user response. This tells us that Subnautica is a franchise IP with a strong fan base and real global growth potential.

Going forward, we'll continue to prioritize community trust and game quality, maintaining stable service through to the full launch. At the same time, we'll continue to scale the Subnautica IP with a long-term perspective.

Under our five-year growth plan centered on securing franchise IPs, we'll further strengthen our repeatable growth system for acquiring and nurturing franchise IPs, building on the experience and decision-making capabilities gained through this launch.

Let me first dive into our PUBG franchise.

In Q2, the PUBG franchise once again confirmed the structural effect of content platformization in driving both user and revenue growth. PUBG PC re-energized its core fan base and drove traffic growth through the ZIN: OP Point and PAYDAY-themed modes.

ZIN: OP Point drove a sustained increase in traffic and user engagement well beyond the initial launch spike, and the PAYDAY collaboration validated the same effect.

On monetization, we expanded revenue through strategic collaborations that paired existing content with proven IPs.

Thanks to this content platformization effect, Q2 PUBG PC and Console MAU grew more than 20% year over year, and revenue grew more than 70% over the same period.

In Q3, we'll take our mobile UGC ecosystem a step further.

Since launching World of Wonder in 2023, PUBG Mobile has steadily expanded its creator base and in-game ecosystem.

To date, cumulative user-created maps have surpassed 5.4 million, with more than 33 billion matches played, establishing a solid foundation for the UGC ecosystem.

In Q3, we'll upgrade our creation tools and expand global IP collaborations and creator monetization opportunities.

We'll offer users new experiences creating and playing content using global IPs, and combine in-game purchases with creator rewards to build a growth structure where creator participation drives both content supply and playtime.

Next, let me turn to our new franchise IP.

Subnautica 2, which we launched on May 15, had a successful Early Access debut and is growing into our second franchise IP.

Subnautica 2 has recorded cumulative sales of 5 million units and maintained a "Very Positive" rating on Steam, turning high anticipation from its core fan base into a global hit.

In particular, its co-op content confirmed the potential to expand beyond the existing fan base to new user groups.

This stems from our success in identifying an IP with a strong genre moat and scaling it up by expanding co-op gameplay and content volume while preserving the core gameplay of the original.

Going forward, through the full launch, we'll prioritize game quality and community trust while also shaping our franchise expansion direction from a long-term product lifecycle perspective.

In August at Gamescom, we will unveil five new titles targeting launch by 2027 and begin full-scale market validation of the investments we've built up over time.

First, PUBG Studios will unveil, for the first time at Gamescom, a new project built on the PUBG franchise with a new setting and gameplay.

NOLA is an immersive open-world FPS RPG being developed by Neon Giant, where players can complete missions in their own way through stealth, direct assault, and a variety of tools, targeting core Western gamers.

Project Zeta is a multi-team tactical arena game where four teams compete on a single battlefield. We will validate its live-service scalability through Open Development and Early Access.

Twisters is a two-player puzzle adventure for families and friends.

The Unbound is an isometric action RPG combining Eastern fantasy with action combat. Through these titles, we will explore the market potential of co-op games and differentiated action RPGs, respectively.

Through PUBG and Subnautica, we've built multiple growth pillars based on franchise IPs.

Going forward, we'll increase our strategic focus on core IPs and secure new franchise IPs through a repeatable growth system of discovering, validating, and scaling IPs.

That concludes my presentation. Thank you.

[Interpreted]

Next, our CFO, Dongkeun Bae, will walk us through Q2 and first half 2026 financial results.

Good afternoon. This is Dongkeun Bae, CFO of KRAFTON.

In the first half of 2026, we posted revenue of KRW 2,661.6 billion and operating profit of KRW 972.5 billion, our highest-ever half-year revenue and operating profit.

First-half revenue grew 73% year-over-year on PUBG franchise growth and Subnautica 2's early access launch, and operating profit reached 92% of full-year 2025 total.

PUBG franchise expanded in traffic and paying user base with revenue up 25% year-over-year, putting us on track for our double-digit annual growth target.

Subnautica 2 surpassed 5 million units sold within 22 days of its May 15 launch, a top-tier debut among major global hits. It also boosted sales of the legacy titles, Subnautica 1 and Below Zero, both about 10 years old, bringing in roughly KRW 42 billion, showing the IPS's lasting earning power.

We'll keep driving Subnautica's long-term success through stable service and ongoing updates. Next, platform and other revenue.

Q2 PC revenue was KRW 560.4 billion, up 155% year-over-year and 54% quarter-over-quarter. PUBG PC grew sharply year-over-year, thanks to positive user response to both the Seller Blade Eve Contender collaboration and the black market.

With Subnautica's launch also factored in, PC revenue topped KRW 500 billion in a single quarter for the first time ever. First half PC revenue came to KRW 924.2 billion, up 70% from the first half of 2025.

Q2 mobile revenue was KRW 451 billion, up 5% year-over-year, down 36% quarter-over-quarter. The drop was seasonal, but the new XU Phoenix hit record single-day revenue, driving year-over-year growth for both PUBG Mobile and BGMI.

First-half mobile revenue came to KRW 1,153.7 billion, up 20% from the first half of 2025. Q2 Console revenue was KRW 23.8 billion, up 143% year-over-year and 72% quarter-over-quarter, reflecting console sales of Subnautica 2.

First half console revenue came to KRW 37.7 billion, up 65% from the first half of 2025. Q2 other revenue was KRW 255 billion, including KRW 240.5 billion from ADK's advertisement and content business.

First half other revenue totaled KRW 546 billion. Next, PUBG franchise Q3 content.

In Q3, the PUBG franchise keeps growing on 2 pillars: IP collaborations and UGC expansion. First, on IP collaborations. PUBG Mobile and BGMI are running their biggest collaborations yet with a globally popular anime IP No.

Beyond simple skins, we've built the original locations, combat, and BOS battles right into Battle Royal where our users are used to.

PUBG PC is also running its first global anime collaboration this year. Following cars and K-pop artists, we are now expanding into anime, broadening our reach across global fandoms.

PUBG Mobile and BJMI are also running their first-ever Ferrari collaboration. 4 signature models, custom looks, in-game items, and a new brand experience for users.

On the UGC side, we will build on World of Wonder with stronger creation tools and monetization. We'll upgrade WOW's creation tools, bring Naruto and Spider-Man collaborations into WOW content, and let users create and play with global IPs.

We'll also roll out World of Wonder tokens, expanding purchase and creator monetization options step by step. Next, I'll explain Q2's key operating expenses.

Labor costs came to KRW 237.4 billion, up year-over-year on ADKs' consolidation and down 14% quarter-over-quarter, reflecting the base effect of Q1 severance payments.

A fees and cost of revenue came to KRW 166.5 billion, up both year-over-year and quarter-over-quarter, driven by the early access launch of Subnautica 2 and revenue growth in PUBG PC, both of which we self-published.

Paid commission came to KRW 342.5 billion, up year-over-year on ADK's consolidation and up quarter-over-quarter on production costs and esports.

Marketing expense came to KRW 44.9 billion, up year-over-year on Neptune's consolidation. Q2 operating profit was KRW 410.9 billion, up 67% year-over-year.

First-half operating profit was KRW 972.5 billion, up 38% from the first half of 2025. Turning to nonoperating items. Q2 posted a loss of KRW 316.7 billion, reflecting expenses related to unknown worlds.

As a result, Q2 posted a net loss of KRW 29.9 billion, while first-half net profit reached KRW 484.2 billion, up 25% from the first half of 2025.

Finally, shareholder returns. First, what we've done in the first half of 2026.

We completed KRW 300 billion in share buybacks and KRW 99.6 billion in capital reduction dividends, totaling KRW 399.6 billion, up 23% from all of 2025.

As for share retirement, we retired KRW 336.2 billion worth of shares on April 27, combining newly acquired and existing treasury shares. The Board also approved today the retirement of the KRW 95.3 billion in treasury shares acquired during Q2.

That brings total share retirement this year to KRW 431.5 billion, representing 3.5% of shares outstanding.

Next, our Q3 plan. The Board believes our share price remains undervalued and has approved the acquisition of an additional KRW 100 billion in treasury shares, which will be retired in full.

As outlined in our three-year shareholder return policy, we're also considering additional acquisitions above KRW 700 billion, to be executed flexibly depending on market conditions and fully retired once acquired.

That concludes my presentation. Thank you.[Foreign Language]

[Interpreted]

We will now begin the Q&A session.

[Operator Instructions]

The first question will be from Eric Cha of Goldman Sachs.

[Interpreted]

My first question is regarding PUBG PC and its well-made modes.

I can see that these well-made modes are delivering very favorable performance. Could you provide more color on the update schedule for additional well-made modes and the overall direction planned for the second half of the year?

My second question is regarding PUBG Mobile and World of Wonder, or WOW mode.

Could you provide more color on the metrics that have been impacted by the introduction of WOW and whether there were any notable drivers of user engagement?

I would also appreciate more detail on the tokens introduced to the game and how you expect they will impact the ecosystem.

[Interpreted]

Regarding your first question on the well-made modes, ZIN: OP Point received a very positive response, and so we are preparing another version of that mode after seeing the impact on metrics. We are also considering making it a permanent game mode.

In the second half of this year, we also have two modes scheduled for release, and in 2027 and 2028, we plan to launch multiple new modes that are currently under development.

[Interpreted] The CEO answered the first question; this is the CFO, and I'll answer your second question.

Although we're unable to disclose detailed metrics regarding World of Wonder or WOW, we can speak to the regions that KRAFTON services directly, namely PUBG Mobile Korea and Japan.

For the UGC mode, the engagement rate, or total time spent, is in the mid-teens, and for Classic Battle Royale, 20% of total time spent is attributable to that mode, so we have confirmed that even aside from Classic Battle Royale, there is some meaningful consumption and appeal for other bullets.

So for UGC Mode, we plan to sequentially update collaborations with well-known and popular IPs like Brain mode and new maps, and also new monetization methods to drive up total time spent and also enhance the inflow of new users.

Regarding the WOW tokens, we aimed to make in-map item purchases possible so that users would be able to purchase directly from the map the creations of the creators, and we aim to create a virtuous cycle that runs between consumption, repeat play, and monetization.

So we are early in the stages on the road to monetization, and that is why, rather than focus on short-term returns, we are going to prioritize expanding on the creator ecosystem and also driving up user time spent.

And we plan to operate this separately from the existing Battle World Tens that we have in the game.

The next question will be from Chung Eui-Sun of Hyundai Motor Securities.

[Interpreted]. My first question is in regard to Subnautica 2. Could you provide more color on any future plans regarding Subnautica 2? Specifically, I would like to know the timeline for a full launch and also any plans meant to scale up Subnautica 2 into a franchise IP.

My second question is in regard to PUBG Ally. I have seen videos of PUBG Ally, and I believe that user feedback was that the Ally would add a very interesting element to the game.

Could you share any specific indicators that we can use to assess the impact of the Ally on the game? And also, could you share any future update plans for PUBG Ally?

I would also like to know whether the goal of this AI research and development is for profitability and monetization or perhaps to drive traffic up. So if you could provide more color on future plans, I would very much appreciate it.

My next question is in regard to talent recruitment for affiliates and subsidiaries. Today, I noticed the news that you have released a new voice LLM model. Could you share any achievements in the area of AI research? And also, do you plan to have any further investments in the domain?

[Interpreted]. This is the CEO. I will take your question on Subnautica 2. We are currently open, and so it is difficult to confirm exactly when the full launch will happen.

But our current plan is to continue to expand on the game's content for the upcoming 2 years. And the title has at least 12 million fans in the game. And now we have confirmed that with Subnautica 2, about half of the players have previously not played the legacy titles.

And so we have seen some meaningful expansion into a new user base. And at the same time, we aim to expand on the IP so that we can realize our vision of making it into a franchise.

For your second question on PUBG Ally, as you've seen, we've received favorable responses from users regarding the introduction of PUBG Ally.

PUBG Ally was technically significant in that it utilized a small model run on-device. Through technical testing, we were able to validate that it operates smoothly and has strong service potential. Based on user feedback, we are continuously upgrading the current version.

And we are reviewing what impact PUBG Ally could have once it is integrated more broadly into the game. Will it create a new type of gameplay experience? Will it provide value beyond that? That is something that we are still looking into and reviewing actively.

KRAFTON has demonstrated through its research that it is a leading player in the field of AI. Building on that foundation, we will continue developing larger models and expand into areas such as multimodal LLMs and world models. These technologies will support further research in game development and Physical AI.

Regarding your question about talent recruitment for our subsidiaries, Locus Robotics has recruited many globally recognized researchers, engineers, and other talented professionals who will support our long-term initiatives.

The next question will be from Suno Lee of Hana Securities.

I have two questions regarding ADK. First, I'd like to have more details on whether the PUBG PC collaborations with anime and also mobile collaborations were the result of synergies with ADK. If not, are there plans to pursue this direction in the future?

Second, regarding returns from ADK, I have noticed that in the second quarter it showed some pullback compared with the fourth quarter of last year and the first quarter of this year. Could you provide more color on the reasons behind this?

Regarding your first question about synergies with ADK, one of the key reasons we acquired ADK was to create synergy with the anime IPs that ADK owns, as you mentioned.

Projects based on those IPs are currently in development. While there is nothing we can announce publicly yet, we are actively exploring ways to maximize synergies between anime IPs and games.

I'll take your second question. As you mentioned, compared with the fourth quarter of last year and the first quarter of this year, ADK's performance in the second quarter showed some pullback.

ADK's business is made up of two pillars. The first pillar is the ad business, and the second pillar is content production. Content production was strong as it had been in previous years. But for the ad business, there was some slight decrease, as you mentioned.

We do believe the ad business had some impact from the situation in the Middle East involving the U.S. and Iran. And so, we do believe that this impacted the purchasing and positioning of ads.

But we do believe that this will not last for long. We will continue to monitor the situation and take measures as necessary.

[Interpreted] The next question will be from Stanley Yang of JPMorgan.

[Interpreted] I have two questions. My first question is in regard to new titles. You mentioned that a new PUBG IP game will be showcased soon. Is this a game for which the information has been released previously? Or is it an entirely new title?

And could you also provide more color on what gains we can expect from the new title pipeline that might be released next year?

My second question is in regard to the shareholder return policy and other relevant policies. I believe there were many positive points that you mentioned in your presentation, but there is also investor concern surrounding M&A strategies and other ways into new business.

So, my question specifically would be about physical AI. Could you provide more detail on the status of the research in the domain and especially on the local talent that you have hired and the team?

I was wondering whether you have plans to scale up the team, whether you plan to increase the investments in this domain and entity? And do you have any concerns about returns from that investment?

[Interpreted] This is the CEO. Let me answer your first question. Because we will be showcasing the game for the first time at Gamescom, I ask for your understanding that I cannot provide any further details on the status or about the title itself.

As for titles that we have scheduled for 2027, we have the five titles that we are showcasing at Gamescom, and we also have the mobile projects that we have previously announced.

In regard to physical AI, physical AI has been garnering attention as the next big AI domain following LLMs, and there are many market opportunities that are being discovered along the way.

And as a part of physical AI, world models have also been gaining much attention. And it has become more apparent, with the developments, that in building world models, game data is necessary, has a large correlation, and gives a competitive edge to game companies.

And so, we will continue to focus on research and development in the robotics domain.

In regard to AI investment sizes, I understand that because of the nature of AI investments, the size of the investments cannot help but be quite substantial. But we will continue to look for ways to mitigate any risks by looking for other external investments and employing many other methods.

[Interpreted] The last question will be from Junho Lee of Meritz Securities.

[Technical Difficulty]

[Interpreted] This concludes KRAFTON's second quarter and first half 2026 earnings presentation. We sincerely thank all the investors and analysts for your continued support.

[Foreign Language].

We'll take the first question from Stanley Yang from JPMorgan. We'll wait for the next question as Stanley Yang will be joining again. The next question will come from Jun Lee from Hanwha Securities.

So I have 2 questions for you. One is relating to the SOCAR investment announcement made today. So could you provide more color about this announcement? And my second question relates to the Hanwha Aerospace joint venture announcement made in March. Can you also elaborate more on this?

On the Hanwha Aerospace partnership, which was announced in last earnings call, we have nothing to update you because it is an ongoing matter at the moment. And moving on to the SOCAR disclosure announcement made today, we will be establishing a JV company on the autonomous driving service together with SOCAR. So under this newly established entity on the autonomous driving service based on the AI R&D, KRAFTON will be utilizing the data accumulated across these processes in order to deploy them for our physical AI research and development.

Next question will be from Eric Cha of Goldman Sachs.

On Subnautica 2, as you're aware, there has been some noise around with the studio. And I'm wondering if there is no changes to the original plan of the early access, if things are proceeding on track in line with the original plan, please confirm on that. And my second question relates to your second quarter guidance and visibility in terms of revenue. I know that so far, you have quite substantial reliance on PUBG because the diversification is not substantial yet. So depending on the momentum of PUBG, the earnings results are dependent. So could you please add more color on that?

First, on Subnautica 2, aside from the noise that you mentioned, I could say that we are facilitating cooperation smoothly with the studio at the moment, and the early access will be planned as is and will be launched as soon as possible.

On your question on PUBG reliance, as you're pretty much aware, we do have some ups and downs across some seasonalities where there are some peaks and off-season depending on the quarters. And our Q1 performance does not mean that we'll have the same performance across the other quarters. However, we can say that the Q1 earnings have enabled us to provide a structural growth pattern in going forward.

So if I may elaborate more on the guidance to the second quarter, as I explained in my previous remark, we're still standing at the end of April. So we're kind of observing how the business is running for April. And as for PUBG, our traffic is running quite strong, and we -- based on the various collaboration that we initiated across April, for instance, a Stellar Blade Contender and as for mobile, X-Suite, we are continuing to drive quite substantial sales, and this will continue. So if you're asking if you're seeing -- if you're asking if the momentum will be sustained in Q2, we are quite positive to that.

We'll take the next question from Stanley Yang from JPMorgan.

So I have 2 questions for you. First is on the PUBG IP. I've seen that the sales for the quarter is quite strong. And -- but I'd love to hear more on the -- more on the regional part. If we look at the third-party data for India and China, the data, there seems to be some gap. So please add more color on that. And my second question relates to your share buyback policy. So wondering what kind of criteria you have in mind to run and implement this policy? And do you have certain criteria for the undervalued share from the management side, which is linked to the earnings when you calculate that? Or are you considering the company-wide strategy like the new pipeline down the road or when the strategies are being materialized?

On your question to the sales of the PUBG IP, I think it's natural for you to refer to the third-party data. However, there has to be some inaccuracy around that data. And -- but relatively speaking, in terms of the size and the sales of the region, I don't think there is a huge gap. More specifically on PUBG Mobile, in line with the Ramadan season, which was a part of a premium product, which worked really well, especially -- and being received really well across the MENA users. This product was able to post a double-digit growth.

And as you are aware, as a KRAFTON follower, in Q1 centered on the Lunar New Year, we had substantial growth from the China side for PUBG PC and also for the Peacekeeper Elite.

On your question on the treasury share, we do have various list of criteria that we're considering, including if the current level of share is undervalued or not. And these are set internally based on the 3-year shareholder policy that we set before.

However, when it comes to the precise criteria sharing for the share buyback, I don't think it's appropriate to share in detail because if we do share the mathematical formula behind taking these actions, there may be some misinterpretation from the market. However, what I can say now is if you look at the Q1 operating profit amounting to KRW 560 billion, and considering the current level of our stock price, it is undervalued at the moment, which is kind of easy to say.

Next question will be from Junhyun Kim of HSBC.

My first question relates to the PUBG BM. I know -- I think that there has been a quite lift in your fandom based on the various collaboration and popular items that you initiated. And I guess there has been some increase for the paying users and wondering how the ARPU works for that. And also, you've mentioned that the Xeno Point had no cannibalization effect. However, if we look at the Steam figures, there has been some jump in the user trend, traffic.

And so what was the contribution effect of the Xeno Point per se? And my other question relates to your partnership with -- and JV initiatives from the non-gaming industries and wondering what you're expecting out of this. Can you talk a little more comprehensively about the consolidated operating profit or about the timing of gaining the margins, et cetera?

On PUBG BM relating to the lift in our paying users, it's difficult to disclose our operating metrics. But as for the CCU figures, I think you can browse them from the Steam database. If we compare our actual user base against the revenue of [indiscernible], which went quite up -- it actually went quite up. And we do look across various metrics like the users' time spent, the retention, the paying users and the average revenue per user. And across all these metrics, we have achieved a double-digit growth.

So your next question was about the Xeno Point effect, and you mentioned the word cannibalization. We cannot view it as a single factor attributable to Xeno Point because at the time of launch, we were also concurrently running other appealing products like the Stellar Blade Contender. However, on the backdrop of Xeno Point and with the start of the service, we've seen substantial growth in traffic across the PUBG IP.

And specifically speaking, this year, we are embarking our initiative to introduce more well-made modes and Xeno Point is the first very well case in point. And before we used to run Arcade modes, however, Xeno Point marked the highest peak CCU ever. If we look at Xeno Point, which is offering a PvE mode with -- inside the PUBG universe, we could witness that over 1/3 of battle royale users were playing the Xeno Point mode. Therefore, we think this achievement is spectacular.

On your question to the JV establishment with the nongame sector, with our very own AI capabilities, we'd like to expand into physical AI business. And centered on our software AI capabilities, we -- it is mandatory and required to work together with the businesses they have the offline edges. And so hence, we are engaging in JV. As for SOCAR as with TADA company before, they do have the expansive or perhaps the largest scale of car and driver-related data and management skills. And through initiating this autonomous driving business, we'd like to create big synergy out of our own AI capabilities and their edge over their expertise where we can open up new business opportunities.

Meanwhile, we can use these type of data accumulated from this new business entity into our physical AI domain. And we believe that this kind of partnership will continue in the future by combining our own strength in AI capabilities and their offline expertise. And we are just getting started at the moment. So when things materialize in the future, we'll give you more update on the timing of profitability.

Next question will be from Juno Lee of Hanwha Securities.

So I have 2 questions for you. The first is on Xeno Point mode. And I know that you used to have arcade modes before, but it appears that the Xeno Point mode will disappear and discontinue towards the end of the year. And wondering if you have any plans for additional update? Or is this just like temporary mode? And my second question relates to PUBG M. As you're aware, we've had the Iranian war breakout in the beginning of March. And wondering if there has been any changes in terms of traffic across MENA and Southeast Asian users?

On your question on the Xeno Point mode, this was our very first attempt to adopt the PvE mode as part of our PUBG well-made content. And in these PvE modes, the play session tends to be quite short. So we would like to have the users enjoy and play the game, the mode for a certain period of time and additionally offer new modes based on upgrades. And that is how we can maximize the effect and what users are expecting out of us. And in line with our Xeno Point mode, we are also preparing for some other always-on modes.

On your question on the so-called war relating to geopolitical risk, it is difficult to comment in line and in connection with our business. As you might be aware, when things like war breakdown, then there is a great constraint in terms of mobility. And there tends to be a trend where the traffic is lifted. However, in Q1, it's not attributable to such geopolitical risks. It's rather attributable to the Ramadan themed item that we -- where we drove substantial traffic. So it's difficult to say this is attributable to the war. Rather, we can say the well-made content and the user satisfaction is a main driver to growth.

This concludes KRAFTON's 2026 Q1 earnings presentation. We sincerely thank all the investors and analysts for your continued support and interest for KRAFTON.

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

Good afternoon. This is Sophie Lee from KRAFTON's Investor Relations team. Thank you to all our investors and analysts at home and abroad for joining KRAFTON's 2025 Full Year and Fourth Quarter Earnings Call. Joining us today are Mr. Changhan Kim, CEO of KRAFTON and Dongkeun Bae, our CFO. For the convenience of our domestic and global participants, the CEO message and the financial results presentation will be simultaneously interpreted, while the Q&A session will be interpreted consecutively.

Please note that today's earnings results are based on preliminary consolidated figures prepared in accordance with the K-IFRS and may be subject to change during the external auditor's review. Now I'd like to invite Mr. Changhan Kim, CEO of KRAFTON, to deliver his remarks on the essence of games, the expansion of values.

Good afternoon. Thank you to all our domestic and international investors and analysts for joining KRAFTON's 2025 Full Year Earnings Call. I am Changhan Kim, CEO of KRAFTON. First, I'd like to extend my sincere gratitude to our shareholders and investors for your continued interest and support over the past year. In 2025, we declared securing franchise IPs as our core strategic priority and for the first time, presented a 5-year mid- to long-term growth road map.

And this road map is built on our fundamental belief, games at the core and value expansion driven by a virtuous cycle of fandom and content. In 2025, we further strengthened the long-term growth foundation of PUBG while at the same time, confirming early indicators of new IP potentials. We also recruited new production leadership and on that basis, expanded both the breadth and the depth of our lineup, laying a solid execution foundation for our strategic goals. And building on this momentum over the mid- to long term, we aim to secure a select number of big franchise IPs and drive a structural expansion of corporate value.

Looking ahead, in 2026, we plan to take the next step, further refining our game-centric strategy while expanding the AI capabilities we have accumulated through game development and live operations into new business opportunities. The first part of my presentation will focus on our franchise IP strategy and execution within the gaming domain. I will cover how we are evolving PUBG into an IP with a long-term product life cycle, namely the PLC, while at the same time, preparing for the next growth pillar through new IPs.

I'll walk you through this sequence, starting with enhancement to our core services, new titles and production and development framework. In 2025, we moved into full-scale execution of our PUBG IP franchise strategy with a strong focus on expanding the user base of our core services. At the same time, our new IPs delivered meaningful results at the early access stage, allowing us to begin validating the potential of new titles through key metrics.

In summary, 2025 was a year in which we advanced both dimensioned in parallel, the resilience of our existing franchise and the initial validation of new growth engines. Looking ahead, to 2026, we plan to take these 2 new pillars into the next phase, one of expansion and acceleration. 2026 will mark a period of full-scale platform transformation for PUBG as we evolve it into a gameplay platform.

Under this direction, we will initiate large-scale collaboration for the expansion of new content categories and broadening experiences offered by PUBG, extending them beyond games into culture experiences and strengthen PC-mobile connectivity, enhancing synergies within the franchise across updates and content and also through UGC and [indiscernible] developed by external developers, we will accelerate both the speed and scalability for content production, reinforcing a virtuous cycle in live services.

And based on this direction, we expect the PUBG IP franchise will continue posting double-digit growth in 2026. Building on PUBG's universe in core gunplay, we're pursuing new title initiatives aimed at expanding the potential fan base of the franchise. Projects such as Black Budget, BLINDSPOT and Valor are designed to diversify genres and platforms and to validate the scalability of the PUBG IP. What's important here that we're not simply expanding our lineup for its own sake. Rather, we're advancing these projects through a disciplined test-driven approach, validating the core gameplay loop.

Through this, we aim to enable the PUBG IP to expand across genres, regions and age groups and grow into a franchise with a larger and long-term PLC. To secure big franchise IPs, we have also redefined our principles for M&A and strategic equity investments. Large-scale M&A will be pursued with the objective of securing a mega IP on the scale of another PUBG. Small to midsized M&A will focus on scaling up IPs that already possess an established fan base.

Strategic minority investments and second-party publishing will be centered on projects with clear launch visibility and proven team capabilities. In parallel, we will ensure that we have a well-defined execution path through which KRAFTON can actively add value. On the in-house development front, we have strengthened our production system by securing top-tier production leadership, enabling multiple small play space initiatives to run in parallel. In 2025, we expanded the number of 1PP development pipelines, launching multiple new projects.

And in 2026, we plan to raise the bar further and increase the number of active pipelines. However, as changes in the development landscape have enabled leaner and more efficient experimentation, we'll manage development headcount and investment in new titles with discipline. As we identify products with clear scale-up potential, we will concentrate resources and expand capabilities accordingly. To secure new franchise IPs, we're preparing a diverse lineup of new titles. Projects such as Subnautica 2, Palworld Mobile, NO LAW and Dinkum Together formulate a portfolio designed to diversify genres and platforms and to expand our long-term growth opportunities.

Subnautica 2 is being developed with a strong foundation aimed at expanding beyond existing fan base to reach and appeal new generations and new regions. Palworld Mobile is progressing toward delivering the core fund of the original title while being fully optimized for the mobile environment. Reconfirmed its potential through G-STAR and alpha test in Korea and Japan and are now enhancing content and game readiness.

Through this lineup, we aim to ensure that KRAFTON's growth is not confined to a single genre or platform. Instead, we are building a structurally resilient portfolio that enables continuous diversified growth momentum. For IPs acquired last year as well as the IP titles that displayed early traction, we're reinforcing our scale-up strategy to grow them into long-term PLCs. inZOI will continue to improve its overall readiness for full launch based on content circulation driven by UGC and multiplayer-based experiences.

For Last Epoch, we'll accelerate seasonal operations and the pace of updates, further enhancing the stability and growth potential of live servicing. MIMESIS will focus on AI-driven core mechanics and expanding connected content to increase replayability and grow -- have it grow into the major genre with major title within the genre. The second part relates to our strategy to expand into adjacent areas by leveraging our game core capabilities.

While keeping games at the center, KRAFTON is exploring new revenue models and growth opportunities built on our strength in IP, data and live ops. In particular, we view AI as a key enabler in this journey as it contributes to internal efficiency and quality enhancement in the short term. And also, it creates new business opportunity that are deeply connected to the games in mid- to long term.

With clear synergy to our games as a prerequisite, we are pursuing disciplined M&A to expand into adjacent businesses. ADK is strengthening our transmedia strategy, enhancing ability to execute IP expansion across formats. Meanwhile, Neptune is focused on traffic-driven advertising monetization and the expansion of regional value chains. The key point here is our objective is not to pursue non-gaming businesses for their own sake. Rather, we're committed to generating tangible results.

AI is a key driver of KRAFTON's future innovation and value expansion. To date, from the perspective of AI for games, we have leveraged AI to enhance development and live service efficiency and strengthen quality, including in-game AI, production optimization, QA automation and anti-cheat systems. At the same time, building on the AI capabilities accumulated through this mid- to long-term opportunities. At the core of our game for AI approach is building foundation that allows us to expand capabilities be developed in games into the real world.

The interaction data generated within games can serve as high-quality training data. While our experience operating in physics-based virtual worlds provides a strong advantage in building learning environment and data-generating infrastructure bring on our global research capabilities. We'll quickly integrate the latest algorithms to add our edge. And in terms of execution, we will pursue a phased approach, validating internally in the short term and expanding externally over the mid- to long term.

In the physical AI domain, we'll focus on building a strong AI software core through partnerships with leading global hardware company to maximize synergies. Areas such as humanoid robotics represent a long-term challenge. However, they also offer substantial potential by transferring AI capabilities validated in games into the real world and by differentiating through human interaction focused intelligence, we'll continue to advance our core game capabilities by progressively expanding into new business domains with clear and realizable synergies.

To conclude, 2025 was a year in which we confirmed both the solid growth of the PUBG franchise and the initial traction of new IPs. As we look ahead into 2026 and beyond, we will accelerate PUBG's platform transformation and content expansion while continuing to strengthen our development, publishing and investment strategies to secure a select number of big franchise IPs.

Also at the same time, we aim to enhance game edge through AI evolving into a global pioneer that links games to mid- to long-term new business opportunities beyond gaming. With that, I will now hand over to our CFO to walk you through how this execution is reflected into our financial performance. Thank you. Next, Mr. Dongkeun Bae, the CFO of KRAFTON will walk you through KRAFTON's full year and fourth quarter 2025 financial results.

Good afternoon. This is Dongkeun Bae, the CFO. In 2025, KRAFTON achieved the highest annual revenue in its history, driven by continued growth of the PUBG IP and the performance of the new IPs. Within the global gaming industry, the shooter genre has continued to expand in both scale and user base with the release of multiple new titles and amid this environment, the PUBG IP franchise continued to grow in both traffic and revenue, further demonstrating its competitiveness as a global franchise IP.

In 2025, the PUBG IP expanded cultural elements and user experiences through collaborations and diverse game modes while continuing efforts to create synergies across products within the franchise. As a result, average monthly users for PUBG PC increased by 11% year-over-year, while the PUBG Mobile and BGMI saw growth in total paying users of 5% and 27%, respectively, further strengthening the core fan base.

From a revenue perspective, PUBG PC revenue grew 16% year-over-year and mobile products recorded 11% year-over-year growth, excluding PUBG IP-related incentive payments recognized from partners in 2024. Consequently, total PUBG IP franchise revenue increased 30% Y-o-Y. In line with our 5-year mid- to long-term strategy announced in February, KRAFTON also placed a strong focus on securing new franchise IPs in 2025.

We added 2 million seller titles to our IP lineup. inZOI launched in March and MIMESIS launched in October. Through continuous content expansion, we plan to grow these titles into IPs with long-term PLC, the product life cycles. In addition, throughout 2025, we initiated 15 new projects. And as of February 2026, we are operating a total of 26 game development pipelines. Meanwhile, due to the expansion of development headcount, increased investment related to PUBG 2.0 and the impact of one-off costs, operating profit declined Y-o-Y to KRW 1.0544 trillion.

Next, I will walk you through KRAFTON's full year and Q4 2025 revenue performance. For full year 2025, KRAFTON recorded revenue of KRW 3.3266 trillion, representing a 23% increase Y-o-Y. In the fourth quarter, revenue reached KRW 919.7 billion, up 49% Y-o-Y. Starting with the PC platform. Full year PC revenue totaled KRW 1.1846 trillion, up 26% year-over-year with double-digit year-over-year growth recorded in every quarter of 2025.

In 2025, PUBG PC and Console delivered high-density content updates, integrating diverse cultural elements into the gameplay. And for the first time since launch, we achieved annual revenue exceeding KRW 1 trillion. Fourth quarter PC revenue was driven by the continued growth of PUBG PC. In particular, the Porsche collaboration in November delivered the strongest performance among all supercar collaborations to date, making a meaningful contribution to revenue growth.

In addition, sales from MIMESIS, which surpassed 1 million units sold globally within 50 days following its early access launch were reflected in the quarter. As a result, Q4 PC revenue reached KRW 287.4 billion, up 24% Y-o-Y. Looking ahead to 2026, we plan to further strengthen the long-term growth foundation of PUBG PC and Console through a multiprolonged strategy. We'll continue to enhance monetization efficiency of proven premium content, including collaborations.

And at the same time, the contender system first introduced last year will be continuously refined to ensure a stable soft landing as a new content category. The New Year's rerun event held this January met strong user expectations and recorded the highest revenue ever among New Year rerun events. From a traffic standpoint, we will accelerate PUBG PC's evolution into a game platform by offering diverse gameplay experiences beyond Battle Royale through the launch of new well-made modes and continued UGC mode updates.

Now moving on to the mobile platform. The full year mobile revenue totaled KRW 1.7407 trillion, representing a 3% Y-o-Y increase, including PUBG IP-related incentive payments received from partners in 2024, PUBG IP mobile products on a combined basis continued to deliver double-digit growth. In 2025, PUBG Mobile strengthened its existing fan base through new theme modes and World of Wonder UGC updates while building a virtuous cycle that reinforce the overall power of the PUBG IP franchise through joint collaborations with PUBG PC and Console.

BGMI further solidified its position as a national game in India through localized in-game content, such as local skin launches and strategic collaborations with local brands. As a result, BGMI maintained solid annual revenue growth in India's rapidly growing gaming market. Fourth quarter mobile revenue reached KRW 292.2 billion, down 19% Y-o-Y, reflecting seasonal off-peak effects and traffic-driven content updates.

Looking ahead to 2026, we plan to drive revenue through the launch of high-efficiency business models while simultaneously expanding both traffic and monetization by enhancing the UGC mode creator ecosystem and delivering regular new mode updates. In the first quarter, aligned with the annual peak season and the eighth anniversary event, we will introduce a broader range of content compared to the previous year, aiming to sustain growth in both revenue and traffic. In particular, the technology service fees received from partners, which declined in the fourth quarter due to traffic-oriented operations have already shown solid recovery in January following multiple monetization-driven content updates.

Turning to Console. The full year Console revenue amounted to KRW 42.8 billion, down 3% Y-o-Y, while the fourth quarter revenue totaled KRW 9.7 billion, a 21% decrease Y-o-Y. Finally, other revenue reached KRW 330.4 billion, an increase of KRW 319.9 billion Y-o-Y, primarily reflecting the consolidation of ADK in the fourth quarter, which contributed KRW 313.8 billion in revenue. As a result of ADK's consolidation, the full year 2025 other revenue totaled KRW 358.5 billion, representing a 963% increase year-over-year.

Next, I will walk you through the key operating expense items for the full year and the fourth quarter. During the quarter, consolidated operating expenses increased mainly due to the consolidation of ADK and the recognition of one-off costs. In the fourth quarter, ADK's operating expenses amounted to KRW 292.2 billion post reconciliation with the majority attributable to personnel expenses and commission expenses.

One-off expenses recognized in the fourth quarter totaled KRW 106.9 billion, mainly comprising personnel-related costs and litigation expenses. Excluding ADK-related costs and one-off expenses, full year operating expenses totaled KRW 1.8605 trillion, representing a 22% Y-o-Y increase and the fourth quarter operating expenses came in at KRW 518.2 billion, up 2% Q-o-Q and 29% Y-o-Y. Moving on to the breakdown of major operating expense items. The personnel expenses amounted to KRW 734.7 billion for the full year and KRW 284 billion for the fourth quarter.

Excluding the impact of ADK consolidation and the one-off contribution to the employee welfare fund, personnel expenses increased 14% year-over-year to KRW 591.5 billion, reflecting an increase in the total headcount across the company. And on a quarter-over-quarter basis, personnel expenses declined 9% to KRW 140.8 billion as we maintain a conservative hiring stance. The contribution to the employee welfare fund was introduced to support the stable settlement of employees and teams following KRAFTON's relocation to its new Seongsu headquarter.

This contribution reflects the lump sum recognition of resources expected over the next 4 years, and we do not expect similar expenses to recur. [ FE ] and cost of sales amounted to KRW 421.3 billion for the year, reflecting higher revenue from directly served PUBG PC and Console and BGMI as well as sales of the new IP titles inZOI and MIMESIS. In Q4, these expense decreased Q-o-Q to KRW 103.7 billion mainly due to seasonal revenue softness.

Commission expenses totaled KRW 712.3 billion for the full year and KRW 390.3 billion for Q4. Excluding the impact of ADK consolidation and one-off items such as litigation costs, commission expenses increased to KRW 490.4 billion, up 55% year-over-year and KRW 168.4 billion, up 31% Q-o-Q. Marketing expenses totaled KRW 144.1 billion for the full year and KRW 51.8 billion for the quarter. Excluding the impact of ADK's consolidation, marketing expenses amounted to KRW 144 billion for the full year, up 42% year-over-year and KRW 51.8 billion for the quarter, up 20% Q-o-Q, driven by the consolidation impact of Neptune in the prior quarter and expanded marketing for live service titles.

For stock-based compensation expenses, which declined year-over-year to KRW 49.6 billion, reflecting the changes in the expense recognition method for cash settled stock options and the decline in share price during the second half of the year. In the fourth quarter, stock-based compensation increased Q-o-Q to KRW 6.4 billion. Moving on to operating profit. Despite recording full year revenue growth for the second consecutive year, operating profit declined 11% Y-o-Y to KRW 1.0544 trillion due to increased investment in development headcount, the PUBG 2.0 transition and the impact of one-off expenses.

In terms of nonoperating profit and loss for FY 2025, FX gains decreased by KRW [indiscernible] billion due to smaller increase in the FX rate. And in addition, impairment assessments were conducted on existing investment assets, resulting in nonoperating losses of KRW 95.4 billion, a KRW 635.6 billion decline Y-o-Y. In Q4, while the FX rate rose Q-o-Q, impairment assessments on existing investment assets led to nonoperating losses of KRW 52.9 billion. As a result, we recorded a net loss of KRW 22.7 billion in Q4, while FY 2025 net income totaled KRW 733.7 billion.

Now this concludes my overview of our financial performance. I will now move on to KRAFTON's new shareholder return policy. KRAFTON established and consistently executed a 3-year shareholder return policy covering 2023 through 2025. Through annual share buybacks and cancellations, we returned a total of KRW 693 billion to shareholders over the past 3 years. In particular, in the first year 2023, we canceled 100% of the treasury shares acquired. And in the subsequent years, we continued to cancel 60% of the acquired shares, maintaining a strong focus on enhancing shareholder value.

And based on this track record as well as feedback from our shareholders and investors, we have established a new shareholder return policy applicable from 2026 to 2028. Under the new policy, we aim to return more than KRW 1 trillion to shareholders over the next 3 years, representing an increase of more than 44% compared to the KRW 693 billion returned under the previous 3-year policy.

As for the key execution measures for the first time since listing, KRAFTON plans to initiate dividends, providing shareholders with certain and predictable cash returns, and we plan to conduct annual capital reduction dividends of approximately KRW 100 billion per year, funded by the transfer of capital reserves to retained earnings. The remaining funds over KRW 700 billion, excluding dividends, will be allocated to share buybacks and the timing and the amount of the buybacks will be managed lessly considering market condition and 100% of the acquired shares will be canceled.

At today's Board of Directors meeting, we approved an initial share buyback of approximately KRW 200 billion with purchases scheduled to commence on February 10, which is tomorrow. Depending on market conditions and the company's financial position, the total amount allocated to share buybacks may be further increased over time.

Regarding treasury shares currently held, we plan to proceed in accordance with the procedures prescribed by law, subject to the passage of legislation that would mandate the cancellation of the treasury shares. This concludes my presentation. Thank you very much. This concludes our presentation. We will now move on to the Q&A session.

[Operator Instructions] We will take the first question from Junhyun Kim of HSBC.

I have 2 questions. First is regards to the softened bottom line last quarter. Despite the acquisition of ADK and also the one-off costs that you have explained during the remarks, we have concerns that this may be because of the high dependency on particular products such as Peacekeeper Elite and also highly influenced by the sales drop from Peacekeeper Elite.

I would like to understand exactly when the results of the investments might actually lead to a strengthened bottom line. I ask this question because despite the expanded lineup, it seems like the new titles are being launched not as quickly as the market expects. Next is my second question. We see difficulty in how -- what kind of synergies can be created between ADK and KRAFTON. I would much appreciate if you can explain some strategies and plans that might show coming -- starting from 2026 in terms of the synergy effect.

This is the CEO, and I will answer your question. We are well aware of the mobile-related concerns the market has coming from the fourth quarter. And during the shared remarks, we had stated that the content around that time was focused on expanding, enhancing user volume. And I believe that the concern has led to worries about the fundamentals of the company, but I would like to address that, that is not the case because the fourth quarter is affected by seasonality and also the operations were focused around expanding volume at the time.

And if you look at the data currently coming in for January, you'll be able to see that there has been a rebound when it comes to that -- those figures. And right now, although we have expanded our lineup, that is true, that does not mean that all the projects in the lineup will be launched. That is not an efficient way in terms of operating the process, we believe. Instead, we have gateways to make sure that the right projects are funded and additional funding and investments are made only to projects that are able to go over these gateways and make it through the process.

So it is understandable that it is seen that the titles -- number of titles that are being launched are much lower compared to the lineup that we have built. Another thing that we need to consider is that investments made into first-party titles began in earnest only early last year. And that's why the number of titles that are launched into the market might seem a bit low. However, it will continue to expand as we move on to next year and the year beyond that.

ADK has been operating within the Japanese market as an integrated ad agency as well as a content creator. And when it comes to the integrated ad business, ADK has a very sturdy network within the market, and we expect a continued stable operation going forward. And when it comes to content, we're trying to discover a synergy effect between KRAFTON and ADK mainly to discover animation IPs that we can create into games and also vice versa games that can be created into animated series.

However, at this point in time, we have just begun the PMI process and our current priority is to continue to discover animations that can become games and also to bring that to a global market, leveraging KRAFTON's capabilities as a game maker.

[Operator Instructions] The next question will be from Eric Cha of Goldman Sachs.

I actually have multiple questions, a total of 3. First is more of a higher-level question. After Genie 3 came out by DeepMind, the stock prices of game development companies and platforms have been impacted, and that is because that existing gaming companies will largely be impacted by the advancement of AI technology. I think this really reflects the concern coming from the market. And I'm very curious how KRAFTON sees this trend and if KRAFTON has any counterarguments in regards to these concerns.

And the second question was touched upon in the previous earnings call, I believe, and may have been a situation that was addressed as a focal point at the time. It was around intensifying competition when it comes to the shooting genre, there are more concerns about rival games entering the market. And since then, 3 months has passed and looking at trends thus far, I would like to inquire on your thoughts about user behavior and the overall situation. Do you think that everyone can coexist in the market? Do you think KRAFTON has a competitive advantage? I would like to gain some thoughts on this from you.

And my third and final question is about the results of 2025. When it comes to the revenue and the growth achieved by PUBG IP, this largely meets the expectations that the market has, but I think there was a lot of difference when it comes to the expense. There was a lot of difference between what the market expected that is. Can you provide some guidance when it comes to expenses, in particular, when it comes to 2026?

This is the CEO, and I'd like to answer the question regarding Genie 3. First, it is true that AI technology is developing at a rapid pace, and it is very disruptive both to our everyday work as well as businesses. But looking at Genie 3 in particular, it still requires a large capacity of GPU and also the persistency time is quite short. So we do not think that this particular piece of tech will be replacing traditional game development methods anytime soon.

That said, the technology that is arising is very disruptive indeed, and we are trying to find ways to protect our core business and also expand our core business, driving AI -- using AI as a key driver and also at the same time, seek out opportunities of new businesses.

Moving on to your second question regarding the competitor shooting game genre and also the situation around rival titles. If you look at the characteristic of what -- which you explained, it is limited to China. And I believe that this concern is arising because of our performance in the fourth quarter seen in China. And if you look at game Peacekeeper Elite, the average DAU had posted a double-digit growth going into 2025. And the growth of the revenue has softened. However, the user base has expanded. So we do believe that coexistence is indeed possible, and this is due to the characteristics of the genre itself, we will continue to seek content cooperation between PC and mobile to find ways to continue growth the way that KRAFTON can discover.

This is the CFO, and I will answer your third question regarding expense guidance in 2026. Please note that because of disclosure-related regulations applied in Korea, we will not be able to provide too much details in terms of the expense guidance. To -- that said, the labor cost incurred last quarter was largely due to the voluntary resignation program that was implemented. And the departure has been concluded as of January 31 and related cost, which is roughly around KRW 40 billion will be reflected in Q1.

For the marketing expenses in 2026, and I was briefly touched upon in relation to the pipeline that I explained in the prepared remarks, we have some new titles coming to the market, more titles coming to the market that is compared to 2025. We have the launch of Subnautica 2 and also the ongoing live service of the PUBG IP franchise and new titles based on the PUBG IP. And due to these new launches, the marketing expenses are expected to increase in 2026.

But as you are well aware, the portion that the marketing costs will take against the revenue is not going to be too significant compared to any other year or quarter. We expect this to land somewhere within the mid-single-digit range. And paid commissions account for a large share within the expenses. And you asked the question, when will we be able to see the results of these new title lineups and when will the dependency on PUBG be reduced?

We are a game maker. So our first and foremost priority is to make sure that we make competitive and good games. And going into 2026, because of that reason, there can be an increase in paid commissions largely due to outsourcing fees for game development and also development of new titles and other activities to strengthen the PUBG IP.

The next question will be from Kim [indiscernible] of CIMB.

My question relates to the engine update that is scheduled for 2027. First off, we believe that the update is scheduled for Q1 of next year. Is this schedule still valid? And also, how is the process of updating to Unreal Engine being evaluated internally? And then finally, after the update is concluded and the PUBG IP franchise is up and running on the new engine, can we expect a meaningful reduction when it comes to outsourcing development fees?

The update to Unreal Engine 5 for PUBG has been started -- is something that we started last year. We have been hard at work when it comes to R&D. We're also working with external agencies and partners to get this going. However, PUBG has 9 years' worth of content that needs to be handled with and dealt with. So at this point in time, it is difficult to pinpoint when this update will be carried out.

And the question -- your second question regarding the meaningful reduction of outsourcing fees once the Unreal Engine 5 update has been completed. I don't know if I understand the question correctly, but the way I heard it is that this is not referring to the engine commission fee, but rather because we have upgraded to the better engine, development costs coming from other activities would drop. This is how I understood the question.

And right now, we are already using the Unreal Engine. We have a very good relationship with the engine provider as well. And although right now, I'm unable to disclose any details of the terms that we have in place, I think we can fairly assume that the next-generation engine will be used by KRAFTON at a competitive rate.

Although upgrading to the next generation of the engine does not directly lead to an increase nor a drop of outsourcing fees. That said, AI transformation is a topic that was presented in the previous quarter, and this is something that we are pursuing actively this year as well. And we are feeling that AI is indeed enabling us to do a lot more that we could not do. That does not mean -- for example, we'll be able to create our assets by ourselves without reaching out to our houses outside the company. And although this might not translate directly in the short term by using AI in the longer term, we can expect these types of outsourcing fees to reduce.

The last question will be from Seokoh Kang of Shinhan Investment & Securities.

My question relates to the decision that KRAFTON had made in relation to the shareholder return policy and also making investments into new titles and projects. And I do believe that shareholder returns are very important, but wouldn't KRAFTON also consider making bold investments and therefore, pursuing growth going forward? And when KRAFTON embarks on investment, and I'm not an expert in this, but it feels like KRAFTON considers the game play of the titles that are being developed.

However, it is less of a priority when it comes to the popularity or also how much performance contribution these new titles can make to KRAFTON. And KRAFTON's priority seems to be bringing IPs and then growing them leveraging KRAFTON's capabilities. However, in that case, if securing IPs and also titles that can do that is quite -- that is important to KRAFTON, then shouldn't KRAFTON take bold steps when it comes to investments, even though the valuation or the price of the IP is pretty significant. I would like to inquire about the investment strategy of KRAFTON.

Thank you for asking this question. And I actually am in complete agreement with what you are saying, it is a high priority for KRAFTON to acquire large-scale IPs through M&A activities. However, it is very rare to encounter such a large-scale M&A opportunities, even though we would like to pursue these types of chances. And when it comes to the acquisition costs, we would like to acquire IPs with a reasonable amount of premium as the price and then continue to grow that leveraging our capabilities.

So we are geared up and we are ready to make these actions and activities to carry out these activities. However, we can't really pinpoint when this is going to happen, whether it's going to be this year or next year, but we are prepared for when the opportunity arises.

This concludes KRAFTON's Full Year and Fourth Quarter 2025 Earnings Call. We would like to sincerely thank all our investors and analysts for your continued interest and support.

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

Good afternoon, everyone. This is Sophie Lee from KRAFTON IR team. Thank you to all investors and analysts at home and abroad for joining KRAFTON's Third Quarter 2025 Earnings Call. Joining us today are Mr. Sean Hyunil Sohn, CEO of KRAFTON India; and Mr. Dongkeun Bae, our CFO.

For your convenience, the presentation on India and financial results will be accompanied by simultaneous interpretation, while the subsequent Q&A session will be interpreted consecutively. Please note that today's financial results are based on preliminary consolidated figures under K-IFRS and may be subject to change following the independent auditor's review.

Now Mr. Sean Hyunil Sohn will present on KRAFTON resonating with India.

Good afternoon, everyone. I'm Sean Hyunil Sohn, CEO of KRAFTON India. KRAFTON formally entered India in July 2021 with BGMI. Since then, for 4 years, we have worked to take root and grow together in India guided by 2 pillars, publishing and investment. Today, India ranks around fifth globally in terms of GDP. However, its gaming market is still in its early stages, about 1/5 the size of Korea and roughly 1/30 of the U.S. or China. Even so, it's growing faster than almost any other market, expanding by over 15% annually. And with such a young and dynamic demographic, we see significant future potential.

Please allow me to share how KRAFTON has been partnering with this very promising market and how we are preparing for its next phase of growth. In India, mobile accounts for over 80% of gaming revenue, far exceeding PC and console. Among these, BGMI has firmly established itself as a national game among Indian players over the 4 years since its launch. Cumulative registered users have now approached 250 million, a very clear sign of BGMI's broad reach. Building on this loyalty, paying users this year have grown by over 34% versus last year. And this was driven by value for money products and items tailored to local preferences, encouraging even cost-conscious players to enjoy their very first positive purchase experiences.

Also on October 1, the online gaming bill took effect, explicitly banning real money gaming. On the other hand, general games like BGMI are classified as social gaming and are expected to operate under a more predictable regulatory framework. With detailed guidelines to follow, eSports is expected far surpassing any other eSports titles in India, further fueling excitement among fans. We believe that this momentum deepens loyalty and engagement, and we are making the investment accordingly. Alongside the publishing as an effort to grow together with the Indian market, from day 1, we established a dedicated local investment team focused on gaming and digital entertainment.

To date, we have executed 17 investments totaling KRW 300 billion. Among them is Nautilus Mobile, a cricket game developer. We first invested in February 2022 and later acquired a controlling stake in March 2025 to jointly enter the cricket gaming market. Several of our portfolio companies have shown remarkable growth in revenue and valuation since our investment and some are now preparing for IPOs. Going forward, we will continue identifying early-stage companies with high growth potential and strategic synergy with KRAFTON and seek growth opportunities altogether in Indian market.

In 2025, we further advanced brand collaborations, expansion beyond Hindi-speaking regions and localized content and products initiatives that gained momentum in 2024. The Go South initiative launched in 2024 significantly broadened our user base while localized skins and content boosted user retention and revenue. Also reflecting team's growing interest in OTT-driven animation, our first short animated series using BGMI IP was very well received, 5 episodes achieved over 170 million views. And so, following this localization strategy, we expanded server coverage from central and southern regions to include northern areas by early next year, bringing previously network-constrained users to BGMI. Through UGC, the user-generated content mode updates, we will keep delivering diverse content, aiming to expand our user base and strengthen engagement next year.

Beyond BGMI, over the past 2 years, we launched multiple first-party and third-party titles. And starting next year, we will develop and test India-focused games and familiar genres, working directly with local developers to create proven local successes. We will also transition the publishing of Real Cricket 24, the flagship title of Nautilus Mobile to KRAFTON India to grow both its revenue and users. Given Cricket's significance as India's national sport, we see substantial growth potential and are advancing new titles with multiple teams while securing licenses for teams, leagues and national teams, building a new growth engine after BGMI.

India's market remains relatively small and challenging for many global publishers. Yet as with China's once unimaginable trajectory, we believe India's potential is truly immense. And thanks to BGMI, we have a solid local foothold and a strong partner network through investment and collaboration. So, building on this foundation by combining KRAFTON's development and publishing, we aim to contribute to India's gaming growth and sharing its rewards. We ask for your continued interest and support as KRAFTON takes on new challenges in India.

Next, KRAFTON's CFO, Mr. Dongkeun Bae, will present Q3 2025 results.

Good afternoon, everyone. This is the CFO, Dongkeun Bae. In the third quarter of 2025, KRAFTON recorded growth within the PUBG IP franchise with a revenue of KRW 870.6 billion and operating profit of KRW 348.6 billion. The cumulative revenue through Q3 2025 stood at KRW 2.4069 trillion, up 15% Y-o-Y and cumulative operating profit surpassed KRW 1 trillion for the very first time in the history of KRAFTON within just 3 quarters. PUBG PC achieved its highest ever quarterly sales in Q3, surpassing not only last year's strong Q3, but also the Q1 peak season, demonstrating how accumulated operational know-how such as content design and monetization balance is translating into tangible results. Major mobile titles again outperformed Y-o-Y, driven by competitive content. This was a quarter truly highlighted the operational capabilities of all of our core live services of the PUBG IP franchise and their outstanding performance. KRAFTON is evolving into an AI-first company, and we will progressively expand investments.

AI first goes beyond simply adopting technology. It redesigns the organization as a whole to boost productivity at a company-wide level and accelerate growth. Already, we have adopted AI across many work domains, including game development, servicing and measurement support, thereby automating workflow and enhancing efficiency. Through many attempts and trial, we'd like to lead AI innovation across the global gaming industry. Next, I'll move on to financial performance and key progress relating to securing the new growth engine.

First, I'll touch upon the sales performance by platform. Starting this quarter, Neptune is consolidated, and the game revenue is reflected in PC and Mobile, while advertising revenue is included in others. PC revenue of the Q3 stood at KRW 353.9 billion, which was up 29% Y-o-Y and 61% Q-o-Q, marking the highest third quarter in our history. PUBG PC sustained traffic-driven growth via continued collaboration content with aespa, Bugatti and G-Dragon, creating a virtuous user traffic and buzz. Through dense content updates, PUBG PC sales exceeded even Q1 2025 levels, underscoring the very power of PUBG IP. Other than that, inZOI, Subnautica and Neptune's E turner return also made a contribution to Q3.

Q3's mobile platform posted revenue of KRW 488.5 billion, up 15% Y-o-Y and 14% Q-o-Q. Both PUBG Mobile and BGMI delivered steady growth through theme modes, collaborations and localized content. PUBG Mobile posted strong results year-over-year with Transformers themed mode and new X-Suit, which received positive feedback around the world. BGMI also achieved its highest quarterly revenue ever, driven by fourth anniversary India exclusive skins, localized content, reflecting India's unique culture and server expansions to improve the UX solidifying itself as India's national game. The console revenue totaled KRW 10.2 billion, down 14% year-over-year, but up 4% Q-o-Q. Lastly, other revenue recorded KRW 18 billion, up 113% year-over-year and up 261% Q-o-Q, driven by Neptune's advertising business. Next, I'll move on to PUBG IP franchise.

PUBG PC console continues to grow on the back of solid traffic, while preparation for service transition to PUBG 2.0 is ongoing based on research and development. The ongoing IP collaborations extend compelling culture experiences that go far beyond gaming. And in Q4, we plan to share multiple collaboration content within the franchise to drive synergy, including purge collaboration. Still growing traffic continues to drive PUBG PC's expansion. And as of Q3, MAU increased by 9% year-over-year, and the number of paying users grew by 21% compared to the same period last year. The R&D focus of PUBG 2.0 is centered on 3 priorities: upgrade to Unreal Engine 5, well-made in-game modes and expanded UGC.

Our UGC Alpha service conducted in Q3 confirmed the very spread of creator content and positive feedback. In 2026, we plan to introduce a new play mode in full scale beyond Better Royale and update the payday mode in the first half 2026, which is jointly developed with the Star Breeze Entertainment. For the new potential fans, we are continuing to take on new challenges within the PUBG IP franchise, expanding the brand's reach. We are continuing to develop new types of PUBG IP titles. For mobile products, we are continuing to maintain a stable live service based on diverse modes and PUBG IP joint content. First, we are continuously offering new play experiences through diverse gameplay modes and advancing the UX. And going forward, we aim to make PUBG Mobile a platform via new theme modes, IP collaborations and World of Wonder UTC mode updates.

In addition, we are jointly providing high-profile IP collaboration content with PUBG PC and host the first-ever joint PC mobile eSports event, namely PUBG United 2025 to expand the franchise and enhance the brand value. In India, BGMI continues to expand localized content referred local users, maintaining effective live operations while appealing content continues to be released, including diverse global IP collaborations and a new exit. As a result, core fandoms of PUBG Mobile and BGMI continue to grow, strengthening the very foundation for sustainable growth for the future. Next, I'll move on to our current state of exploring the new franchise IP.

We're continuing to expand our new product lineup. And as of November 2025, we've secured 11 new projects. And all of them as our proprietary IPs and the newly recruited production leadership will take on the challenge to diversify the genres. Going forward, we'll continue to broaden our scope of genre exploration by recruiting specialized high-capability teams and secure new franchise IPs in line with our 5-year plan. Moving on to our Palworld Mobile KRAFTON's key new title. Palworld Mobile aims to pioneer the mobile open-world survival crafting genre by recreating the originals core gameplay for mobile. The core fun element would be the Pal collection and breathing, open-world survival for survival and building. We'll showcase the first public reveal at the G-STAR Demo booth on November 13 for the very first time and conduct alpha test in December in selected regions to gather feedback on core gameplay, including combat and survival systems.

KRAFTON is making company-wide efforts to systematize its AI capabilities and translate them into tangible service value. The AI technology is rapidly advancing in the global market. And under such transformation, we would like to embrace AI first as a core strategy and proactively embrace them. We will redesign the organizational structure and ways of working, boosting company-wide productivity and development efficiency, thereby accelerating the speed of growth. We will start by building AI infrastructure so that all members can use AI routinely, enabling more attempts and faster execution, spreading the ground for creative experimentation.

In R&D, we are participating in the government-led SK Telecom Consortium selected for the Elite team for the National Foundation Model project. Together with the SKT Consortium, we are developing the 500 billion parameter foundation model and establishing an end-to-end in-house AI system that spans large-scale data training to service integration to enhance CPC sophistication and AI leadership in games. Held on October 30, 2025, at the NVIDIA GeForce Gamer Festival, we unveiled PUBG AI development status and service plan. In Q1 2026, through the PUBG Arcade mode, we plan to launch it by offering PUBG players a new AI-driven strategic and interactive experience.

Next, I'll move on to key operating expenses and profit items for the third quarter. For personnel expenses rose to KRW 155.5 billion Y-o-Y and Q-o-Q due to workforce expansion and Neptune consolidation. For application fees and cost of sales increased to KRW 128.6 billion, reflecting growth in PUBG PC and console and BGMI revenue, which we directly service. For commission, which rose to KRW 141.6 billion due to Outsourced PUBG 2.0 development and on World ligation and hosting of the PNC eSports event.

As for marketing expenses, driven by gamescom and live service marketing and Neptune impact, the figure stood at KRW 43.3 billion. Due to lower stock price, stock-based compensation declined to KRW 5.4 billion. Despite higher costs, the third quarter operating profit rose sharply to KRW 348.6 billion, up 8% year-over-year and 42% Q-o-Q, driven by strong revenue growth. Adjusted EBITDA of Q3, reflecting stock-based compensation reached KRW 389.8 billion, up 7% year-over-year and 32% Q-o-Q.

Moving on for nonoperating items. FX gains from a strong dollar in the third quarter delivered KRW 138.1 billion, driving net income of KRW 369.4 billion, up 204% Y-o-Y and 2,278% Q-o-Q. This concludes my presentation. Thank you.

[Operator Instructions] We'll take the first question from Eric Cha of Goldman Sachs.

I have two questions. The first is that for both PUBG PC and PUBG Mobile, a lot of competitor games are launching into the market. And do you see such impact from these competitor titles when it comes to PUBG-related metrics? And also, which metrics do you refer to, to make that decision and gauge the impact? I also want to ask what mid- to long-term response plans does KRAFTON have when it comes to responding to these competitor titles? My second question is regarding the five-year investment plan that was shared earlier this year. And in today's presentation, KRAFTON has introduced its new AI-first strategy. And I'm curious, would this AI-first approach impact the investment plans that were set up in the earlier this year?

Responding to the first question regarding competitor titles, I will answer separately for PUBG PC and then PUBG Mobile. First, beginning with PUBG PC, I would assume that this question is taking Battlefield 6 in mind when asking the question. And up until Q3 of this year, our traffic has been doing very, very well and the launch of Battlefield 6 did slightly bring an impact to those figures. One of the key metrics, of course, is traffic and the Steam PCU metrics is also publicly available, so I would imagine our investors and analysts would be looking at those figures as well. And when Battlefield 6 was launched, of course, there was a lot of hype around its launch, and it's also a very well-made game as well. But if you take a look at the data, including Steam PCU, you can see that the figures are dropping pretty rapidly. So, the impact was there in the beginning of the launch of Battlefield 6 towards PUBG's traffic. However, we believe that the PUBG traffic remains very solid.

The PUBG PC has been in service for around 8 years now. And this is not the first time a competitor title was launched into the market. There were other competitions that have been launched throughout the years. And the reason behind PUBG PC being an evergreen IP is because despite the competition in the market, we take it in as a new catalyst to focus on driving further user traffic and also providing good content to users. And this creates a virtuous cycle that led to such solid figures that we are seeing now.

Actually, I was quite curious how Battlefield 6 would be. So, I bought the game when it was launched and I played for a while. And I also played the Battle Royal mode that was available within the game. And this is based on my personal experience playing Battlefield. It's that it's quite fun when you begin playing it. But then after a while, you begin to realize why users are quick to drop off playing from the game. It lacks the newness and freshness that every session of the PUBG game provides to users. And also, it doesn't really have the raw edge that PUBG is known for. So, there is a structural difference when it comes to the 2 games. So, what I would like to say is that if we continue on the live service that we are pursuing now, we are confident that PUBG will be able to remain an evergreen IP and continue well.

And in case of PUBG Mobile, yes, the launch of Delta Force Mobile and [indiscernible] Mobile, our competitor titles did impact the traffic. But if you look at PUBG PC, it has transitioned to a free-to-play title in 2021, but PUBG Mobile has always been a free-to-play title in 2021. And while it is true that these competitor title launches like Delta Force Mobile did lead to a downward trend when it comes to user traffic. But what is important is that -- and this was included in the presentation before, the number of paying users and also the monetization policy working very well, and that is proven in the metrics of our sales year-over-year and quarter after quarter.

In conclusion, when it comes to operating a live service well, of course, it will be great if the traffic continues to grow and the ARPU continues to grow, this would naturally lead to increasing sales. But what's more important is that we understand the environment surrounding the market. So, when it comes to a well-operated live service, we need to understand when we need to take a defensive stance or when we need to take a more aggressive stance in pursuing growth. And based on a traffic that is grown and developed through these strategies, we need to monetize well. And we need to accumulate the right type of know-how depending on how the environment and the market changes. And we believe this is proven through the way PUBG IP franchise has persisted.

Moving on to your second question, the impact of KRAFTON's AI-first approach to the 5-year investment plan that was shared earlier this year. I would say the biggest change would be in terms of the change in headcount and expansion of the headcount at KRAFTON other than new development teams focusing on developing new proprietary IPs under the first-party development model and also the deep learning or AI-related teams, we have imposed a hiring halt company-wide.

What I would like to emphasize here is that this AI-first approach is not intended to reduce cost. Rather, we want to improve productivity through this new type of technology as it has the potential to do so. And for individuals to make use of this technology very well, we want each individual to be embedded with AI capabilities. And in order to drive this quicker, the company-wide hiring has come to a halt. Would this persist in the longer-term or not, it remains to be seen. However, the figures that were shared early on this year in regards to the 5-year investment plan will not go through a significant change. However, we still have to wait and see the exact results. And once this has been put together, it will be announced publicly.

The next question is from [indiscernible] from DS Investments.

I have 2 questions regarding the Indian market, and my first question is related to purchasing power of users. I can understand that the PU has grown quite significantly. But when it comes to the ARPU, I still don't really see how the purchasing power of users has grown as significantly. So, my question is, how much growth potential do you see when it comes to the ARPU relative to the global market? And also, I believe that there are some collaborations lined up in Q4. Do you expect the sales to reach a peak in the Indian market in line with these collaborations coming out?

And my second question is in relation to the cricket games that were not the real Cricket 24. I would like to ask if these are first-party produced titles, and also what the difference would be between these proprietary cricket games, if they are proprietary versus the real Cricket 24. And also, I'd like to inquire about the potential launch timeline for these games.

First, if you look at our portfolio companies outside BGMI and its users and also other market-related reports, you can see that in the longer term, the ARPU of Indian users are on the rise. And this is proven through the 34% jump in key rate. This, we believe, is a reflection of the economic growth that is happening in India right now and also shows the loyalty of players towards the BGMI game. And it also, we believe, reflects how effective our localized content that we launched tailor-made for Indian users are. Of course, this growth may be difficult to catch from a quarter-to-quarter basis. However, if you look at the data from an annual perspective, you can see that the ARPU is also on the rise.

Next, the question was the Indian users ARPU in comparison to PUBG Mobile Global. And we could answer that question by saying that it is lower than that of other PUBG Mobile global users. I cannot disclose the exact number, but I would say it is less than half. In regards to the collaboration efforts for Q4, Q4 in India is typically an off-peak period seasonally. There are a lot of festivals happening and also it is the back-to-school season, and we believe that this will also impact figures for our titles in the market as well.

And moving on to the next question. I believe the question was regarding if the other cricket titles are being developed by KRAFTON as proprietary titles and also what the difference between those titles and the Real Cricket 24 will be, and also when the potential launch timing would be. The Real Cricket 24 is also launching a new title as a series -- continuation of the series, Real Cricket. And also, there are multiple development teams that are creating multiple cricket titles that will be geared towards a more mainstream user base. Other than that, the other details are undecided at this point in time.

Due to time limitations, we will take the last question, and we will take the last question from Stanley Yang of JPMorgan.

I have 2 questions. The first is regarding the drop in ranking of Peacekeeper Elite within the Chinese market. It seems to have leveled down due to the impact of competitors being launched into the market. Can we expect this to be the new normal for Peacekeeper Elite, because looking at other external reports, I can see that the sales figures have dropped as well. Is this the situation that we can continue to expect in regards to Peacekeeper Elite? That was the first question.

And my second question is in regards to the upcoming new titles to be released next year, which are Subnautica 2 and Palworld Mobile. I believe these 2 titles are positioned to be launched at the end of next year. And I think it's interesting that 2 major titles are positioned to be launched around the same time. So, I would like to inquire about the exact launch timing of these 2 upcoming titles. And another question in regards to inorganic investments, KRAFTON has been conducting much. And the performance can be also be gauged through how many new titles are launched into the market. So, I guess I would like to ask how many new upcoming titles are scheduled to be launched in 2027.

The first question is the competitor titles' impact in regards to Peacekeeper Elite. I would think that this question would be more appropriate to be answered by our partner rather than KRAFTON, but I would like to offer my understanding. And my understanding is that, depending on the game, the timing when major updates are rolled out is different. Case in point will be Delta Force Mobile. And for Delta Force Mobile, in the middle of September, new maps and new modes were rolled out. So big updates were rolled out around that time.

So, is this current situation the new normal for Peacekeeper Elite? I will not say so. Peacekeeper Elite is a game and title that has been operating securely for a long time, and we believe that it will rebound back to its previous position soon.

And the next question regarding the potential launch timing for Subnautica 2 and Palworld Mobile. What I can share at this point in time is that the launch timing will be sometime around next year. It is unsure whether it will be the early half of next year or the latter half of next year. And right now, what's more important is to polish the game so it can be attractive and playable for players, rather than speculating on when the launch timing would be. Our current focus is to make sure that the game is launch-ready and polished to completion rate. And also, there is a difference in the game genres, too. There is a difference in the platforms that the games are launched. So, while it is understandable that the launch timing may trigger some curiosity about whether the 2 titles will be launched around the same time or not. However, we do not think that is a critical consideration currently. Right now, our main focus is to make sure that the games are ready for launch and polished to the user's satisfaction.

And for the last question, I believe it is asked because the person who has asked the question is quite an industry expert and has pinpointed 2027 as the timeline when our investment outcome may come to fruition. In terms of the number of titles that will be launched into the market, I cannot offer a clear answer right now. Even though KAFTON may have publishing rights to these titles, it really depends on after when the game is completed and is launched ready, or we will be in a position. And also, we will make the decision to publish the game. And that would become more clear around the year 2027. But one thing I can share is that the games that will be within the KRAFTON production pipeline relative to 2025 and 2026, 2027, we'll see an explosive growth and also expansion. And that will also be around the time when the plans laid out for the 5-year investment will be shown in more earnest, both when it comes to the new foundations and structures that we have explained in the early part of this year.

So, what I can say and answer for this question is when it comes to the number of titles and plans we have, we do have huge expectations for the year 2027, and we believe that 2027 is also going to serve as a huge pivotal moment for KRAFTON.

Since I've been talking about 2027, you might think 2026 is going to be a very quiet year for KRAFTON. That is not true. It is 2027, where a lot of the titles through the secured IPs, the acquired IPs of KRAFTON, will be released, and that's why my answers were focused more on 2027. But moving on to talking about 2026. Next year, we have huge IPs to be launched into the market, including Subnautica and Palworld Mobile. And also, in regard to PUBG 2.0, the key element would be on top of the core Battle Royale experience, well-made game modes will also be made available to users. And the timing at which these modes will be open to players is going to be 2026. So, not just 2027, but we also have high expectations for next year, 2026. And we would like our investors to continue to keep an eye on KRAFTON's journey going into next year.

This concludes KRAFTON's 2025 Third Quarter Earnings Presentation. We sincerely thank all the investors and analysts for your continued interest and support for KRAFTON.

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