Gravity Reports Second Quarter of 2017 Results and Business Updates

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Seoul, Korea, Aug. 09, 2017 (GLOBE NEWSWIRE) -- GRAVITY REPORTS SECOND QUARTER OF 2017 RESULTS AND BUSINESS UPDATES

Seoul, South Korea – August 9, 2017 – GRAVITY Co., Ltd. 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 second quarter ended June 30, 2017, prepared in accordance with generally accepted accounting principles in the United States.

SECOND QUARTER 2017 HIGHLIGHTS

  • Total revenues were KRW 27,028 million (US$ 23,631 thousand), representing a 15.7% increase from the first quarter ended March 31, 2017 ("QoQ") and a 198.4% increase from the second quarter ended June 30, 2016 ("YoY").
  • Operating income was KRW 4,373 million (US$ 3,823 thousand), representing a 32.6% increase QoQ and an increase of KRW 5,879 million (US$ 5,140 thousand) from KRW 1,506 million of operating loss in the same period last year.
  • Income before income tax expenses was KRW 4,560 million (US$ 3,987 thousand), representing a 34.8% increase QoQ and an increase of KRW 5,772 million (US$ 5,047 thousand) from KRW 1,212 million of loss before income tax expenses in the same period last year.
  • Net Income attributable to parent company was KRW 3,555 million (US$ 3,108 thousand), representing a 63.8% increase QoQ and an increase of KRW 5,160 million (US$ 4,511 thousand) from KRW 1,605 million of net loss attributable to parent company in the same period last year.

Mr. Hyun Chul Park, CEO of Gravity said, "We delivered a stronger set of financial results for the second quarter of 2017, compared to the first quarter of 2017 and the second quarter of 2016. Gravity is dedicated to continuously provide better game experiences and innovative content to our global game users."

REVIEW OF SECOND QUARTER 2017 FINANCIAL RESULTS

Revenues

Subscription revenues were KRW 9,786 million (US$ 8,556 thousand), representing a 0.7% decrease QoQ from KRW 9,855 million and a 321.3% increase YoY from KRW 2,323million.

The decrease QoQ was mainly attributable to lower revenue from Ragnarok Online in Taiwan, which was partially offset by higher revenues derived from Ragnarok Online in United States and Canada and Dragonica Online in Taiwan. The Company launched Dragonica Online in Taiwan in May 2017. The increase YoY was largely due to strong revenue growth from Ragnarok Online and Ragnarok Prequel in Taiwan. The Company began to directly offer Ragnarok Online in Taiwan since June 2016 and Ragnarok Prequel was launched in Taiwan in July 2016.

Royalty and license fee revenues were KRW 3,546 million (US$ 3,100 thousand), representing a 20.8% decrease QoQ from KRW 4,475 million and a 28.3% increase YoY from KRW 2,763 million.

The decrease QoQ was primarily due to lower revenues from Ragnarok Online in Japan and Thailand. The increase YoY resulted mainly from revenue growth from Ragnarok Online in Thailand and Indonesia. Our local licensee, Electronic Extreme Ltd.("Extreme"), successfully re-launched Ragnarok Online in Thailand and Indonesia in July 2016 and February 2017, respectively.

Mobile game and application revenues were KRW 12,239 million (US$ 10,701 thousand), representing a 51.8% increase QoQ from KRW 8,063 million and a 290.0% increase YoY from KRW 3,138 million.

The increase QoQ mainly reflected growth in revenue from launchings of Ragnarok R in Thailand and Korea in February 2017 and April 2017, respectively. The increase YoY resulted primarily from increased revenues from Ragnarok R in Taiwan, Thailand and Korea, which was launched in December 2016, February 2017 and April 2017, respectively.

Character merchandising and other revenues were KRW 1,457 million (US$ 1,274 thousand), representing 51.9% increase QoQ from KRW 959 million and a 74.9 % increase YoY from KRW 833 million.

Cost of Revenue

Cost of revenue was KRW 15,463 million (US$ 13,520 thousand), representing a 10.7% increase QoQ from KRW 13,969 million and a 125.9% increase YoY from KRW 6,846 million.

The increase QoQ was mainly due to: i) higher commission paid to mobile platforms including App Store and Google Play Store for mobile game distribution service for Ragnarok R in Korea; and ii) royalty payments related to Ragnarok R in Korea, which was launched in April 2017. The increase YoY was mostly from increased royalty payments, game channeling service fees and outsourcing fees related to Ragnarok R and Ragnarok Prequel. Also, such increase was also driven by higher commission paid to mobile platforms for service of Ragnarok R in Korea, Taiwan and Thailand.

Operating Expenses

Operating expenses were KRW 7,192 million (US$ 6,288 thousand), representing a 18.2% increase QoQ from KRW 6,085 million and a 93.5% increase YoY from KRW 3,717 million.

The increase QoQ was mainly attributable to higher advertising expenses related to marketing for Ragnarok R, which was officially launched in Korea in April, 2017. The increase YoY was mostly resulted from increased advertising expenses related to Ragnarok R and higher commission paid for payment gateway fees.

Income before income tax expenses

Income before income tax expenses was KRW 4,560 million (US$ 3,987 thousand) compared with income before income tax expense of KRW 3,382 million for the first quarter of 2017 and loss before income tax expenses of KRW 1,212 million for the second quarter of 2016.

Net Income

As a result of the foregoing factors, Gravity recorded a net income attributable to parent company of KRW 3,555 million (US$ 3,108 thousand) compared with net income attributable to parent company of KRW 2,170 million for the first quarter of 2017 and a net loss attributable to parent company of KRW 1,605 million for the second quarter of 2016.

Liquidity

The balance of cash and cash equivalents and short-term financial instruments was KRW 45,572 million (US$ 39,845 thousand) as of June 30, 2017.

Note: For convenience purposes only, the KRW amounts have been expressed in U.S. dollars at the exchange rate of KRW 1,143.75 to US$ 1.00, the noon buying rate in effect on June 30, 2017 as quoted by the Federal Reserve Bank of New York.

GRAVITY BUSINESS UPDATES

  • Ragnarok M, an MMORPG mobile game

On August 8, 2017, Gravity, Shanghai the Dream Network Technology Co., Ltd. and X.D. Network Inc.("the Partners") announced that the Partners entered into an agreement to launch Ragnarok M in Taiwan, Korea and Thailand. Ragnarok M is scheduled to be launched in Taiwan during the fourth quarter of 2017 and the launching schedules for Korea and Thailand are to be announced in the future.

The Partners co-developed Ragnarok M based on the content of Ragnarok Online and Ragnarok M has drawn a large attention among Ragnarok Online users for its recreation of Ragnarok Online.

  • 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. Also, such game is expected to be launched in more Asian markets in 2018.

  • Ragnarok Online

Our local licensee, Extreme, re-launched Ragnarok Online in Philippines on June 20, 2017. Such game was successfully re-launched in Taiwan, Thailand and Indonesia. Gravity and Extreme plan to re-launch Ragnarok Online in more Asian markets.

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 79 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-June-17
   KRW US$ KRW US$
Assets(audited) (unaudited) (unaudited) (unaudited)
Current assets:       
 Cash and cash equivalents16,720  14,619   17,070  14,925 
 Short-term financial instruments22,000  19,235   28,502  24,920 
 Accounts receivable, net11,819  10,334   22,689  19,837 
 Other current assets2,852  2,493   3,111  2,720 
  Total current assets53,391  46,681  71,372  62,402 
          
Property and equipment, net593  518   870  760 
Leasehold and other deposits962  841   972  850 
Intangible assets91  80   85  75 
Other non-current assets153  134   98  85 
  Total assets55,190  48,254  73,397  64,172 
          
Liabilities and Equity       
Current liabilities:       
 Accounts payable10,033  8,772   15,709  13,735 
 Deferred revenue9,689  8,471   11,871  10,379 
 Other current liabilities964  843   2,161  1,889 
  Total current liabilities20,686  18,086  29,741  26,003 
Long-term deferred revenue4,096  3,581   7,083  6,193 
Accrued severance benefits104  91   148  130 
Other non-current liabilities210  184   339  296 
  Total liabilities25,096  21,942  37,311  32,622 
Common shares3,474  3,037  3,474  3,037 
Additional paid-in capital75,076  65,640  75,076  65,640 
Accumulated deficit(48,511) (42,414) (42,786) (37,409)
Accumulated other comprehensive income617  540  912  798 
  Total parent company shareholders' equity30,656  26,803  36,676  32,066 
Non-controlling interest(562) (491) (590) (516)
  Total equity30,094  26,312  36,086  31,550 
  Total liabilities and equity55,190  48,254  73,397  64,172 

* For convenience purposes only, the KRW amounts are expressed in U.S. dollars at the rate of KRW 1,143.75 to US$ 1.00, the noon buying rate in effect on June 30, 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 Six months ended
   31-Mar-17 30-Jun-16 30-Jun-17 30-Jun-16 30-Jun-17
   (KRW) (KRW) (KRW) (US$) (KRW) (KRW) (US$)
   (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
Revenues:             
 Online games-subscription revenue9,855  2,323  9,786  8,556  4,460  19,641  17,172 
 Online games-royalties and license fees4,475  2,763  3,546  3,100  6,131  8,021  7,013 
 Mobile games and applications8,063  3,138  12,239  10,701  5,968  20,302  17,750 
 Character merchandising and other revenue959  833  1,457  1,274  1,592  2,416  2,112 
  Total net revenue23,352  9,057  27,028  23,631  18,151  50,380  44,047 
                
Cost of revenue13,969  6,846  15,463  13,520  13,465  29,432  25,733 
                
Gross profit9,383  2,211  11,565  10,111  4,686  20,948  18,314 
              
Operating expenses:             
 Selling, general and administrative5,516  3,205  6,498  5,681  5,893  12,014  10,504 
 Research and development569  512  694  607  855  1,263  1,104 
 Impairment losses on intangible assets    5   
  Total operating expenses6,085  3,717  7,192  6,288  6,753  13,277  11,608 
              
Operating Income(loss)3,298  (1,506) 4,373  3,823  (2,067) 7,671  6,706 
              
Other income (expenses):             
 Interest income133  131  139  122  263  272  238 
 Interest expense(3)  (3) (3)  (6) (5)
 Foreign currency income (loss), net(46) 163  51  45  (695) 5  4 
                
Income(loss) before income tax expenses3,382  (1,212) 4,560  3,987  (2,499) 7,942  6,943 
                
Income tax expenses1,228  410  1,017  889  843  2,245  1,963 
                
  Net income(loss)2,154  (1,622) 3,543  3,098  (3,342) 5,697  4,980 
Net income (loss) attributable to:             
 Non-controlling interest(16) (17) (12) (10) (36) (28) (25)
 Parent company2,170  (1,605) 3,555  3,108  (3,306) 5,725  5,005 
Earning(loss) per share             
  - Basic and diluted312  (231) 512  0.45  (476) 824  0.72 
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 diluted624  (462) 1,024  0.90 (952) 1,648  1.44 

* For convenience, the KRW amounts are expressed in U.S. dollars at the rate of KRW 1,143.75 to US$1.00, the noon buying rate in effect on June 30, 2017 as quoted by the Federal Reserve Bank of New York.

(1) Each ADS represents two common shares.

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