Gravity Reports Third Quarter of 2017 Results and Business Updates

Seoul, Korea, Oct. 30, 2017 (GLOBE NEWSWIRE) -- GRAVITY REPORTS THIRD QUARTER OF 2017 RESULTS AND BUSINESS UPDATES

Seoul, South Korea – October 30, 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 third quarter ended September 30, 2017, prepared in accordance with generally accepted accounting principles in the United States.

THIRD QUARTER 2017 HIGHLIGHTS

  • Total revenues were KRW 23,723 million (US$ 20,762 thousand), representing a 12.2% decrease from the second quarter ended June 30, 2017 (“QoQ”) and a 50.7% increase from the third quarter ended September 30, 2016 (“YoY”).
  • Operating income was KRW 3,422 million (US$ 2,996 thousand), representing a 21.7% decrease QoQ and a 3.5% decrease YoY.
  • Income before income tax expenses was KRW 3,621 million (US$ 3,169 thousand), representing a 20.6% decrease QoQ and a 2.8% increase YoY.
  • Net Income attributable to parent company was KRW 2,696 million (US$ 2,359 thousand), representing a 24.2% decrease QoQ and a 12.7% decrease YoY.

REVIEW OF THIRD QUARTER 2017 FINANCIAL RESULTS

Revenues

Subscription revenues were KRW 9,126 million (US$ 7,986 thousand), representing a 6.7% decrease QoQ from KRW 9,786 million and a 7.4% increase YoY from KRW 8,497million. The decrease QoQ was mainly attributable to lower revenue from Ragnarok Prequel in Taiwan, which was partially offset by higher revenues derived from Ragnarok Online in Taiwan. The increase YoY was largely due to strong growth of revenues from Ragnarok Prequel in Taiwan and from Ragnarok Online in the United States and Canada, which was partially offset by decreased revenues from Ragnarok Online in Taiwan.

Royalty and license fee revenues were KRW 3,492 million (US$ 3,056 thousand), representing a 1.5% decrease QoQ from KRW 3,546 million and a 6.7% decrease YoY from KRW 3,743 million. The decrease QoQ was primarily due to lower revenues from Ragnarok online in Japan and Indonesia, which was partially offset by higher revenue derived from Ragnarok Online in Philippines. Ragnarok Online was re-launched in Philippines on June 20, 2017. The decrease YoY was mainly attributable to decreased revenues from Ragnarok Online in Thailand, which was partially offset by increased revenues from Ragnarok Online in Philippines and Brazil.

Mobile game and application revenues were KRW 9,730 million (US$ 8,517 thousand), representing a 20.5% decrease QoQ from KRW 12,239 million and a 243.8% increase YoY from KRW 2,830 million. The decrease QoQ resulted primarily from decreased revenues from Ragnarok R in Taiwan and Thailand. Such decrease was partially offset by increased revenues from RO: Idle Poring, which is offered globally except for Korea and Japan, and also from Ragnarok R in Korea. The increase YoY was primarily due to strong revenue growth from Ragnarok R in Korea, Taiwan and Thailand.

Character merchandising and other revenues were KRW 1,375 million (US$ 1,203 thousand), representing 5.6% decrease QoQ from KRW 1,457 million and a 103.4 % increase YoY from KRW 676 million.

Cost of Revenue

Cost of revenue was KRW 14,335 million (US$ 12,546 thousand), representing a 7.3% decrease QoQ from KRW 15,463 million and a 112.9% increase YoY from KRW 6,734 million.

The decrease QoQ was mainly due to i) decrease in commission paid to mobile platforms, royalty payments and outsourcing fees for Ragnarok R in Korea, Taiwan and Thailand; and ii) decreased game channeling service fees and royalty payments for Ragnarok Prequel in Taiwan, which was partially offset by increased outsourcing fees and commission paid to mobile platforms for the global service of RO: Idle Poring. The increase YoY was mostly from i) increased commission paid to mobile platforms, outsourcing fees and royalty payments for service of Ragnarok R and RO: Idle Poring; and ii) higher game channeling service fees related to Ragnarok Prequel.

Operating Expenses

Operating expenses were KRW 5,966 million (US$ 5,220 thousand), representing a 17.0% decrease QoQ from KRW 7,192 million and a 9.1% increase YoY from KRW5,466 million.The decrease QoQ was mainly attributable to lower advertising expenses related to marketing for Ragnarok R in Korea, which was partially offset by higher research and development cost. The increase YoY was mostly resulted from higher research and development cost and from higher advertising expenses, which was partially offset by decreased payment gateway fees related to Ragnarok Online in Taiwan.

Income before income tax expenses

Income before income tax expenses was KRW 3,621 million (US$ 3,169 thousand) compared with income before income tax expense of KRW 4,560 million for the second quarter of 2017 and income before income tax expenses of KRW 3,524 million for the third quarter of 2016.

Net Income

As a result of the foregoing factors, Gravity recorded a net income attributable to parent company of KRW 2,696 million (US$ 2,359 thousand) compared with net income attributable to parent company of KRW 3,555 million for the second quarter of 2017 and a net income attributable to parent company of KRW 3,087 million for the third quarter of 2016.

Liquidity

The balance of cash and cash equivalents and short-term financial instruments was KRW 50,819 million (US$ 44,477 thousand) as of September 30, 2017.

Note: For convenience purposes only, the KRW amounts have been expressed in U.S. dollars at the exchange rate of KRW 1,142.57 to US$1.00, the noon buying rate in effect on September 29, 2017 as quoted by the Federal Reserve Bank of New York.

GRAVIY BUSINESS UPDATES

Ragnarok Online

Ragnarok Online was successfully re-launched in Philippines on June 20, 2017, and such game has been one of the most popular online games in such area. Electronics Extreme Ltd.(“Extreme”) is our local licensee for Ragnarok Online in Philippines as well as in Thailand. Gravity and Extreme are preparing another re-launch of Ragnarok Online in Singapore and Malaysia during the fourth quarter of 2017.

The Company expects to begin a service for Ragnarok Zero in Korea during the fourth quarter of 2017. Ragnarok Zero is a new version of Ragnarok Online, which has been additionally developed to reflect various feedbacks from global Ragnarok Online users. Gravity plans to offer Ragnarok Zero on a new game server in Korea and to expand its service area in 2018.

Ragnarok Online IP-based Games

  • Ragnarok M, an MMORPG mobile game

The Company launched Ragnarok M in Taiwan, Hong Kong and Macau on October 12, 2017. Based on revenues, Ragnarok M ranked as first in both Apple’s App Store and Google Play Store in Taiwan, Hong Kong and Macau, at its peak. The Company plans to launch Ragnarok M in Korea during the first quarter of 2018 and in Thailand during the first half of 2018.

  • RO: Idle Poring, a text RPG mobile game

On September 13, 2017, Gravity commenced global service of RO: Idle Poring, except for Korea, Japan and China. Based on revenues, RO: Idle Poring ranked in the top 10 mobile games in 12 countries on Apple’s App Store and in 7 countries on Google Play Store, it its peak. RO: Idle Poring was initially launched in China on April 28, 2017 by X.D. Network Inc.(“XD”). Such game is expected to be launched in Korea and the launch schedule is to be announced in the future.

  • Ragnarok R, a card RPG mobile game

The Company plans to launch Ragnarok R in United States and Canada during the fourth quarter of 2017 and in more markets during 2018.

  • Ragnarok Prequel, a web browser-based MMORPG game

Ragnarok Prequel is scheduled to be launched in Philippines during the fourth quarter of 2017, under the name Ragnarok Journey. Ragnarok Journey is to be the first game title for which Gravity provides direct service in Philippines.

  • Other Ragnarok Online IP-based games

Gravity, XD and Shanghai the Dream Network Technology Co., Ltd.(“Partners”) plan to launch more Ragnarok Online IP-based games, including a casual RPG HTML5 game. A closed beta test is being conducted for such game and the Partners are in discussion for a strategic launch plan in various markets.

Also, the Company is currently developing more Ragnarok Online IP-based games including a 3D MO Action RPG mobile game. A 3D MO Action RPG mobile game, Spear of Odin, is expected to be launched in Asian markets during the first half of 2018.

Sword and Fairy: Mirror's Mirage, an MORPG mobile game

Gravity plans to publish Sword and Fairy: Mirror's Mirage in Korea during the fourth quarter of 2017. Sword and Fairy: Mirror's Mirage was developed by SoftStar Technology (Beijing) Co., Ltd. Such game was developed based on a well-known Chinese IP, Sword and Fairy.

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 80 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

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GRAVITY Co., Ltd.
Consolidated Balance Sheet

(In millions of KRW and thousands of US$)

As of
31-Dec-16 30-Sep-17
KRW US$ KRW US$
Assets(audited) (unaudited) (unaudited) (unaudited)
Current assets:
Cash and cash equivalents16,720 14,634 23,300 20,392
Short-term financial instruments22,000 19,255 27,519 24,085
Accounts receivable, net11,819 10,344 16,750 14,660
Other current assets2,852 2,496 4,395 3,847
Total current assets53,391 46,729 71,964 62,984
Property and equipment, net593 519 843 738
Leasehold and other deposits962 842 987 864
Intangible assets91 80 80 70
Other non-current assets153 134 578 506
Total assets55,190 48,304 74,452 65,162
Liabilities and Equity
Current liabilities:
Accounts payable10,033 8,781 13,032 11,406
Deferred revenue9,689 8,480 13,428 11,753
Other current liabilities964 844 2,561 2,241
Total current liabilities20,686 18,105 29,021 25,400
Long-term deferred revenue4,096 3,585 6,070 5,313
Accrued severance benefits104 91 206 180
Other non-current liabilities210 184 319 280
Total liabilities25,096 21,965 35,616 31,173
Common shares3,474 3,041 3,474 3,041
Additional paid-in capital75,076 65,708 75,076 65,708
Accumulated deficit(48,511) (42,458) (40,090) (35,088)
Accumulated other comprehensive income617 540 955 836
Total parent company shareholders' equity30,656 26,831 39,415 34,497
Non-controlling interest(562) (492) (579) (508)
Total equity30,094 26,339 38,836 33,989
Total liabilities and equity55,190 48,304 74,452 65,162

* For convenience purposes only, the KRW amounts are expressed in U.S. dollars at the rate of KRW 1,142.57 to US$ 1.00, the noon buying rate in effect on September 29, 2017 as quoted by the Federal Reserve Bank of New York.


GRAVITY CO., LTD.
Consolidated Statements of Operations

(In millions of KRW and in thousands of US$, except for shares and ADS data)

Three months ended Nine months ended
30-Jun-17 30-Sep-16 30-Sep-17 30-Sep-16 30-Sep-17
(KRW) (KRW) (KRW) (US$) (KRW) (KRW) (US$)
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
Revenues:
Online games-subscription revenue9,786 8,497 9,126 7,986 12,957 28,766 25,177
Online games-royalties and license fees3,546 3,743 3,492 3,056 9,883 11,513 10,076
Mobile games and applications12,239 2,830 9,730 8,517 8,798 30,033 26,285
Character merchandising and other revenue1,457 676 1,375 1,203 2,259 3,791 3,318
Total net revenue27,028 15,746 23,723 20,762 33,897 74,103 64,856
Cost of revenue15,463 6,734 14,335 12,546 20,199 43,767 38,306
Gross profit11,565 9,012 9,388 8,216 13,698 30,336 26,550
Operating expenses:
Selling, general and administrative6,498 4,982 4,942 4,324 10,875 16,955 14,839
Research and development695 484 1,024 896 1,339 2,287 2,002
Impairment losses on intangible assets 5
Total operating expenses7,192 5,466 5,966 5,220 12,219 19,242 16,841
Operating Income4,373 3,546 3,422 2,996 1,479 11,094 9,709
Other income (expenses):
Interest income139 128 136 118 391 407 356
Interest expense(3) (3) (3) (9) (8)
Foreign currency income (loss), net51 (153) 66 58 (848) 71 62
Others, net 3 3
Income before income tax expenses 4,560 3,524 3,621 3,169 1,025 11,563 10,119
Income tax expenses 1,017 465 914 800 1,308 3,159 2,765
Net income(loss)3,543 3,059 2,707 2,369 (283) 8,404 7,354
Net income (loss) attributable to:
Non-controlling interest(12) (28) 11 10 (64) (17) (16)
Parent company3,555 3,087 2,696 2,359 (219) 8,421 7,370
Earning(loss) per share
- Basic and diluted512 444 388 0.34 (32) 1,212 1.06
Weighted average number of shares outstanding
- Basic and diluted6,948,900 6,948,900 6,948,900 6,948,900 6,948,900 6,948,900 6,948,900
Earning(loss) per ADS(1)
- Basic and diluted1,024 888 776 0.68 (64) 2,424 2.12

* For convenience, the KRW amounts are expressed in U.S. dollars at the rate of KRW 1,142.57 to US$ 1.00, the noon buying rate in effect on September 29, 2017 as quoted by the Federal Reserve Bank of New York.

(1) Each ADS represents two common shares.

Source:GRAVITY Co., Ltd.