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Gravity Reports FIRST Quarter of 2017 Results and Business Update

Seoul, Korea, April 28, 2017 (GLOBE NEWSWIRE) --

GRAVITY REPORTS FIRST QUARTER OF 2017 RESULTS AND BUSINESS UPDATES

Seoul, South Korea – April 28, 2017 – GRAVITY Co., Ltd. (NasdaqCM: 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, 2017, prepared in accordance with generally accepted accounting principles in the United States.

FINAICIAL RESULTS FOR THE FIRST QUARTER OF 2017

Revenues for the first quarter ended March 31, 2017 was KRW 23,352 million (US$ 20,897 thousand), representing a 33.4% increase from KRW 17,500 million for the fourth quarter ended December 31, 2016 (“QoQ”) and a 156.8% increase from KRW 9,094 million for the first quarter ended March 31, 2016 (“YoY”).

Review of Financial Results

Revenues

Subscription revenues for the first quarter of 2017 were KRW 9,855 million (US$ 8,819 thousand), representing a 2.5% decrease QoQ from KRW 10,107 million and a 361.2% increase YoY from KRW 2,137 million. The decrease QoQ was mainly attributable to decreased revenues from Ragnarok Online in Taiwan and Korea, which was partially offset by increased revenue from Ragnarok Prequel in Taiwan. The increase YoY was largely due to increased revenues from Ragnarok Online and Ragnarok Prequel in Taiwan. We began to directly offer Ragnarok Online and Ragnarok Prequel in Taiwan since June 2016 and July 2016, respectively.

Royalty and license fee revenues for the first quarter of 2017 were KRW 4,475 million (US$ 4,005 thousand), representing a 49.9% increase QoQ from KRW 2,985 million and a 32.9% increase YoY from KRW 3,368 million. The increase QoQ was primarily due to increased revenues from Ragnarok Online in Japan and Indonesia. The increase YoY resulted mainly from increased revenues from Ragnarok Online in Japan, Thailand and Indonesia, which was partially offset by decreased revenue from Ragnarok Online in Taiwan

Mobile game and application revenues were KRW 8,063 million (US$ 7,215 thousand) for the first quarter of 2017, representing a 148.6% increase QoQ from KRW 3,243 million and a 184.9% increase YoY from KRW 2,830 million. The increase QoQ and YoY resulted primarily from increased royalty revenues from Ragnarok Online IP-based mobile games in China and increased revenues from Ragnarok R (locally titled as RO Xianjing Chuanshuo: Fuxinging) in Taiwan. Ragnarok R was launched in Taiwan on December 1, 2016.

Character merchandising and other revenues were KRW 959 million (US$ 858 thousand) for the first quarter of 2017, representing 17.7% decrease from KRW 1,165 million and a 26.5 % increase YoY from KRW 759 million.

Cost of Revenue

Cost of revenue was KRW 13,969 million (US$ 12,500 thousand) for the first quarter of 2017, representing a 42.6% increase QoQ from KRW 9,797 million and a 111.0% increase YoY from KRW 6,619 million. The increase QoQ was mainly due to increased commission paid for mobile game service in Taiwan and Thailand, which was partially offset by decreased outsourcing fees. The increase YoY was mostly from increased commission paid related to mobile game and web game service in Taiwan and Thailand, which was partially offset by decreased salaries.

Operating Expenses

Operating expenses were KRW 6,085 million (US$ 5,445 thousand) for the first quarter of 2017, representing a 5.7% increase QoQ from KRW 5,759 million and a 100.4% increase YoY from KRW 3,036 million. The increase QoQ was mainly attributable to increased advertising expenses related to pre-launch marketing for Ragnarok R, which was officially launched in Korea on April 13, 2017. Such increase was partially offset by decreased commission paid. The increase YoY was mostly resulted from increased advertising expenses for Ragnarok R and Ragnarok Online and commission paid for payment gateway fees.

Income before income tax expenses

Income before income tax expenses was KRW 3,382 million (US$ 3,027 thousand) for the first quarter of 2017 compared with income before income tax expense of KRW 2,394 million for the fourth quarter of 2016 and loss before income tax expenses of KRW 1,287 million for the first quarter of 2016.

Net Income

As a result of the foregoing factors, Gravity recorded a net income attributable to parent company of KRW 2,170 million (US$ 1,942 thousand) for the first quarter of 2017 compared with net income attributable to parent company of KRW 470 million for the fourth quarter of 2016 and a net loss attributable to parent company of KRW 1,701 million for the first quarter of 2016.

Liquidity

The balance of cash and cash equivalents and short-term financial instruments was KRW 42,196 million (US$ 37,760 thousand) as of March 31, 2017.

Note: For convenience purposes only, the KRW amounts have been expressed in U.S. dollars at the exchange rate of KRW 1,117.48 to US$ 1.00, the noon buying rate in effect on March 31, 2017 as quoted by the Federal Reserve Bank of New York.

GRAVITY BUSINESS UPDATE

  • Ragnarok R, a card RPG mobile game*1

On April 13, 2017, Ragnarok R was commercially launched in Korea. Based on mobile game sales ranking in Korea, such game was ranked fourth in both Apple’s App Store and Google Play Store, at its peak.

Ragnarok R was developed by Shanghai The Dream Network Technology Co., Ltd.(“Dream Square”) based on contents Ragnarok Online and Gravity is a publisher of such game in Taiwan, Thailand and Korea. Gravity and Dream Square plan to launch Ragnarok R in more markets.

  • Other Ragnarok Online IP-based games

On March 27, 2017, Ragnarok Prequel, a web browser-based MMORPG, was launched in United States and Canada. Such game is locally named as Ragnarok Journey and currently being offered through WarpPortal, Gravity’s online game service platform. Gravity and Dream Square plan to launch Ragnarok Prequel in more markets.

Gravity is currently developing two more mobile games in-house. One of such mobile games is planned to be launched during 2017 and the other is planned to be launched during 2018.

  • Ragnarok Online

Our local licensee, Electronics Extreme Ltd., plans to re-launch Ragnarok Online in Philippine during third quarter of 2017. Electronics Extreme Ltd. successfully re-launched Ragnarok Online in Thailand on July 13, 2016 and Ragnarok Online won best MMORPG award in 2016 Thailand Games Show Big Festival.

*1 Descriptions about rankings of the games are based on various statistical data available from public sources and such rankings do not necessarily reflect actual profits from such games.

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 78 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, 2016 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-16 31-Mar-17
KRW US$ KRW US$
Assets(audited) (unaudited) (unaudited) (unaudited)
Current assets:
Cash and cash equivalents16,720 14,962 19,696 17,625
Short-term financial instruments22,000 19,687 22,500 20,135
Accounts receivable, net11,819 10,576 15,180 13,584
Other current assets2,852 2,552 3,139 2,809
Total current assets53,391 47,777 60,515 54,153
Property and equipment, net593 531 753 674
Leasehold and other deposits962 861 947 847
Intangible assets91 81 89 80
Other non-current assets153 137 105 94
Total assets55,190 49,387 62,409 55,848
Liabilities and Equity
Current liabilities:
Accounts payable10,033 8,978 13,056 11,683
Deferred revenue9,689 8,670 10,930 9,781
Other current liabilities964 863 1,660 1,485
Total current liabilities20,686 18,511 25,646 22,949
Long-term deferred revenue4,096 3,665 3,818 3,417
Accrued severance benefits104 93 135 121
Other non-current liabilities210 188 312 280
Total liabilities25,096 22,457 29,911 26,767
Common shares3,474 3,109 3,474 3,109
Additional paid-in capital75,076 67,183 75,076 67,183
Accumulated deficit(48,511) (43,411) (46,341) (41,469)
Accumulated other comprehensive income617 552 867 776
Total parent company shareholders' equity30,656 27,433 33,076 29,599
Non-controlling interest(562) (503) (578) (518)
Total equity30,094 26,930 32,498 29,081
Total liabilities and equity55,190 49,387 62,409 55,848

* For convenience purposes only, the KRW amounts are expressed in U.S. dollars at the rate of KRW 1,117.48 to US$ 1.00, the noon buying rate in effect on March 31, 2017 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-16 31-Mar-16 31-Mar-17
(KRW) (US$) (KRW) (US$) (KRW) (US$)
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
Revenues:
Online games-subscription revenue10,107 9,044 2,137 1,912 9,855 8,819
Online games-royalties and license fees2,985 2,671 3,368 3,014 4,475 4,005
Mobile games and applications3,243 2,902 2,830 2,533 8,063 7,215
Character merchandising and other revenue(1)1,165 1,043 759 679 959 858
Total net revenue17,500 15,660 9,094 8,138 23,352 20,897
Cost of revenue9,797 8,767 6,619 5,923 13,969 12,500
Gross profit7,703 6,893 2,475 2,215 9,383 8,397
Operating expenses:
Selling, general and administrative5,125 4,586 2,688 2,405 5,516 4,936
Research and development634 567 343 307 569 509
Impairment losses on intangible assets 5 4
Total operating expenses5,759 5,153 3,036 2,716 6,085 5,445
Operating income (loss)1,944 1,740 (561) (501) 3,298 2,952
Other income (expenses):
Interest income130 116 132 118 133 119
Interest expense0 0 0 0 (3) (3)
Foreign currency income (loss), net320 286 (858) (768) (46) (41)
Others, net0 0 0 0 0 0
Income(loss) before income tax expenses2,394 2,142 (1,287) (1,151) 3,382 3,027
Income tax expenses1,932 1,729 433 387 1,228 1,099
Net income(loss)462 413 (1,720) (1,538) 2,154 1,928
Net income (loss) attributable to:
Non-controlling interest(8) (7) (19) (17) (16) (14)
Parent company470 420 (1,701) (1,521) 2,170 1,942
Income(loss) per share
- Basic and diluted
67 0.06 (245) (0.22) 312 0.28
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
Income(loss) per ADS(2)
- Basic and diluted
134 0.12 (490) (0.44) 624 0.56

* For convenience, the KRW amounts are expressed in U.S. dollars at the rate of KRW 1,117.48 to US$1.00, the noon buying rate in effect on March 31, 2017 as quoted by the Federal Reserve Bank of New York.

(1) The Company reclassified certain revenue within Character merchandising and other revenue as Mobile games and applications revenue in 2016 as this better represents the nature of the revenue, and the effect of such reclassification was reflected in each quarter of 2016. The reclassification has no effect on the Company’s previously reported total net revenue and other line items on the consolidated financial statements.

(2) Each ADS represents two common shares.

Source:GRAVITY Co., Ltd.