Gravity Reports Second Quarter of 2016 Results

Seoul, KOREA, REPUBLIC OF


Seoul, Korea, Aug. 24, 2016 (GLOBE NEWSWIRE) --

GRAVITY REPORTS SECOND QUARTER OF 2016 RESULTS

Seoul, South Korea – August 24, 2016 – 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, 2016, prepared in accordance with generally accepted accounting principles in the United States.

FINAICIAL RESULTS FOR THE SECOND QUARTER OF 2016

Revenues for the second quarter ended June 30, 2016 was KRW 9,057 million (US$ 7,848 thousand), representing a 0.4% decrease from KRW 9,094 million for the first quarter ended March 31, 2016 (“QoQ”) and a 1.7% decrease from KRW 9,217 million for the second quarter ended June 30, 2015 (“YoY”).

Review of Financial Results

Revenues

Royalty and license fee revenues for the second quarter of 2016 were KRW 2,738 million (US$ 2,372 thousand), representing a 18.7% decrease QoQ from KRW 3,368 million and a 1.4% decrease YoY from KRW 2,777 million. The decrease QoQ was primarily due to i) decreased revenue from Ragnarok Online in Taiwan resulting from a service suspension on May 31, 2016, as the Company terminated a distribution agreement with a local licensee for its direct service of Ragnarok Online in such market and ii) decreased revenue from Ragnarok Online in Japan. The decrease YoY was resulted mainly from decreased revenue from Ragnarok Online II in Thailand, which was partially offset by increased revenues from Ragnarok Online in Japan and the strengthening of the Japanese Yen against the Korean Won.

Mobile game and application revenues were KRW 2,495 million (US$ 2,162 thousand) for the second quarter of 2016, representing a 4.6% decrease QoQ from KRW 2,616 million and a 32.6% decrease YoY from KRW 3,703 million. The decrease QoQ and YoY was resulted primarily from decreased revenues from mobile applications for a 3rd party and Ragnarok: Path of Heroes.

Subscription revenues for the second quarter of 2016 were KRW 2,323 million (US$ 2,013 thousand), representing a 8.7% increase QoQ from KRW 2,137 million and a 20.9% increase YoY from KRW 1,922 million. The increase QoQ and YoY was mainly attributable to revenues from Ragnarok Online in Taiwan. The Company has commenced its direct service for Ragnarok Online in such market since June 15, 2016.

Character merchandising and other revenues were KRW 1,501 million (US$ 1,301 thousand) for the second quarter of 2016, representing a 54.3% increase QoQ from KRW 973 million and a 84.2% increase YoY from KRW 815 million. The increase QoQ and YoY was mainly due to recognition of deferred revenues occurred from a game development and publishing agreement with a third party, which was executed on March 25, 2016.

Cost of Revenue and Operating Expenses

Cost of revenue was KRW 6,846 million (US$ 5,932 thousand) for the second quarter of 2016, representing a 3.4% increase QoQ from KRW 6,619 million but a 7.5% decrease YoY from KRW 7,401 million. The increase QoQ was mostly from an increase in commission paid. The decrease YoY was mostly from decreased amortization of capitalized research and development cost of Ragnarok Online II, which had been amortized and fully impaired in December 2015.

Operating expenses were KRW 3,717 million (US$ 3,221 thousand) for the second quarter of 2016, representing a 22.4% increase QoQ from KRW 3,036 million but a 17.0% decrease YoY from KRW 4,481 million. The increase QoQ was mainly due to an increase in advertising expenses in Taiwan and commission paid. The decrease YoY was mostly resulted from a decrease in research and development expenses.

Loss before income tax expenses and others was KRW 1,212 million (US$ 1,050 thousand) for the second quarter of 2016 compared with loss before income tax expenses and others of KRW 1,287 million for the first quarter of 2016 and loss before income tax expenses and others of KRW 2,434 million for the second quarter of 2015.

As a result of the foregoing factors, Gravity recorded a net loss attributable to parent company of KRW 1,605 million (US$ 1,390 thousand) for the second quarter of 2016 compared with a net loss attributable to parent company of KRW 1,701 million for the first quarter of 2016 and a net loss attributable to parent company of KRW 2,763 million for the second quarter of 2015.

The balance of cash and cash equivalents and short-term financial instruments was KRW 37,445 million (US$ 32,443 thousand) as of June 30, 2016.

Note: For convenience purposes only, the KRW amounts have been expressed in U.S. dollars at the exchange rate of KRW 1,154.15 to US$ 1.00, the noon buying rate in effect on June 30, 2016 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 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 80 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, 2015 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 in thousands of US$)

   As of
   31-Dec-15 30-Jun-16
   KRW US$ KRW US$
Assets(audited) (unaudited) (unaudited) (unaudited)
Current assets:       
 Cash and cash equivalents 24,909   21,582   13,945   12,082 
 Short-term financial instruments 11,500   9,964   23,500   20,361 
 Accounts receivable, net 5,289   4,583   4,631   4,012 
 Other current assets 1,978   1,714   2,706   2,345 
  Total current assets 43,676   37,843   44,782   38,800 
          
Property and equipment, net 882   764   673   583 
Leasehold and other deposits 954   827   953   826 
Intangible assets 132   114   112   97 
Other non-current assets 85   74   366   317 
  Total assets 45,729   39,622   46,886   40,623 
          
Liabilities and Equity       
Current liabilities:       
 Accounts payable 2,971   2,574   7,072   6,127 
 Deferred revenue 4,997   4,330   7,493   6,492 
 Other current liabilities 836   724   590   511 
  Total current liabilities 8,804   7,628   15,155   13,130 
Long-term deferred revenue 6,600   5,718   4,654   4,032 
Accrued severance benefits 123   107   130   113 
Other non-current liabilities 210   182   209   181 
  Total liabilities 15,737   13,635   20,148   17,456 
Common shares 3,474   3,010   3,474   3,010 
Additional paid-in capital 75,076   65,049   75,076   65,049 
Accumulated deficit (48,761)  (42,248)  (52,067)  (45,113)
Accumulated other comprehensive income 694   601   782   678 
  Total parent company shareholders’ equity 30,483   26,412   27,265   23,624 
Non-controlling interest (491)  (425)  (527)  (457)
  Total equity 29,992   25,987   26,738   23,167 
  Total liabilities and equity 45,729   39,622   46,886   40,623 

* For convenience, the KRW amounts are expressed in U.S. dollars at the rate of KRW 1,154.15 to US$1.00, the noon buying rate in effect on June 30, 2016 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-16 30-Jun-15 30-Jun-16 30-Jun-15 30-Jun-16
   (KRW) (KRW) (KRW) (US$) (KRW) (KRW) (US$)
   (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
Revenues:             
 Online games-subscription revenue 2,137   1,922   2,323   2,013   3,620   4,460   3,864 
 Online games-royalties and license fees 3,368   2,777   2,738   2,372   5,289   6,106   5,290 
 Mobile games and applications 2,616   3,703   2,495   2,162   7,906   5,111   4,428 
 Character merchandising and other revenue 973   815   1,501   1,301   1,471   2,474   2,144 
  Total net revenue 9,094   9,217   9,057   7,848   18,286   18,151   15,726 
                
Cost of revenue 6,619   7,401   6,846   5,932   15,077   13,465   11,667 
                
Gross profit 2,475   1,816   2,211   1,916   3,209   4,686   4,059 
              
Operating expenses:             
 Selling, general and administrative 2,688   3,014   3,205   2,777   5,508   5,893   5,106 
 Research and development 343   1,465   512   444   2,923   855   741 
 Impairment losses on intangible assets 5   2     2   5   4 
  Total operating expenses 3,036   4,481   3,717   3,221   8,433   6,753   5,851 
              
Operating loss (561)  (2,665)  (1,506)  (1,305)  (5,224)  (2,067)  (1,792)
              
Other income (expenses):             
 Interest income 132   181   131   114   383   263   228 
 Interest expense  (1)    (3)  
 Foreign currency income (loss), net (858)  51   163   141   55   (695)  (602)
 Others, net      
                
Loss before income tax expenses and equity loss on investments (1,287)  (2,434)  (1,212)  (1,050)  (4,789)  (2,499)  (2,166)
                
Income tax expenses 433   351   410   355   638   843   730 
                
  Net loss (1,720)  (2,785)  (1,622)  (1,405)  (5,427)  (3,342)  (2,896)
Net income (loss) attributable to:             
 Non-controlling interest (19)  (22)  (17)  (15)  (36)  (36)  (31)
 Parent company (1,701)  (2,763)  (1,605)  (1,390)  (5,391)  (3,306)  (2,865)
Loss per share             
  - Basic and diluted (245)  (398)  (231)  (0.20)  (776)  (476)  (0.41)
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 
Loss per ADS(1)             
  - Basic and diluted (490)  (795)  (462)  (0.40)  (1,552)  (952)  (0.82)

* For convenience, the KRW amounts are expressed in U.S. dollars at the rate of KRW 1,154.15 to US$1.00, the noon buying rate in effect on June 30, 2016 as quoted by the Federal Reserve Bank of New York.

(1) Each ADS represents two common shares.