Thank you for standing by. My name is John, and I will be your conference operator for today. At this time, I would like to welcome everyone to the WEBTOON Entertainment Second Quarter 2024 Earnings Call. [Operator Instructions] I would now like to turn the call over to Lauren Hopkinson, Director of Investor Relations. Ms. Hopkinson, please go ahead.

Good afternoon, and thank you for joining us. As a reminder, our remarks today will include forward-looking statements, including those regarding our future plans, objectives, expected performance and, in particular, our guidance for the next quarter. Actual results may vary materially from today's statements. Information concerning risks, uncertainties and other factors that could cause these results to differ is included in our SEC filings, including those stated in the Risk Factors section of our filings within the SEC. These forward-looking statements represent our outlook only as of the date of this call. We undertake no obligation to revise or update any forward-looking statements. Additionally, the matters we will discuss today will include both GAAP and non-GAAP financial measures. Reconciliations of any non-GAAP financial measures to the most directly comparable GAAP measures are set forth in our earnings press release. Non-GAAP financial measures should be considered in addition to, not as a substitute for GAAP measures. Joining me on the call today are Junkoo Kim, Founder and CEO; David Lee, CFO and COO; and Yongsoo Kim, Chief Strategy Officer. With that, I will now turn the call over to our Founder and CEO, Junkoo Kim.

Thank you, everyone, for joining us today. I have outlined my first thought on the core and our strategic path for the shareholder letter, which you can access on our Investor Relations website. While I urge you to read it in its entirety, let me make a few brief comments before turning the call over to David to cover our performance and outlook in more detail. In June, we fulfilled our long-time ambition to bring WEBTOON to the public markets after nearly 2 decades of innovation, building and expanding our global flywheel, while nurturing and growing our creator ecosystem and their loyal global fandoms. We are thrilled to continue to build this business alongside our new investor community. Our strategy is working, and I'm pleased that we continue to deliver robust performance in the second quarter, demonstrating the strength of our value proposition and the power of our global flywheel. I want to thank our creators who have shared their stories on WEBTOON. Because of you, we are a leading global entertainment company and home to some of the largest storytelling platforms in the world. And a special thanks too to our employees for their hard work and dedication to our company and our mission as we embark on this journey as a public company. Before I conclude my remarks, I want to share some detail around two important executive appointments. Yongsoo Kim, currently Chief Strategic Officer, will expand his role to include Head of Global WEBTOON. In this new role, she will oversee the global WEBTOON platform, including Southeast Asia, Europe and the U.S., and she will report directly to me. This change aligns with our strategic focus to continue to grow our business outside of Korea and Japan. For the [ finance team ], formerly the [ Head of Leader ] for WEBTOON, will take on a new role as Chief Risk Management Officer, responsible for managing the company's risk management operations reporting to David Lee, our COO and CFO. Congratulations to both Yongsoo and [ Kyuna ] on these new and expanded roles. With that, I will now turn the call over to David. David, please go ahead.

Thank you, JK, and thank you, everyone, for joining us. We are thrilled to share results from our first quarter as a public company following our successful IPO earlier this summer. As you'll hear me talk throughout the call, we are just beginning to penetrate a massive and growing addressable market, and we look forward to providing updates to our progress as we continue to capture this incredible opportunity. Before I dive into the numbers, allow me to provide some color on our business. WEBTOON, at its core, is a storytelling platform. Our business and our founder, JK, created an entirely new category of entertainment that's fundamentally changed the way audiences consume digital content. From pioneering webcomic in vertical scroll format to nurturing a vast and diverse creator community, we're successfully powering new global hits across platforms and medias. This success is directly borne out of the radical transformation that we brought to the content creation industry, powering democratized creation and publication. And our growth doesn't stop there. One of the key competitive strengths lies in the size, breadth and depth of our content library. Because our content is bite-sized and serialized, it's easily digestible for readers and simultaneously gives creators power to innovate, experiment and incorporate real-time feedback. And with 124,000 new episodes published daily, there's no shortage of fresh content for users. This vast content library is powered by a growing base of loyal and passionate creators, both amateurs and professionals, who create a continuous stream of evergreen content. With a global user base of approximately 170 million monthly active users in over 150 countries, we are the #1 player in webcomics based on smartphone monthly active users in all our core markets. Across geographies, our model is underpinned by our global flywheel, driven by our users, the…

[Operator Instructions] Your first question comes from the line of Eric Sheridan from Goldman Sachs.

Maybe a 2-parter, if I can, on content creation. Can you put a finer point on some of your comments in the front part of the call about some of your key initiatives to drive content creators onto the platform and continue to build scale around content? And the second part would be, how do you think on a market-by-market basis, Korea, Japan and Rest of World, of the role that content plays in terms of the broader competitive landscape that you see for users?

Thanks, Eric. It's David Lee responding to your first and second question, both good ones. I wanted to highlight the strong progress in Q2 in nearly all our markets with regard to improving the flow of additional original content in many cases and importantly oftentimes, local content that, frankly, others cannot replicate. So specifically within Korea -- and this is critical because remember, Korea is an everyday part -- we're an everyday part of people's lives with 50% penetration. Having a 30% increase in original titles, as we mentioned in the commentary, is significant. And it will be key for the continued performance for that market. But even as I look to really exciting new growth markets, at the under end of the spectrum, in Japan, we highlighted 70 in the quarter important new additions from local creators. Remember, our model is quite differentiated versus anybody. We don't have, as JK has said to you in the past, a commodity store model. We create an ecosystem or, for example, in Japan, a local creator like the ones who created Savior of Divine Blood have a unique ability only through us to publish in multiple languages and in multiple genres beyond what they may have been used to previously. So that flow, for example, in Japan of those 70 local pieces of developed content -- or take France, right, where this is the first time I think we've talked about France. But having a 21% increase in professional creators in Q2, we believe these are important developments not just for the potential short-term revenue they may represent, but for the mid- to long-term proven fact that we are on a global expansion. And so for us, [ Yuki and I ] have done a strategic core for JK and the team here, which is to ensure that we create the ecosystem of oftentimes hard-to-replicate content because they come to us uniquely as the market leader. With regard to your second question, which I think is much more about how do we think about future growth than the flywheel. This quarter was very much in line with the exception of me not being able to predict the movement of a foreign currency like the yen or the Korean won. This is why we always offer constant currency because we believe it's the most fair metric for a global business to really determine are you growing. And growing 11.1% as we mentioned, on a constant currency basis, overall, but importantly, noting that we're growing significantly in new markets like Japan and in the Rest of the World make us pretty bullish. So just as we talked about an example of content, when we -- when you refer back to our previous conversations on the flywheel, we feel we're on track. And we can go in further depth in our one-on-one, as I want to make sure that I answer more specific questions down the road, but also give time to other analysts.

Your next question comes from the line of Matt Cost from Morgan Stanley.

I know you mentioned the growth rates of ads in Japan and North America in the quarter. Is there anything you can share around early learnings as you work to scale your direct ad business and your sales forces in these regions? That would be great.

That's a great question. Thank you, Matt. The first thing I want to highlight is just how early we are globally in our development. We call it almost a white-space opportunity in some of our commentary. So for example, when you think about the size of the global ad market and the geographies that we are nascent, even before we have to deal with macroeconomic trends the way many others do, we're so early that what you saw us talk about, these double digits, high double digits we said, in advertising growth in the Rest of World. And then specifically, we talked about in Japan, triple-digit growth in the quarter. And we also called out this pre-roll video is having double-digit growth. The reason why we're emphasizing that is while we have a lot of, in this case, double and triple-digit growth in some of these larger ad markets, they're coming in the form of strategic products like pre-roll video, which, as you know, because it's video has a higher CPM. But as well, it deepens the habituation for the Paid Content model that you've heard us talk about, how people can reliably then engage more and more with these 120,000 new stories that emerge nearly every day. So I would say it's very early days. We did not provide commentary on, for example, needing to quickly build out an at-scale direct ad sales team yet in Rest of World or North America, nor did we comment in Japan about the explicit growth we described in Advertising was driven by a particular tactic. It reflects the fact that it's quite early in both cases. I also want to highlight the reality of diversification away from relying upon NAVER in our largest developed advertising market of Korea. We made great progress, right, with the majority of our advertising partners no longer being reliant on our previous parent. But we will continue to have to make more progress, and so I do want to make sure I'm clear. We are extremely excited about the larger, bigger opportunities in the market where we're nascent, but we're pretty sober, clear-eyed and transparent about the journey we're on in Korea. And as I mentioned in the previous question broadly, we feel we're on track holistically in the growth we're seeing in advertising.

Next question comes from the line of Doug Anmuth from JPMorgan.

David, you talked about some increased investments in 3Q and I think particularly around adding users. So hoping you could just elaborate a little bit there, where that spend is going, and how we should think about timing on the returns there, so that's one. And then two, if you could talk a little bit more about the product improvements. I think you talked about some delays in Korea. What's causing those delays? Are those issues addressed? And how should we think about the improvements in that market?

Well, first, we have done a fairly strong job at managing our bottom line through the first half of this year. As we disclosed on our performance in Q2, but as you may recall from our previous conversations through the IPO process, where we are today after the first half on, for example, adjusted EBITDA reflects, I think, a pretty disciplined approach. And it gives me, as the new CFO, confidence in being able to begin to deploy some of what we've earned frankly, which is the strong performance of the bottom line into growing in the mid- to long term. We do not think about Advertising spend the way some other companies need to. We do not spend in the short term passively on top of funnel to drive short-term top-of-funnel growth. This is not a business that needs double-digit MAU growth to deliver double-digit growth in revenue, which we've been clear about on a constant currency basis. But when you see the growth opportunity with consumers and creators in Japan, when you -- if you could see our opportunities in Rest of World by country, we've highlighted France, but Canada is a great example. There are many examples in our broader expansion outside of our origin country not really warrant prudent spend. We believe the spend will return, but we are not planning for or need it to return in the short term to drive growth. I think of this as an 18- to 24-month spend. And I think it actually pays greater dividends because remember, the content we create that gets exported across multiple geographies have an improved profitability once we make this investment to allow creators to have a greater audience. So that's how we think about our investment. One, we have to earn it. We…

Your next question comes from the line of Benjamin Black from Deutsche Bank.

Can you talk about the adoption of some of your AI content creation tools? How receptive are creators to them? And is that improving content velocity? And then secondly, can you talk about the [ base ], how is that trending? Is there any way to sort of delineate Wattpad users from WEBTOON users?

Thank you, Benjamin. I appreciate the question, but the second question broke up a little bit. But let me start by trying to address your first. What's very unique about this company at WEBTOON is that it is fundamentally rooted in data, and we have long had our own AI technologists hard at work on behalf of our business model. But to be clear, our approach is to enhance the productivity of our hard-working creators and to improve the user experience. This is one of the few examples where AI may actually improve human creativity, enable greater earnings for our human creators, and allow consumers to discover content faster. Now this, we've talked about in this quarter as a function of one example, this AI-driven personalization engine, but it shows up already every day. These are tools that we have in our data-driven toolkit to enable creators to be more productive. If you go on to CANVAS, for example, our amateur-facing portfolio offering, you'll find that over many years, we perfected data and tools in order to give our creators the best chance to be productive or even in how we manage and fight piracy, which is a reality for any content or UGC-oriented company. We're very proud of how the data and the tools we have are already at work. But in particular, we're noting this one that rolled out in mid-Q2 because we think it could have a significant impact in the paid content and the creator journey. Both the creator as well as the user can benefit from this example of our data and our AI. Your second question was a little bit broken up, but I think it was with regard to the comments we made about our North America business and specifically Wattpad and the U.S. WEBTOON business. In our commentary, I'll just underline it, if this is your inquiry, that we are relatively early days in, for example, combining the sales force to the benefit of demonstrating, as we mentioned in Rest of World, pretty significant growth in advertising. But it's quite early. We are very nascent in leveraging the combined force of the Wattpad and the WEBTOON business, but we're underway. And I would expect that you'll need to wait quarters to come before we're ready to provide you more substantive details on how those two business -- the two businesses together will power results. However, we've long been clear that webnovels can become incredibly commercial webcomics that can benefit each other as we go forward in the paid content engine. This has been demonstrated in Korea for some time. And it's the reason why we're focused on rolling out that proven tactic in North America with Wattpad, our webnovel offering, and our U.S. WEBTOON business.

[Operator Instructions] Your next question comes from the line of Andrew Marok from Raymond James.

Maybe first, can we turn back to the ads business? So definitely understand the stress on the early stage of the ads business. But in that context, how are you feeling the winds of the ad industry blowing on to WEBTOON? Is it the case where you're likely less affected, given your significant secular opportunity and format expansion? Or is there potentially exposure to advertisers contracting their spend onto fewer platforms during times of macro turbulence?

It's a great question. And we think of the growth ahead of us, this double-digit growth. Remember, for the first half of this fiscal year, we grew 13.3% on a constant currency basis in our ads. And the reason why I'm giving you 1H instead of just a quarter view is when I think about even our MAU and audience performance, looking at one quarter can be a little bit misleading in a content-driven business like ours. And just to flag what we highlighted, the first half showed double-digit Advertising growth in constant currency and was tied to the fact that our overall MAU for the first half was stable and positive. And the thing is this double-digit growth we've demonstrated, we believe, persists independent of the macro state of the broader ad industry because we're so nascent and early in the largest markets. As you know, North America, markets that represent areas of growth for us, like we've mentioned France as a gateway to Europe, we're barely starting. And so when we're at scale, when we have a multibillion dollar Advertising business globally, the questions around a quarter or 2 volatility in the broader industry become more important. The second point I'd make is we talk about pre-roll video product a lot. And it's because it's a quite differentiated product that enhances our Paid Content business, but it's also a wonderful opportunity for deeper engagement with other brands who are advertisers through direct sales. It's not a commodity display ad. It's a higher-CPM product that pays off the unique content we have. That gives us a different position once we actually get to scale in the bigger global ad industry. That will be part of our conversation with regards to how the broader volatility may play out in programmatic that may be more commoditized. But today, we don't have to worry about that. We have to worry about execution because we have so much growth ahead and we're still nascent in the ad business.

Great. Really appreciate the color. And then maybe one more, if I could. We're seeing reports that access to Wattpad is being restricted in certain countries over content concerns. I guess the question is how often do you encounter these types of issues as you seek to expand your geo footprint? And what kind of dialogues do you have to work past them? And is there any sense of the scale of the markets that might be affected, especially from the creator side?

Well, thanks for your question. Yes, we are aware, as you are, that Wattpad is not currently available in one particular country. And we, along with a number of other global technology companies, are working through that issue. It's important to note that we are not choosing to withdraw from any consumer opportunity market because of fear of a transitory issue perhaps with a regulatory body. But I also now need to note that our exposure versus great other companies that are suffering through the same short-term speed bump in the country I'm referring to, we have minimal, de minimis exposure to some of the countries you're mentioning. That doesn't mean that we don't take it quite seriously. We are learning from participating and taking very seriously these roadblocks as you've probably seen from some other companies that are reporting this week. But the impact to our business is so small that we have the benefit of learning from our other more developed global tech partners. And eventually, we will be in every country, I believe. But for now, we don't see a material impact to our Paid Content or Advertising business.

Ladies and gentlemen, this concludes our Q&A session as well as WEBTOON's Second Quarter 2024 Earnings Conference Call. Thank you all for attending today's session. You may now disconnect.