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Gravity Reports Second Quarter of 2018 Results and Business Update

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Seoul, Korea, July 27, 2018 (GLOBE NEWSWIRE) --

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 second quarter ended June 30, 2018, prepared in accordance with international Financial Reporting Standards as issued by the International Accounting Standards Board. 

SECOND QUARTER 2018 HIGHLIGHTS

  • Total revenues were KRW 63,026 million (US$ 56,688 thousand), representing a 5.0% decrease from the first quarter ended March 31, 2018 ("QoQ") and a 133.2% increase from the second quarter ended June 30, 2017 ("YoY").
  • Operating profit was KRW 8,323 million (US$ 7,486 thousand), representing a 72.7% increase QoQ and a 90.3% increase YoY.
  • Profit before income tax expenses was KRW 8,642 million (US$ 7,773 thousand), representing a 68.9% increase QoQ and a 89.5% increase YoY.
  • Net profit attributable to parent company was KRW 6,615 million (US$ 5,949 thousand), representing a 86.4% increase QoQ and a 86.1% increase YoY.

REVIEW OF SECOND QUARTER 2018 FINANCIAL RESULTS

Revenues

Subscription revenues for the second quarter of 2018 were KRW 6,116 million (US$ 5,501 thousand), representing a 31.3% decrease QoQ from KRW 8,896 million and a 37.5% decrease YoY from KRW 9,786 million. The decrease QoQ was mainly attributable to decreased revenues from Ragnarok Online in Korea and Taiwan, and Ragnarok Prequel in Taiwan. The decrease YoY was largely due to decreased revenues from Ragnarok Prequel and Ragnarok Online in Taiwan and the United States and Canada and Dragonica in Taiwan.

Royalty and license fee revenues for the second quarter of 2018 were KRW 3,209 million (US$ 2,886 thousand), representing a 30.5% decrease QoQ from KRW 4,619 million and a 9.5% decrease YoY from KRW 3,546 million. The decrease QoQ was primarily due to the decreased revenue of Ragnarok Online in Japan. The decrease YoY resulted mainly from decreased revenues from Ragnarok Online in Indonesia, Japan and Thailand.

Mobile game and application revenues were KRW 51,789 million (US$ 46,581 thousand) for the second quarter of 2018, representing a 0.8% increase QoQ from KRW 51,396 million and a 323.1% increase YoY from KRW 12,239 million. The QoQ increase was mainly due to increased revenue from Ragnarok M in Korea, which was launched on March 14, 2018. This increase was partially offset by decreased revenues from Ragnarok M in Taiwan and RO: Idle Poring in global markets except for China and Japan and Ragnarok R in Taiwan and Korea. The increase YoY was primarily due to revenue contribution of Ragnarok M in Korea and Taiwan and RO: Idle Poring in global markets except for China and Japan, which partially offset by decreased revenues from Ragnarok R in Taiwan, Korea, and Thailand.

Character merchandising and other revenues were KRW 1,912 million (US$ 1,720 thousand) for the second quarter of 2018, representing 36.6% increase from KRW 1,400 million and a 31.2% increase YoY from KRW 1,457 million.

Cost of Revenue

Cost of revenue was KRW 43,150 million (US$ 38,811 thousand) for the second quarter of 2018, representing a 5.8% decrease QoQ from KRW 45,784 million and a 185.5% increase YoY from KRW 15,116 million. The decrease QoQ was mainly due to decreased commission paid for mobile game services, which was partially offset by increased outsourcing fees and salaries. The increase YoY was mostly from increased commission paid for mobile game services related to Ragnarok M in Taiwan and Korea and outsourcing fees.

Operating Expenses

Operating expenses were KRW 11,553 million (US$ 10,391 thousand) for the second quarter of 2018, representing a 26.4% decrease QoQ from KRW 15,707 million and a 53.2% increase YoY from KRW 7,539 million. The decrease QoQ was mainly attributable to decreased advertising expenses for marketing for Ragnarok M and RO: Idle Poring in Korea. The increase YoY was mostly increased advertising expenses for Ragnarok M in Korea and research and development expenses related to mobile games.

Profit before income tax expenses

Profit before income tax expenses was KRW 8,642 million (US$ 7,773 thousand) for the second quarter of 2018 compared with profit before income tax expense of KRW 5,117 million for the first quarter of 2018 and profit before income tax expenses of KRW 4,560 million for the second quarter of 2017.

Net Profit

As a result of the foregoing factors, Gravity recorded a net profit attributable to parent company of KRW 6,615 million (US$ 5,949 thousand) for the second quarter of 2018 compared with net profit attributable to parent company of KRW 3,549 million for the first quarter of 2018 and a net profit attributable to parent company of KRW 3,555 million for the second quarter of 2017.

Liquidity

The balance of cash and cash equivalents and short-term financial instruments was KRW 67, 906 million (US$ 61,078 thousand) as of June 30, 2018.

Note: For convenience purposes only, the KRW amounts have been expressed in U.S. dollars at the exchange rate of KRW 1,111.79 to US$ 1.00, the noon buying rate in effect on June 29, 2018 as quoted by the Federal Reserve Bank of New York.

GRAVITY BUSINESS UPDATE

Ragnarok Online IP-based Games

  • Ragnarok M, a MMORPG mobile game

During October 2018, Gravity plans to offer Ragnarok M globally except for Taiwan, Hong Kong, Macau, Korea, Japan and China. Ragnarok M has been one of the top mobile games in Taiwan since its launch on October 12, 2017; and in Korea since its launch on March 14, 2018. Gravity expects to launch Ragnarok M in Japan after the global launch. The launch schedule is to be announced in the future.

  • Ragnarok R, a card RPG mobile game

The Company expects to launch Ragnarok R in Indonesia in 2018.

  • Other Ragnarok Online IP-based games

A 3D MO Action RPG mobile game, Spear of Odin, is expected to be launched in Philippines, Singapore, Malaysia, Indonesia, Thailand and Vietnam in 2018. Such game is locally named as Ragnarok Dungeon Survivor in Thailand and Vietnam. The company conducted a closed beta test("CBT") in Philippines, Singapore, Malaysia and Indonesia in July 2018.

Ragnarok Online

The Company plans to re-launch Ragnarok Online in Russia and CIS countries in 2018. A CBT is currently being conducted in Russia and CIS countries, which will be completed by August 7, 2018.

Ragnarok Zero, a new version of Ragnarok Online is scheduled to be launched in Vietnam. Gravity is currently offering such game in Korea.

DR management plan

  • Gravity Announces 2-for-1 American Depository Shares ("ADS") Split

The Company announced today that its Board of Directors has approved a ratio change of its American Depositary Shares("ADSs") to common shares from one ADS to two common shares (1:2) to one ADS to one common share (1:1), effective as of August 27, 2018. The ratio change will have the same effect as a 2-for-1 split of its ADSs. The ADS split will have no effect on its common shares.

  • Gravity Announces Transferring to Global Market from Capital Market

The Company today announced that Gravity determined to transfer its listing to The NASDAQ Global Market® ("Global Market") from The NASDAQ Capital Market®. The Company's ADS will begin trading on Global Market effective at the start of trading on August 27, 2018.

The transfer of the Company's listing to Global Market is not expected to have any impact on trading in the Company's ADS, and the Company's ADS will continue to trade on NASDAQ under the symbol ‘GRVY'.

Investor Presentation

Gravity issued an investor presentation. The presentation contains the Company's recent business updates, results of the second quarter in 2018 and Gravity's business plan. The presentation can be found on the Company's website under the IR Archives section at http://www.gravity.co.kr/en/ir/pds/list.asp. Korean and Japanese versions of the presentation are also provided on the website.

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, 2017 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. Sang Eun Sung
IR Manager
Gravity Co., Ltd.
Email: ir@gravity.co.kr
Telephone: +82-2-2132-7800

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GRAVITY Co., Ltd.
Consolidated Statements of Financial Position

(In millions of KRW and thousands of US$)

      As of
      31-Dec-17   30-Jun-18
      KRW   US$   KRW   US$
Assets (audited)   (unaudited)   (unaudited)   (unaudited)
Current assets:              
  Cash and cash equivalents 39,095   35,164    44,406   39,941
  Short-term financial instruments 22,500   20,238    23,500   21,137
  Accounts receivable, net 42,168   37,928    28,008   25,191
  Other receivables, net 698   628   41   38
  Prepaid expenses 3,027   2,723   3,352   3,015
  Other current assets 1,383   1,243    1,830   1,646
    Total current assets 108,871   97,924   101,137   90,968
                   
Property and equipment, net 946   851    1,329   1,195
Intangible assets 1,036   932    520   468
Deferred tax assets 3,036   2,731    3,036   2,731
Other non-current financial assets 1,394   1,254   1,453   1,307
Other non-current assets 600   540   723     650
    Total assets 115,883   104,232   108,198   97,319
                   
Liabilities and Equity              
Current liabilities:              
  Accounts payable 44,410   39,945    29,028   26,109
  Deferred revenue 16,100   14,481    15,177   13,651
  Withholdings 1,439   1,294   2,156   1,939
  Accrued expense 1,037   933   930   837
  Income tax payable 1,628   1,464   634   570
  Other current liabilities 130   117    118   106
    Total current liabilities 64,744   58,234   48,043   43,212
Long-term deferred revenue 6,581   5,919    5,509   4,955
Other non-current liabilities 560   504    567   510
    Total liabilities 71,885   64,657   54,119   48,677
Share capital 3,474   3,125   3,474   3,125
Capital surplus 27,164   24,433   27,164   24,433
Other components of equity (40)   (36)   (83)   (75)
Retained earnings (Accumulated deficit) 13,962   12,558   24,126   21,700
    Equity attributable to owners of the Parent Company 44,560   40,080   54,681   49,183
    Non-controlling interest (562)   (505)   (602)   (541)
    Total equity 43,998   39,575   54,079   48,642
    Total liabilities and equity 115,883   104,232   108,198   97,319

* For convenience purposes only, the KRW amounts are expressed in U.S. dollars at the rate of KRW 1,111.79 to US$ 1.00, the noon buying rate in effect on June 29, 2018 as quoted by the Federal Reserve Bank of New York.


GRAVITY Co., Ltd.
Consolidated Statements of Comprehensive Income

(In millions of KRW and thousands of US$ except for share and ADS data)

                               
      Three months ended   Six months ended
      31-Mar-18   30-Jun-17   30-Jun-18   30-Jun-17   30-Jun-18
      (KRW)   (KRW)   (KRW)   (US$)   (KRW)   (KRW)   (US$)
      (unaudited)   (unaudited)   (unaudited)   (unaudited)   (unaudited)   (unaudited)   (unaudited)
Revenues:                          
  Online games-subscription revenue 8,896   9,786   6,116   5,501   19,641   15,012   13,503
  Online games-royalties and license fees 4,619   3,546   3,209   2,886   8,021   7,828   7,040
  Mobile games and applications 51,396   12,239   51,789   46,581   20,302   103,185   92,810
  Character merchandising and other revenue 1,400   1,457   1,912   1,720   2,416   3,312   2,979
    Total net revenue 66,311   27,028   63,026   56,688   50,380   129,337   116,332
                               
Cost of revenue 45,784   15,116   43,150   38,811   28,791   88,934   79,992
                               
Gross profit 20,527   11,912   19,876   17,877   21,589   40,403   36,340
                           
Operating expenses:                          
  Selling, general and administrative 13,827   6,577   9,470   8,518   12,105   23,297   20,954
  Research and development 1,874   1,041   1,742   1,567   1,904   3,616   3,252
  Others, net 6   (79)   341   306   (92)   347   313
    Total operating expenses 15,707   7,539   11,553   10,391   13,917   27,260   24,519
                           
Operating profit 4,820   4,373   8,323   7,486   7,672   13,143   11,821
                           
ds                          
  Finance income 590   382   892   802   917   1,482   1,333
  Finance costs (293)   (195)   (573)   (515)   (647)   (866)   (779)
                             
                               
Profit before income tax 5,117   4,560   8,642   7,773   7,942   13,759   12,375
                               
Income tax expenses(profits) 1,593   1,017   2,042   1,837   2,245   3,635   3,269
                               
    Profit for the year 3,524   3,543   6,600   5,936   5,697   10,124   9,106
Profit attributable to:                          
  Non-controlling interest (25)   (12)   (15)   (13)   (28)   (40)   (36)
  Owners of Parent company 3,549   3,555   6,615   5,949   5,725   10,164   9,142
Earning per share                          
    - Basic and diluted 511   512   952   0.86   824   1,463   1.32
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   6,948,900
Earning per ADS(1)                          
    - Basic and diluted 1,022   1,024   1,904   1.72   1,648   2,926   2.64
                                 

* For convenience, the KRW amounts are expressed in U.S. dollars at the rate of KRW 1,111.79 to US$1.00, the noon buying rate in effect on June 29, 2018 as quoted by the Federal Reserve Bank of New York.

 (1) Each ADS represents two common shares.

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