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GRAVITY Reports First Quarter of 2013 Results

SEOUL, South Korea, May 19, 2013 (GLOBE NEWSWIRE) -- GRAVITY Co., Ltd. (Nasdaq:GRVY) ("Gravity" or the "Company"), an online game developer and publisher based in South Korea, today announced its unaudited financial results for the first quarter ended March 31, 2013, prepared in accordance with generally accepted accounting principles in the United States.

Revenues for the first quarter ended March 31, 2013 were KRW 11,796 million (US$ 10,756 thousand), representing a 11.5% decrease from KRW 13,328 million for the fourth quarter ended December 31, 2012 ("QoQ") and a 27.9% decrease from KRW 16,357 million for the first quarter ended March 31, 2012 ("YoY").

Review of financial results

Revenues

Royalty and licensing fee revenue for the first quarter ended March 31, 2013 was KRW 6,654 million (US$ 6,067 thousand), representing a 8.6% decrease QoQ from KRW 7,281 million and a 23.6% decrease YoY from KRW 8,710 million. The decrease in royalty and licensing fee revenues QoQ and YoY was primarily due to the strengthening of the Korean Won against the Japanese Yen and decreased revenues from Ragnarok Online in Japan. The decrease in royalty and licensing fee revenues QoQ and YoY was partially offset by revenues from Ragnarok Online in China where the game was relaunched in February 2013.

Subscription revenue for the first quarter 2013 was KRW 1,948 million (US$ 1,776 thousand), representing a 3.9% increase QoQ and a 54.1% decrease YoY compared to KRW 1,874 million and KRW 4,241 million, respectively. The increase QoQ was mainly attributable to increased revenues from Ragnarok Online in Korea. The decrease YoY mainly resulted from significant decrease in revenues from Finding Neverland Online, which was commercially launched in Korea in January 2012.

Mobile game revenue was KRW 2,753 million (US$ 2,510 thousand) for the first quarter 2013, representing a 29.0% decrease QoQ from KRW 3,875 million and a 35.1% increase YoY from KRW 2,037 million.

Character merchandising and other revenue was KRW 441 million (US$ 403 thousand) for the first quarter 2013, representing a 48.0% increase QoQ from KRW 298 million and a 67.8% decrease YoY from KRW 1,369 million. The decrease YoY was due to significant decrease in revenues from Ragnarok Odyssey, a game on PS Vita platform.

Cost of Revenues and Operating Expenses

Cost of revenues was KRW 7,397 million (US$ 6,745 thousand) for the first quarter 2013, representing a 20.7% decrease QoQ from KRW 9,327 million and a 8.3% increase YoY from KRW 6,827 million. The decrease in cost of revenues QoQ was primarily due to decrease in outsourcing fee mostly related to developing mobile and online games. The Company's increased cost of revenues YoY was primarily attributable to increase in salaries and amortization on capitalized development cost of Ragnarok Online II due to the commercial launch of the game on March 26, 2012.

Operating expenses were KRW 5,951 million (US$ 5,426 thousand) for the first quarter 2013, representing a 69.7% decrease QoQ from KRW 19,618 million and a 27.2% decrease YoY from KRW 8,179 million. The decrease in operating expenses QoQ was primarily due to significant decrease in impairment losses on intangible assets in the first quarter of 2013 compared to the fourth quarter of 2012. The decrease in operating expenses YoY was mainly attributable to decrease in advertising expenses, mainly due to marketing expenses for open beta testing of Finding Neverland Online and Ragnarok Online II in the first quarter of 2012, which did not occur in the first quarter of 2013.

Loss before income tax expenses and others was KRW 1,133 million (US$ 1,033 thousand) for the first quarter of 2013, which represents a 92.9% decrease QoQ from loss before income tax expenses and others of KRW 15,972 million.

As a result of the foregoing factors, Gravity recorded a net loss attributable to parent company of KRW 1,629 million (US$ 1,485 thousand) for the first quarter of 2013 compared to a net loss attributable to parent company of KRW 10,833 million for the fourth quarter of 2012 and a net income attributable to parent company of KRW 1,128 million for the first quarter of 2012.

The balance of cash and cash equivalents and short-term financial instruments was KRW 51,539 million (US$ 46,996 thousand) as of March 31, 2013.

Note: For convenience purposes only, the KRW amounts have been expressed in the U.S. dollars at the exchange rate of KRW 1,096.67 to US$ 1.00, the noon buying rate in effect on May 3, 2013, 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 games. Gravity's principal product, Ragnarok Online, is a popular online game in many markets, including Japan, Taiwan and Thailand, and is currently commercially offered in 60 markets. 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 registration statement on Form F-1, as amended, and our annual reports on Form 20-F, together with such other documents and 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.

GRAVITY Co., Ltd.
Consolidated Balance Sheets
(In millions of KRW and thousands of US$)
As of
31-Dec-12 31-Mar-13
KRW US$ KRW US$
Assets (audited) (unaudited) (unaudited) (unaudited)
Current assets:
Cash and cash equivalents 36,455 33,242 24,039 21,920
Short-term financial instruments 17,500 15,957 27,500 25,076
Accounts receivable, net 7,116 6,489 6,566 5,987
Other current assets 6,858 6,253 6,835 6,233
Total current assets 67,929 61,941 64,940 59,216
Property and equipment, net 3,524 3,213 3,343 3,048
Leasehold and other deposits 5,767 5,259 5,833 5,319
Intangible assets 24,270 22,131 23,050 21,018
Equity method investments 647 590 589 537
Other non-current assets 8,418 7,676 8,444 7,700
Total assets 110,555 100,810 106,199 96,838
Liabilities and Equity
Current liabilities:
Accounts payable 5,115 4,664 4,058 3,700
Deferred revenue 3,006 2,741 3,558 3,244
Other current liabilities 2,254 2,055 1,474 1,345
Total current liabilities 10,375 9,460 9,090 8,289
Long-term deferred revenue 9,172 8,364 8,588 7,831
Accrued severance benefits 683 623 377 344
Other non-current liabilities 247 225 229 208
Total liabilities 20,477 18,672 18,284 16,672
Common shares 3,474 3,168 3,474 3,168
Additional paid-in capital 75,395 68,749 75,395 68,749
Retained earnings 7,699 7,020 6,070 5,535
Accumulated other comprehensive income 3,001 2,737 2,870 2,617
Total parent company shareholders' equity 89,569 81,674 87,809 80,069
Non-controlling interest 509 464 106 97
Total equity 90,078 82,138 87,915 80,166
Total liabilities and equity 110,555 100,810 106,199 96,838
* For convenience purposes only, the KRW amounts are expressed in U.S. dollars at the rate of KRW1,096.67 to US$1.00, the noon buying rate in effect on May 3, 2013 as quoted by the Federal Reserve Bank of New York.
GRAVITY Co., Ltd.
Consolidated Statements of Operations
(In millions of KRW and thousands of US$ except for share and ADS data)
Three months ended
31-Dec-12 31-Mar-12 31-Mar-13
(KRW) (US$) (KRW) (US$) (KRW) (US$)
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
Revenues:
Online games-subscription revenue 1,874 1,709 4,241 3,867 1,948 1,776
Online games-royalties and license fees 7,281 6,639 8,710 7,942 6,654 6,067
Mobile games 3,875 3,533 2,037 1,857 2,753 2,510
Character merchandising and other revenue 298 272 1,369 1,249 441 403
Total net revenue 13,328 12,153 16,357 14,915 11,796 10,756
Cost of revenue 9,327 8,505 6,827 6,225 7,397 6,745
Gross profit 4,001 3,648 9,530 8,690 4,399 4,011
Operating expenses:
Selling, general and administrative 4,551 4,149 6,792 6,193 4,407 4,019
Research and development 2,659 2,425 1,387 1,265 1,392 1,269
Impairment losses on intangible assets 12,408 11,314 152 138
Operating income (loss) (15,617) (14,240) 1,351 1,232 (1,552) (1,415)
Other income (expenses):
Interest income 393 358 476 434 370 337
Interest expense (16) (15) (11) (10) (11) (10)
Foreign currency income (loss), net (731) (666) (160) (146) 60 55
Others, net (1) (1)
Income (loss) before income tax expenses and equity loss on investments (15,972) (14,564) 1,656 1,510 (1,133) (1,033)
Income tax expenses 956 872 818 746 875 798
Income (loss) before equity loss on investments (16,928) (15,436) 838 764 (2,008) (1,831)
Equity loss on investments (101) (92) (82) (75) (23) (21)
Net income (loss) (17,029) (15,528) 756 689 (2,031) (1,852)
Net income (loss) attributable to:
Non-controlling interest (6,196) (5,650) (372) (340) (402) (367)
Parent company (10,833) (9,878) 1,128 1,029 (1,629) (1,485)
Earnings per share
- Basic and diluted (1,559) (1.42) 162 0.15 (234) (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
Earnings per ADS
- Basic and diluted (390) (0.36) 41 0.04 (59) (0.05)
Weighted average number of ADSs outstanding
- Basic and diluted 27,795,600 27,795,600 27,795,600 27,795,600 27,795,600 27,795,600
* For convenience, the KRW amounts are expressed in U.S. dollars at the rate of KRW1,096.67 to US$1.00, the noon buying rate in effect on May 3, 2013 as quoted by the Federal Reserve Bank of New York.

CONTACT: Mr. Heung Gon Kim Chief Financial Officer Gravity Co., Ltd. Email: kheung@gravity.co.kr Ms. Yoon Joo Lee IR Manager Gravity Co., Ltd. Email: yoonjoo.lee@gravity.co.kr Telephone: +82-2-2132-7800Source:GRAVITY Co., Ltd.