Thank you for joining us. My name is John, and I'll be your conference operator today. I'm pleased to welcome everyone to the WEBTOON Entertainment Second Quarter 2025 Earnings Conference Call. I would now like to hand over the call to Soohwan Kim, Vice President of Investor Relations. Please proceed.

Good afternoon, and thank you for joining us. Our remarks today will include forward-looking statements regarding our future plans, objectives and expected performance, particularly our guidance for the next quarter. Actual results may vary materially from today's statements. Information concerning risks, uncertainties and other factors could cause these results to differ is included in our SEC filings, including those stated in the Risk Factors section of our annual report on Form 10-K. 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 matter we'll 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 and not as a substitute for GAAP measures. Joining me today on the call 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 the call today. I'll make a few brief remarks on the second quarter before turning the call over to David to discuss our results and outlook. For my first thought on the quarter, please see the shareholder letter posted on our Investor Relations website. We are pleased to report strong second quarter results with both revenue and adjusted EBITDA coming in above the top end of our guidance range. Let me share some highlights from the second quarter. For our English-language WebComic app, we continue to implement significant product uptake in May and June to enhance the user experience, making it easier for our readers to find new titles and drive engagement. We are pleased to see increased user activity compared to last quarter as a result of these changes, and we continue to focus on ways to improve our platform experience for users. We are expanding our library and audience even further through reformatting existing franchises and titles and saw significant readership with our initiative in this area. In the quarter, we launched two popular Japanese manga titles, Fullmetal Alchemist and From Old Country Bumpkin to Master Swordsman, which have attracted millions of views on our platform. Building on our partnership with publishing, which launched in April, we expanded our content offering in June by partnering with Dark Horse Comics. This strategic expansion brings beloved franchises such as The Legend of Korra and Avatar: The Last Airbender to our English language platform. We are also incredibly excited to announce today that WEBTOON Entertainment and Disney are teaming up to bring iconic comics from Disney, Marvel, 20th Century Studios and Star Wars to our mobile vertical scroll format. WEBTOON Entertainment and Disney will bring around 100 blockbuster comics to WEBTOON, starting with an all-new dedicated section on our global English language app. Fans will first be able to enjoy Amazing Spider-Man, Avengers, Star Wars and Disney's As Old as Time (A Twisted Tale). In addition to reformatted comics, brand-new original WEBTOON series are also in development for WEBTOON's global platform. These original web comic series will introduce new adventures for beloved characters from superhero epic to galaxy spanning adventure, giving fans more of what they love. We are thrilled to kick off this collaboration with iconic series from their comic book catalog, and this is just the start. Together, we are bringing this legendary storytelling to a new generation of mobile native comic fans while giving existing fans a new way to experience series and characters they love. Please stay tuned. I'm pleased with the progress we have made thus far this year and look forward to making continued strategic investment and progress during the second half of the year. With that, I will now turn the call over to David.

Thank you, JK, and thank you, everyone, for joining us today. I'll be discussing the details of second quarter 2025 results compared to the comparable quarter in the prior year, unless otherwise noted. During the second quarter, we grew revenue 5.5% on a constant currency basis, similar to last quarter with growth across all revenue streams. Reported revenue was up 8.5%. Net loss was $3.9 million compared to a net loss of $76.6 million in the year prior, driven by lower G&A expenses associated with the IPO, which took place in the prior year quarter. Adjusted EBITDA was $9.7 million compared to $20.4 million in the same quarter of 2024. As a result, our adjusted earnings per share for the quarter was $0.07 compared to adjusted earnings per share of $0.18 in the prior year. Turning to operational health. We delivered another successful quarter of web comic app user growth, attracting a highly engaged audience with better monetization opportunities. While app MAU declined 3.4% overall, we saw a 4.8% increase in WebComic app MAU excluding the impact of web novel users. This growth was led by increases across important English-speaking markets as well as growth in most of our non-English markets. Our English platform WebComic app MAU was up 19% for the second consecutive quarter, demonstrating continued momentum in this important region. We believe recently introduced reformat title launches and product changes will continue to drive increased user activity over time. With regard to global MAU, it was down 7.6% in the quarter, primarily driven by Korea and Rest of World, including Wattpad’s impact in particular, as it is the largest contributor to Rest of World MAU. Wattpad continues to be impacted by a government ban in one country, which we expect will lapse in Q3. Additionally, another country that represents a smaller number of users enacted a new ban on Wattpad towards the end of Q2. Last quarter, we also discussed the impact of our MAU from a Wattpad security upgrade, which affected search engine indexing. It's taking longer than anticipated for the search engine to recrawl the majority of our pages, and we expect to see lingering effects on MAU in the near term. While Wattpad is not currently a significant revenue driver, it plays a critical role in our broader ecosystem as a powerful source of IP. Wattpad continues to be a leading global platform for web novels, and we are focused on driving growth over time. Now I'd like to provide an update on our different revenue streams at a consolidated level. Starting with paid content. In the quarter, we posted 2.0% revenue growth on a constant currency basis year-over-year. This was driven by continued strength in Japan, offset by declines in Korea and Rest of World. ARPU or ARPPU growth on a constant currency basis was 7.4% in the quarter with increases in all three regions. We believe there's further opportunity for monetization as there's still a great deal of free content on our platform before users hit the paywall, and our ARPU is relatively low for the amount of entertainment we deliver. We believe new platform upgrades and new content will continue to help bolster this. Advertising posted 10.2% revenue growth in the second quarter on a constant currency basis year-over-year, driven by constant currency revenue growth in Korea and Japan, offset by a decline in Rest of World. In Korea, this growth was the result of increased ad sales from both Naver as well as other partners. Japan's growth was driven by continued growth in pre-roll ads. In the Rest of World, the decline was primarily driven by Wattpad impacts. Finally, our IP adaptations business saw revenue increase 42.6% year-on-year on a constant currency basis in Q2, driven by revenue growth on a constant currency basis in Korea and Rest of World, offset by a decline on a constant currency basis in Japan. Korea benefited from revenue recognition of the remarried Empress. In Japan, we are relatively in early days with our IP adaptation business with a small revenue base that can fluctuate depending on milestones, but we're pleased with our pipeline of upwards of 20 anime projects in Japan. As we've discussed in the past, revenue recognition for IP adaptations is dependent on achieving certain milestones, which can vary from quarter to quarter. Now let's take a look at our results in the context of our core geographies. In Korea, during the second quarter, our revenue grew 9.2% year-over-year on a constant currency basis, driven by double-digit constant currency growth in advertising and IP adaptations, offset by a single-digit constant currency decline in paid content. During the second quarter, Korea MAU was $23 million, decreasing 11.1% year-over-year. Korea MPU was $3.4 million, declining 8.5%, but we saw strong growth of 8.3% for Korea ARPU on a constant currency basis. Paying ratio was 14.9%, up 42 basis points year-over-year. Moving to Japan, revenue growth on a constant currency basis was 5.7% year-over-year. This was driven by single-digit constant currency revenue growth in paid content, double-digit constant currency revenue growth in advertising, and offset by a double-digit constant currency revenue decline in IP adaptations. As mentioned in our shareholder letter, LINE manga was the #1 overall app for revenue, including mobile games for the second consecutive quarter and for the first half of 2025 according to Sensor Tower. Japan's MAU increased 2.8% year-over-year to 22.6 million. MPU grew 1.3% year-over-year to 2.3 million, and the paying ratio was 10%, down 15 basis points year-over-year. Our paid users remained strong with our Japan ARPU of $23.70, growing 3.8% year-over-year on a constant currency basis. Rest of World saw a revenue decline of 4.4% year-over-year on a constant currency basis, driven by declines in paid content and advertising, offset by double-digit growth in IP adaptations. While Rest of World MAU and MPU declined 8.7% and 5.9% year-over-year, respectively, the paying ratio of 1.5% was up 5 basis points year-over-year. Rest of World ARPU of $6.60 grew 2.2% year-over-year on a reported and constant currency basis. We're pleased with the user response and increased engagement we have seen so far from changes we've made in our English language WebComic app. Turning now to profitability. Gross profit for the quarter increased 5.1% to $87.3 million. Gross profit benefited from higher cross-border paid content growth in Japan and better advertising in Japan. This resulted in gross margin of 25.1% compared to 25.9% in the prior year. Gross margin was up sequentially from 22% in Q1. The year-over-year comparison is less operationally relevant because as we disclosed previously, starting in Q4 of 2024, we began to improve our attribution from marketing to cost of revenue. We continue to see gross profit margin accretion from mix as we generate more revenue from higher-margin businesses. Adjusted EBITDA for the quarter was $9.7 million compared to $20.4 million in the prior year. Total G&A expenses for the quarter were $65 million compared to $138.7 million in the prior year. The prior year quarter included several one-time expenses primarily related to our IPO. Interest income for the quarter was $4.9 million compared to $2 million in the prior year, and other loss for the quarter was $1.4 million compared to other income of $2.3 million in the prior year period. Income tax benefit was $0.8 million in the quarter compared to income tax expense of $1.9 million in the prior year. Depreciation and amortization for the quarter was $8.4 million compared to $8.9 million in the prior year. Net loss for the second quarter was $3.9 million compared to a net loss of $76.6 million in the prior year quarter due to lower G&A expenses associated with the IPO. As a result, GAAP loss per share was $0.03 compared to a loss per share of $0.70 in the prior year period. Adjusted earnings per share were $0.07 in the quarter compared to adjusted earnings per share of $0.18 in the year prior. Moving on to our business outlook for the third quarter. For third quarter 2025, we expect to deliver revenue growth in the range of 9.4% to 12.2% on a constant currency basis. This represents anticipated revenue in the range of $380 million to $390 million. This guidance is based on current FX rates. As we complete our infrastructure updates, we expect to see improvements in product starting to realize towards the end of the year. We anticipate third quarter adjusted EBITDA in the range of $2 million to $7 million, representing an adjusted EBITDA margin in the range of 0.5% to 1.8%. We expect to maintain our investment in marketing to drive future growth. The first half of this year has been an exciting one for WEBTOON Entertainment, and we're pleased with the progress we've made. With product improvement and greater diversity of content, we remain optimistic for the future. With that, I'd like to turn it back to our operator to begin the Q&A session.

Our first question comes from Eric Sheridan with Goldman Sachs.

Congrats on the Disney announcement parallel to the earnings release. I want to go back to Disney as well as the announcement intra-quarter around Dark Horse Comics and get a better sense from you as to how to think about bringing very established IP like this to the platform, what you think that might do to user growth, what it might do to monetization levels looking out over the next couple of years? And is there any way to have a better understanding of some of the unit economics between the content provider and your platform as some of these agreements scale?

This is David Lee to start us off. First, I wanted to highlight the difference in this major milestone in our collaboration with Disney versus our proven track record, as you know, in partnering with great franchises like IDW. We have a great history. We know how to bring Sonic the Hedgehog, for example, with IDW to our North America users, in particular, to mutually benefit our partner. But this relationship, this collaboration with Disney is remarkable, one, for the amount of IP that Disney holds. They are a great company, and we're privileged to be able to have this collaboration. I wanted to make sure I highlight that this includes partnership and collaboration with Marvel, 20th Century Studios, Star Wars. There was recently a Variety article that posted where a sense of how this will roll out was revealed per quotes from Disney, Amazing Superman, Avengers, Star Wars, Alien, Disney As Old As Time. So the power of Disney's IP, I think, is a standout for us. However, we also have global category leadership and what we've called in the past, demographic gold, particularly here in the United States, where you're seeing us for three consecutive quarters drive nearly 18% to 19% English WebComic app MAU growth with importantly, a strong Gen Z population that is super relevant for global storytellers like Disney. We have not disclosed any significant deviation in our strong unit economics. And I think that when you think about the opportunity, it gives us the opportunity to accelerate new user growth to let them discover stories that they had not had access to prior. And we hope to deliver equal or more value to our friends at Disney by introducing a brand-new relevant format of vertical scrolling content in the hands of Gen Z consumers on their app. So we're really excited about this particular relationship, which will span several years. Let me caveat as I can imagine your next question is, how much of that is showing up in your Q3 guidance? And I also want to be explicit on that. We are extremely bullish on the strategic value to both parties in the mid to long term, but we are not incorporating any short-term financial benefit as we built this collaboration for the long term, and we expect to see those benefits to both parties in the mid- to long term over time.

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

This is Jeff on for Ben. Just as a follow-up on the Disney partnership, is there any sort of marketing arrangements or any other kind of aspects of the partnership that you could talk about?

Yes. I think that this partnership being a milestone for us, it's also important to note, as we just mentioned, that being able to give Disney the ability to reach out to this next generation of users, the Gen Z generation, which is already spending upwards of 30 to 60 minutes on our English WEBTOON platform is critical. And then for us, attracting new users faster. We already are demonstrating nearly 19% WebComic app MAU growth. And I wanted to clarify, I think I got too excited. It's not Superman, it's Spider-Man that we're very excited to partner with Disney. At this point, we haven't provided more specifics that I can share, but I think it's strategically a great opportunity, a great collaboration for both parties.

And maybe just one quick follow-up. You talked about your new onboarding process with the revamped home tab driving increased personalization. Can you talk about how we should be thinking about user trends going forward? You mentioned the English language WebComic app monthly active users are growing strong again. How should we see that impacting trends?

Yes. First, let me cover the specific introductions because they're quite significant in totality. So as you mentioned, we have a new onboarding process. And this allows for preference input. So it guides the consumer to be able to pick content that is more relevant. We have a new home tab. We have a new search tab. And a very exciting new upgrade is we have new and hot, which is how users can find new and trending titles using a trailer-like style video. All of which we've talked about has been aggressively rolled out to date. But frankly, there's more product updates to come. So we're not done. In terms of your question of how we expect it to roll out going forward, the reason why we're clearly investing to drive this nearly 19% in the last three quarters WebComic English app MAU growth is because we're pairing it with ways for the consumer to discover and habituate content. I point you to ARPU. ARPU has been a highlight for us across all regions, even nascent regions, like what we call Rest of World. That ARPU growth for us for a new potential market where we are less mature. And here, we're talking about an increase in Rest of World of 2.2%, but it's strongly up as a total company. To us, that shows potential to habituate more WebComic app users, particularly those in our English-speaking regions and to pair it with improved product. We haven't provided guidance beyond Q3. So I'm not going to give you specific financial guidance tied to the product rollout. But our testing, as we've described, even before we began this rollout has continued to be quite promising. We look at everything from episodes read. We look at light, heavy medium users. And we're very excited about the promise of what we're doing here in the U.S. And the fact that it's the largest addressable market from a country size standpoint means that we're going to invest behind those opportunities as well.

The next question comes from the line of Mark Mahaney with Evercore ISI.

This is David on for Mark. Can you maybe just talk about your advertising outlook for Q3 and maybe the second half, especially on video? How exposed is ad growth to macro versus your product levers? And then just on the Disney partnership, anything you can share around the partnership terms, the commercial terms?

Sure. First on advertising. Advertising continues to be a strong driver of growth, speaking first to our performance in the reported quarter of Q2. So from a global standpoint, on a constant currency basis, you'll note, as we mentioned in the call that we were up 10.2%, double digit. And when you look at the composition of that growth, it's remarkable that we continue to see strong growth on a constant currency basis, both in Korea and Japan. With regard to video, having consumers have the opportunity to watch a video to access content that they otherwise would pay on average, that $0.15 to $0.70 for that paid episode in Daily Pass is an alternative way to create more habit formation, frankly, for paid content as well as to generate higher CPM video-based advertising. I'd like to say it's a proven formula for the company as pioneered in Korea and what we're seeing in Japan. I think it's extremely early days for us in North America. In North America, we frankly are still putting in place the foundation to realize the financial return we believe exists for '26 and beyond. And it's why senior leadership has taken a direct focus on North America because it's not just potentially accretive. We see it as a way to create habit formation for U.S. consumers who may not yet be habituated but one day will to have an alternative video ad format to access a dropping episode potentially from some of our great collaborations with folks like Disney and IDW. With regard to Disney, unfortunately, it's too early for us to disclose any financial terms. I want to reiterate how pleased we are to be able to have this collaboration with Disney. And I also want to reiterate that we did not disclose any material significant change in unit economics going forward in any of our guidance. We think this is a strategic win-win and a financial win-win for both parties.

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

I guess as you think about all the success that you've had recently in terms of bringing on kind of existing IP and content onto the English language service over the past couple of months, how does that impact the strategy of making the app a destination for native user-created content and sort of giving consumers the experience of thinking, well, hey, I can cross over to become a creator and they can distribute my own content through WEBTOON as well. Is there a conflict there? Or do you think it's an on-ramp for people to get on to WEBTOON?

I'll start, but I would love for Yongsoo, who leads our strategy, but most importantly, the business you're speaking of, what we call Global WEBTOON to offer his view directly. From a corporate standpoint, we think it's actually complementary. When you think about content that people love, they haven't seen in our web comic format, like what we're talking about with Disney, it's a wonderful way to generate new users for us, but also to create a new generation of fans and fandom for partners like Disney. And yet we have always had a strong creator ecosystem, 24 million creators that have the ability to create content that we call originals, new content. And then Yongsoo can speak to this, but we also have that ability to merge those two concepts even with IP from a partner like Disney. This deal does include these 100 or so potential opportunities with this collaboration which does include the ability to create original content using our great creators to create a refreshed storyline from the wonderful franchises Disney has long had in place. Let me turn to Yongsoo so he can provide his perspective, too.

Yes. David already covered the light point. And this kind of collaboration based on well-known IP in the market, bringing a lot of new users to WEBTOON platform. And with the recommendation feature in our app in homepage and from onboarding, those users will also discover and experience WEBTOON Original as well. Naturally, we believe that this kind of partnership will increase our user consumption, leading to consumption as well as new user acquisition.

The next question comes from the line of Doug Anmuth with JPMorgan.

This is Dave on for Doug. I have two. First one, on your 3Q guide, it includes a very strong acceleration in constant currency revenue growth. So could you talk about some of the drivers of that growth and how you think about sustainability of that strength looking out over the next few quarters? And I have a follow-up.

First, I want to be clear that the Q3 guide does not include any short-term impact from the collaboration we were just discussing with Disney. When you think about either it sequentially or year-on-year, I want to break out the components to the extent I can, as I know we typically have not guided by subtype. Crossover IP was a theme, as we mentioned, with Remarried Empress in Q2, but it's an important theme in Q3 on a year-on-year basis incorporated in the guide. Now the reason why that's important is we've long said, even when we released Q1 data, I remember speaking to you saying that the fundamentals of our paid content business are strong and our advertising business continues to grow. But the timing in a given quarter, potentially to the detriment of expectation in Q1 can also be to our benefit in a quarter. And you've seen that now in Q2, and we think you'll see that to a certain extent in Q3. The basis of our guidance, though, in terms of our philosophy remains the same. Let me briefly also touch upon the adjusted EBITDA as that may be a question both on the year-on-year compare as well as more recently, the sequential compare. When you think about the adjusted EBITDA guide midpoint of $4.5 million for the quarter, it reflects our desire to continue to invest in the English-speaking WebComic app MAU growth paired with the new product rollout that you've seen. There are other factors, but that is the single factor I wanted to mention to you. It's a proactive strategic decision that JK and the team has made, I think, for the right long-term growth versus a passive forecast; there really is no mention or disclosure of a weakness in the Q3 guide. It's a deliberate choice to grow as I think we have some great collaborations in place, great product now in place, and I think product-market fit already in places like the U.S.

And then, I guess, a follow-up on the Disney collaboration. I think in the letter, you talked about them creating a brand-new original webcasting series for your platform. Is this exclusive to you guys? And it kind of sounds to me in a way like the way of acknowledging your platform and WebComic as a new way to deliver their content. Is that kind of the right way to think about it? And when you look at the collaboration overall, do you feel more excited about this new comic series? Or is it the existing series that are being reformatted to your web content that's more exciting?

We are very excited about both aspects of the collaboration. It's thrilling to think about creating an original story or expanding upon the backstory of one of Disney's beloved franchises, which already has a strong fan base. We believe this concept of new originals based on existing storylines is very promising for both Disney and us. Recently, Variety published an article where Disney acknowledged WEBTOON as the leader in this format, highlighting its growing significance to Gen Z. We feel honored by this recognition and are eager to move forward. Both parties have indicated that this collaboration is set for several years, and while I cannot share further details at this time, I want to emphasize that you will soon see some fantastic stories from Disney's existing franchises on our platform. We are committed to honoring the original narratives, which is why we prefer not to rush the creation of these great new originals. The agreement is structured to span several years, and that’s the extent of what we can share about our partnership with Disney.

Your next question comes from the line of Andrew Marok with Raymond James.

I saw in the shareholder letter the talk about the rest of world advertising business kind of being dragged down a bit by some of the Wattpad impacts. But can you talk a bit about that rest of world ads business ex the Wattpad impact? I guess, how would you characterize advertiser awareness and appetite in the market at this point?

I want to emphasize that we are very pleased with the information we shared regarding monthly active users. The key metric connected to our revenue is why we continue to discuss the WebComic app's monthly active users, which has seen global growth, particularly a nearly 19% increase in key promising regions where English is spoken. We also shared the total monthly active users, and I want to clarify that Wattpad is the primary reason for the year-on-year decline in the company's overall monthly active users. When we look at the Rest of World segment, even though Wattpad doesn't generate significant revenue, it remains a vital source of intellectual property. We've seen several instances where crossover intellectual property has resulted in major series premieres, such as on Tubi with "Sideline the Quarterback." Therefore, we are committed to that segment of our business. However, it’s important to note that this business isn’t expected to contribute substantial short-term revenue, either through advertising or paid content. Regarding advertising, I want to elaborate on that. We mentioned that two countries have banned our services, one of which will impact us this current quarter of Q3, specifically related to Wattpad. Some of the issues we're facing, including search engine indexing concerns, are temporary, and we believe we will eventually overcome them. We remain optimistic about advertising in the Rest of World, but we understand that it's a new market for us. We are taking the necessary time to establish the fundamentals, so as we scale the WEBTOON and Wattpad businesses in the U.S., we can do so with optimized advertising products, which will take some time to develop. We are also in the process of building a direct ad sales team. In the mid- to long-term, we are confident that advertising in the Rest of World will become a significant strategic and financial driver, but it is too early to rely on it for our current guidance.

And it seems that we have no further questions for today. That concludes the Q&A session and today's conference call. We would like to thank everyone for their participation. You may now disconnect your lines. Have a pleasant day, everyone.