GRAVITY REPORTS SECOND QUARTER OF 2019 RESULTS AND BUSINESS UPDATES

| Source: GRAVITY Co., Ltd. GRAVITY Co., Ltd.

Seoul, Korea, Aug. 08, 2019 (GLOBE NEWSWIRE) -- GRAVITY Co., Ltd. (NasdaqGM: 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, 2019, prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board and business updates.

SECOND QUARTER 2019 HIGHLIGHTS

  • Total revenues were KRW 78,127 million (US$ 67,667 thousand), representing a 41.5% decrease from the first quarter ended March 31, 2019 (“QoQ”) and a 24.0% increase from the second quarter ended June 30, 2018 (“YoY”).
  • Operating profit was KRW 12,998 million (US$ 11,257 thousand), representing a 45.0% decrease QoQ and a 56.2% increase YoY.
  • Profit before income tax expenses was KRW 14,037million (US$ 12,158 thousand), representing a 42.4% decrease QoQ and a 62.4% increase YoY.
  • Net profit attributable to parent company was KRW 10,861 million (US$ 9,407 thousand), representing a 45.0% decrease QoQ and a 64.2% increase YoY.

REVIEW OF SECOND QUARTER 2019 FINANCIAL RESULTS

Revenues

Subscription revenues for the second quarter of 2019 were KRW 6,746 million (US$ 5,843 thousand), representing a 7.8 % increase QoQ from KRW 6,256 million and a 10.3% increase YoY from KRW 6,116 million. The increase QoQ was mainly attributable to increased revenue from Ragnarok Online in Taiwan. The increase YoY was largely due to increased revenues from Ragnarok online in Taiwan and Korea. Such increase was partially offset by decreased revenue from Ragnarok Prequel in Taiwan.

Royalty and license fee revenues for the second quarter of 2019 were KRW 2,832 million (US$ 2,452 thousand), representing a 23.9% decrease QoQ from KRW 3,720 million and a 11.7% decrease YoY from KRW 3,209 million. The decrease QoQ was primarily due to decreased revenue from Ragnarok Online in Japan. The decrease YoY resulted mainly from decreased revenues from Ragnarok Online in Thailand and Brazil.

Mobile game and application revenues were KRW 66,463 million (US$ 57,565 thousand) for the second quarter of 2019, representing a 45.1% decrease QoQ from KRW 121,147 million and a 28.3% increase YoY from KRW 51,789 million. The decrease QoQ resulted primarily from decreased revenues from Ragnarok M: Eternal Love in Southeast Asia, North America, South America, and Oceania, Taiwan, and Korea. Such decrease was partially offset by revenue from Ragnarok M: Eternal Love in Japan, which was launched on June 5, 2019. The increase YoY was primarily due to revenues from Ragnarok M: Eternal Love in Southeast Asia, North America, South America, Oceania, and Japan. This increase was partially offset by decreased revenues from Ragnarok M: Eternal Love in Korea and Taiwan. RO: Idle Poring in global markets except for China and Japan, and Ragnarok R in Taiwan and Korea.
Character merchandising and other revenues were KRW 2,086 million (US$ 1,807 thousand) for the second quarter of 2019, representing 16.6% decrease QoQ from KRW 2,500 million and a 9.1% increase YoY from KRW 1,912 million.

Cost of Revenue

Cost of revenue was KRW 56,858 million (US$ 49,246 thousand) for the second quarter of 2019, representing a 43.8% decrease QoQ from KRW 101,237 million and a 31.8% increase YoY from KRW 43,150 million. The decrease QoQ was mainly due to decreased commission paid for mobile game services related to Ragnarok M: Eternal love in Southeast Asia, North America, South America and Oceania, Taiwan, and Korea. The increase YoY was mostly from increased commission paid for mobile game services related to Ragnarok M: Eternal love in Southeast Asia, North America, South America and Oceania and salaries.

Operating Expenses

Operating expenses were KRW 8,271 million (US$ 7,164 thousand) for the second quarter of 2019, representing a 5.4% decrease QoQ from KRW 8,746 million and a 28.4% decrease YoY from KRW 11,553 million. The decrease QoQ was mainly attributable to decreased advertising expenses for Ragnarok M: Eternal Love in Korea. Such decrease was partially offset by increased commission paid and research and development expenses. The decrease YoY was mostly resulted from decreased advertising expenses for Ragnarok M: Eternal Love in Korea. Such decrease was partially offset by increased research and development expenses and salaries.

Profit before income tax expenses

Profit before income tax expenses was KRW 14,037 million (US$ 12,158 thousand) for the second quarter of 2019 compared with profit before income tax expense of KRW 24,389 million for the first quarter of 2019 and profit before income tax expenses of KRW 8,642 million for the second quarter of 2018.

Net Profit

As a result of the foregoing factors, Gravity recorded a net profit attributable to parent company of KRW 10,861 million (US$ 9,407 thousand) for the second quarter of 2019 compared with net profit attributable to parent company of KRW 19,760 million for the first quarter of 2019 and a net profit attributable to parent company of KRW 6,615 million for the second quarter of 2018.

Liquidity

The balance of cash and cash equivalents and short-term financial instruments was KRW 111,164 million (US$ 96,281 thousand) as of June 30, 2019.

Note: For convenience purposes only, the KRW amounts have been expressed in U.S. dollars at the exchange rate of KRW 1,154.58 to US$ 1.00, the noon buying rate in effect on June 28, 2019 as quoted by the Federal Reserve Bank of New York.

GRAVITY BUSINESS UPDATE

Ragnarok Online IP-based Games

  • Ragnarok M: Eternal Love, a MMORPG mobile game

Ragnarok M: Eternal Love (locally named Ragnarok Masters in Japan) has launched in Japan on June 5, 2019 by GungHo Online Entertainment Inc, (“GungHo”), the licensee of Ragnarok Online. Also, Gravity is preparing the service for Europe (except for some regions), Turkey and Russia in the third quarter of 2019.

  • Ragnarok Web MMORPG, a web browser-based 3D new version of game

Ragnarok web MMORPG has launched in Taiwan, Hong Kong and Macau on June 5, 2019.

  • Other Ragnarok Online IP-based games

Gravity is planning to launch RO Click H5, a HTML 5 version of idle game globally in September 2019.

A 3D Action MORPG mobile game, Ragnarok Spear of Odin, is expected to be launched in Taiwan, Hong Kong, and Macau in the second half of 2019. The game was developed by NeoCyon, our subsidiary in Korea.

Ragnarok Online

  • The company is scheduled to be re-launched Ragnarok Online in Indonesia in September 2019. The publisher of the game has changed from Gravindo to Gravity Game Link, a joint venture in Indonesia.

        
Other IP games

  •  The Color of Dream Fantasy Latele, a MMORPG mobile game, is expected to be launched in Japan during the second half of 2019.

Investor Presentation

Gravity issued an investor presentation. The presentation contains the Company’s recent business updates, results of second quarter in 2019 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 83 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, 2018 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. Jin Lee
Ms. Minji Oh
IR Unit
Gravity Co., Ltd.
Email: ir@gravity.co.kr
Telephone: +82-2-2132-7800~1

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GRAVITY Co., Ltd.
Consolidated Statements of Financial Position

(In millions of KRW and thousands of US$)

  As of 
  31-Dec-18  30-Jun-19 
  KRW  US$  KRW  US$ 
  (audited)  (unaudited)  (unaudited)  (unaudited) 
Assets                
Current assets:                
Cash and cash equivalents  86,051   74,530   88,664   76,793 
Short-term financial instruments  9,500   8,228   22,500   19,488 
Accounts receivable, net  60,664   52,542   34,817   30,156 
Other receivables, net  255   221   239   207 
Prepaid expenses  2,516   2,179   2,096   1,815 
Other current assets  1,182   1,024   2,390   2,070 
Total current assets  160,168   138,724   150,706   130,529 
Property and equipment, net  1,498   1,297   5,843   5,061 
Intangible assets  1,163   1,007   1,687   1,461 
Deferred tax assets  7,413   6,421   7,035   6,093 
Other non-current financial assets  1,494   1,294   1,554   1,346 
Other non-current assets  1,438   1,245   1,411   1,222 
Total assets  173,174   149,988   168,236   145,712 
Liabilities and Equity                
Current liabilities:                
Accounts payable  71,928   62,298   38,350   33,215 
Deferred revenue  16,476   14,270   12,421   10,758 
Withholdings  2,019   1,749   1,456   1,261 
Accrued expense  1,031   893   1,050   909 
Income tax payable  1,944   1,684   2,005   1,737 
Other current liabilities  123   106   2,135   1,849 
Total current liabilities  93,521   81,000   57,417   49,729 
Long-term deferred revenue  3,598   3,116   1,960   1,698 
Other non-current liabilities  503   436   2,401   2,080 
Total liabilities  97,622   84,552   61,778   53,507 
Share capital  3,474   3,009   3,474   3,009 
Capital surplus  27,141   23,506   27,140   23,506 
Other components of equity  138   120   277   240 
Retained earnings (Accumulated deficit)  45,405   39,326   76,026   65,847 
Equity attributable to owners of the Parent Company  76,158   65,961   106,917   92,602 
Non-controlling interest  (606)  (525)  (459)  (397)
Total equity  75,552   65,436   106,458   92,205 
Total liabilities and equity  173,174   149,988   168,236   145,712 

* For convenience purposes only, the KRW amounts are expressed in U.S. dollars at the rate of KRW 1,154.58 to US$ 1.00, the noon buying rate in effect on June 28, 2019 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-19  30-Jun-18  30-Jun-19  30-Jun-18  30-Jun-19 
  (KRW)  (KRW)  (KRW)  (US$)  (KRW)  (KRW)  (US$) 
  (unaudited)  (unaudited)  (unaudited)  (unaudited)  (unaudited)  (unaudited)  (unaudited) 
Revenues:                            
Online games-subscription revenue  6,256   6,116   6,746   5,843   15,012   13,002   11,261 
Online games-royalties and license fees  3,720   3,209   2,832   2,452   7,828   6,552   5,675 
Mobile games and applications  121,147   51,789   66,463   57,565   103,185   187,610   162,492 
Character merchandising and other revenue  2,500   1,912   2,086   1,807   3,312   4,586   3,972 
Total net revenue  133,623   63,026   78,127   67,667   129,337   211,750   183,400 
Cost of revenue  101,237   43,150   56,858   49,246   88,934   158,095   136,929 
Gross profit  32,386   19,876   21,269   18,421   40,403   53,655   46,471 
Operating expenses:                            
Selling, general and administrative  6,665   9,470   5,733   4,966   23,297   12,398   10,738 
Research and development  1,877   1,742   2,432   2,106   3,616   4,309   3,732 
Others, net  204   341   106   92   347   310   268 
Total operating expenses  8,746   11,553   8,271   7,164   27,260   17,017   14,738 
Operating profit  23,640   8,323   12,998   11,257   13,143   36,638   31,733 
Finance income(costs):                            
Finance income  1,062   892   1,141   989   1,482   2,203   1,907 
Finance costs  (313)  (573)  (102)  (88)  (866)  (415)  (359)
Profit before income tax  24,389   8,642   14,037   12,158   13,759   38,426   33,281 
Income tax expenses(profits)  4,627   2,042   3,208   2,779   3,635   7,835   6,786 
Profit for the year  19,762   6,600   10,829   9,379   10,124   30,591   26,495 
Profit attributable to:                            
Non-controlling interest  2   (15)  (32)  (28)  (40)  (30)  (26)
Owners of Parent company  19,760   6,615   10,861   9,407   10,164   30,621   26,521 
Earning per share                            
- Basic and diluted  2,844   952   1,563   1.40   1,463   4,407   3.80 
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  2,844   952   1,563   1.40   1,463   4,407   3.80 

* For convenience, the KRW amounts are expressed in U.S. dollars at the rate of KRW 1,154.58 to US$1.00, the noon buying rate in effect on June 28, 2019 as quoted by the Federal Reserve Bank of New York.
(1) Each ADS represents one common shares.