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Gravity Reports FIRST Quarter of 2017 Results and Business Update
[April 28, 2017]

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: [email protected]

Ms. Ji Hee Kim
IR Manager
Gravity Co., Ltd.
Email: [email protected]
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.


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