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GRAVITY Reports First Quarter of 2016 Results

SEOUL, South Korea, May 25, 2016 (GLOBE NEWSWIRE) -- GRAVITY Co., Ltd. (Nasdaq:GRVY) (“Gravity” or “Company”), a developer and publisher of online and mobile games based in South Korea, today announced its unaudited financial results for the first quarter ended March 31, 2016, prepared in accordance with generally accepted accounting principles in the United States.

FINANCIAL RESULTS FOR THE FIRST QUARTER OF 2016

Revenues for the first quarter ended March 31, 2016 was KRW 9,094 million (US$ 7,984 thousand), representing a 4.5% increase from KRW 8,703 million for the fourth quarter ended December 31, 2015 (“QoQ”) and a 0.3% increase from KRW 9,069 million for the first quarter ended March 31, 2015 (“YoY”).

Review of Financial Results

Revenues

Royalty and license fee revenues for the first quarter of 2016 were KRW 3,368 million (US$ 2,957 thousand), representing a 13.9% increase QoQ from KRW 2,956 million and a 34.1% increase YoY from KRW 2,512 million. The increase QoQ was primarily due to increased revenue from Ragnarok Online in Japan and the strengthening of the Japanese Yen against the Korean Won. The increase YoY resulted mainly from increased revenue from Ragnarok Online in Japan and Taiwan and the strengthening of the Japanese Yen against the Korean Won.

Mobile game and application revenues were KRW 2,616 million (US$ 2,297 thousand) for the first quarter of 2016, representing a 34.8% decrease QoQ from KRW 4,012 million and a 37.8% decrease YoY from KRW 4,203 million. The decrease QoQ and YoY resulted primarily from decreased revenues from Ragnarok: Path of Heroes and mobile applications for a third party.

Subscription revenues for the first quarter of 2016 were KRW 2,137 million (US$ 1,876 thousand), representing a 128.3% increase QoQ from KRW 936 million and a 25.9% increase YoY from KRW 1,698 million. The increase QoQ was mainly attributable to increased revenues from Ragnarok Online and Ragnarok Online II in the United States and Canada. The increase YoY was largely due to increased revenues from Ragnarok Online in the United States, Canada and Korea.

Character merchandising and other revenues were KRW 973 million (US$ 854 thousand) for the first quarter of 2016, representing a 21.8% increase QoQ from KRW 799 million and a 48.3% increase YoY from KRW 656 million.

Cost of Revenue and Operating Expenses

Cost of revenue was KRW 6,619 million (US$ 5,812 thousand) for the first quarter of 2016, representing a 17.5% decrease QoQ from KRW 8,020 million and a 13.8% decrease YoY from KRW 7,676 million. The decrease QoQ and YoY was mostly from i) decreased amortization of capitalized research and development cost of Ragnarok Online II, which was amortized and fully impaired in December 2015, and ii) a decrease in commission paid. The decrease YoY was partially offset by an increase in salaries resulting from the commercial launch of some of our mobile games.

Operating expenses were KRW 3,036 million (US$ 2,665 thousand) for the first quarter of 2016, representing a 69.8% decrease QoQ from KRW 10,038 million and a 23.2% decrease YoY from KRW 3,952 million. The decrease QoQ was mainly attributable to i) decreased impairment loss on intangible assets primarily due to the impairment of capitalized research and development cost of Ragnarok Online II and goodwill of NeoCyon in the fourth quarter of 2015, which did not occur in the first quarter of 2016 and ii) decreased research and development expenses. The decrease YoY mostly resulted from decreased research and development expenses.

Loss before income tax expenses and others was KRW 1,287 million (US$ 1,130 thousand) for the first quarter of 2016 compared with loss before income tax expenses and others of KRW 8,740 million for the fourth quarter of 2015 and loss before income tax expenses and others of KRW 2,355 million for the first quarter of 2015.

As a result of the foregoing factors, Gravity recorded a net loss attributable to parent company of KRW 1,701 million (US$ 1,493 thousand) for the first quarter of 2016 compared with a net loss attributable to parent company of KRW 9,113 million for the fourth quarter of 2015 and a net loss attributable to parent company of KRW 2,628 million for the first quarter of 2015.

The balance of cash and cash equivalents and short-term financial instruments was KRW 35,881 million (US$ 31,506 thousand) as of March 31, 2016.

Note: For convenience purposes only, the KRW amounts have been expressed in U.S. dollars at the exchange rate of KRW1,138.86 to US$ 1.00, the noon buying rate in effect on March 31, 2016 as quoted by the Federal Reserve Bank of New York.

About GRAVITY Co., Ltd.

Based in Korea, Gravity is a developer and publisher of online and mobile games. Gravity's principal product, Ragnarok Online, is a popular online game in many markets, including Japan and Taiwan, and is currently commercially offered in 81 markets and countries. For more information about Gravity, please visit http://www.gravity.co.kr.

Forward-Looking Statements:

Certain statements in this press release may include, in addition to historical information, "forward-looking statements" within the meaning of the "safe-harbor" provisions of the U.S. Private Securities Litigation Reform Act 1995. Forward-looking statements can generally be identified by the use of forward-looking terminology, such as "may," "will," "expect," "intend," "estimate," "anticipate," "believe", "project," or "continue" or the negative thereof or other similar words, although not all forward-looking statements contain these words. Investors should consider the information contained in our submissions and filings with the United States Securities and Exchange Commission (the "SEC"), including our annual report for the fiscal year ended December 31, 2015 on Form 20-F, together with such other documents that we may submit to or file with the SEC from time to time, on Form 6-K. The forward-looking statements speak only as of this press release and we assume no duty to update them to reflect new, changing or unanticipated events or circumstances.

Contact:

Mr. Heung Gon Kim
Chief Financial Officer
Gravity Co., Ltd.
Email: kheung@gravity.co.kr

Ms. Ji Hee Kim
IR Manager
Gravity Co., Ltd.
Email: ircommunication@gravity.co.kr
Telephone: +82-2-2132-7800

GRAVITY Co., Ltd.
Consolidated Balance Sheet
(In millions of KRW and thousands of US$)
As of
31-Dec-15 31-Mar-16
KRW US$ KRW US$
Assets(audited) (unaudited) (unaudited) (unaudited)
Current assets:
Cash and cash equivalents 24,909 21,872 17,381 15,262
Short-term financial instruments 11,500 10,098 18,500 16,244
Accounts receivable, net 5,289 4,644 9,494 8,336
Other current assets 1,978 1,737 2,339 2,054
Total current assets 43,676 38,351 47,714 41,896
Property and equipment, net 882 774 779 684
Leasehold and other deposits 954 838 948 832
Intangible assets 132 116 123 108
Other non-current assets 85 74 78 68
Total assets 45,729 40,153 49,642 43,588
Liabilities and Equity
Current liabilities:
Accounts payable 2,971 2,609 8,269 7,261
Deferred revenue 4,997 4,388 6,950 6,103
Other current liabilities 836 734 517 454
Total current liabilities 8,804 7,731 15,736 13,818
Long-term deferred revenue 6,600 5,795 5,221 4,584
Accrued severance benefits 123 108 121 106
Other non-current liabilities 210 185 210 184
Total liabilities 15,737 13,819 21,288 18,692
Common shares 3,474 3,050 3,474 3,050
Additional paid-in capital 75,076 65,922 75,076 65,922
Accumulated deficit (48,761) (42,816) (50,462) (44,309)
Accumulated other comprehensive income 694 609 776 681
Total parent company shareholders' equity 30,483 26,765 28,864 25,344
Non-controlling interest (491) (431) (510) (448)
Total equity 29,992 26,334 28,354 24,896
Total liabilities and equity 45,729 40,153 49,642 43,588

* For convenience purposes only, the KRW amounts are expressed in U.S. dollars at the rate of KRW 1,138.86 to US$ 1.00, the noon buying rate in effect on March 31, 2016 as quoted by the Federal Reserve Bank of New York.

GRAVITY Co., Ltd.
Consolidated Statements of Operations
(In millions of KRW and thousands of US$ except for share and ADS data)
Three months ended
31-Dec-15 31-Mar-15 31-Mar-16
(KRW) (US$) (KRW) (US$) (KRW) (US$)
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
Revenues:
Online games-subscription revenue 936 822 1,698 1,491 2,137 1,876
Online games-royalties and license fees 2,956 2,596 2,512 2,206 3,368 2,957
Mobile games and applications 4,012 3,523 4,203 3,691 2,616 2,297
Character merchandising and other revenue 799 701 656 576 973 854
Total net revenue 8,703 7,642 9,069 7,964 9,094 7,984
Cost of revenue 8,020 7,042 7,676 6,740 6,619 5,812
Gross profit 683 600 1,393 1,224 2,475 2,172
Operating expenses:
Selling, general and administrative 3,075 2,700 2,494 2,190 2,688 2,360
Research and development 1,117 981 1,458 1,280 343 301
Impairment losses on intangible assets 5,846 5,133 5 4
Total operating expenses 10,038 8,814 3,952 3,470 3,036 2,665
Operating loss (9,355) (8,214) (2,559) (2,246) (561) (493)
Other income (expenses):
Interest income 138 121 202 177 132 116
Interest expense (1) (1) (2) (2)
Foreign currency income (loss), net (146) (128) 4 4 (858) (753)
Others, net 624 548
Loss before income tax expenses
and equity loss on investments (8,740) (7,674) (2,355) (2,067) (1,287) (1,130)
Income tax expenses 375 329 287 252 433 380
Net loss (9,115) (8,003) (2, 642) (2,319) (1,720) (1,510)
Net income (loss) attributable to:
Non-controlling interest (2) (2) (14) (12) (19) (17)
Parent company (9,113) (8,001) (2,628) (2,307) (1,701) (1,493)
Loss per share
- Basic and diluted (1,311) (1.15) (378) (0.33) (245) (0.21)
Weighted average number of shares outstanding
- Basic and diluted 6,948,900 6,948,900 6,948,900 6,948,900 6,948,900 6,948,900
Loss per ADS(1)
- Basic and diluted (2,622) (2.30) (756) (0.66) (490) (0.42)

* For convenience, the KRW amounts are expressed in U.S. dollars at the rate of KRW 1,138.86 to US$1.00, the noon buying rate in effect on March 31, 2016 as quoted by the Federal Reserve Bank of New York.

(1) Each ADS represents two common shares.

Source:GRAVITY Co., Ltd.