Gravity Reports Third Quarter of 2016 Results

Seoul, KOREA, REPUBLIC OF


Seoul, Korea, Oct. 28, 2016 (GLOBE NEWSWIRE) --

GRAVITY REPORTS THIRD QUARTER OF 2016 RESULTS

Seoul, South Korea – October 28, 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 third quarter ended September 30, 2016, prepared in accordance with generally accepted accounting principles in the United States.

FINAICIAL RESULTS FOR THE THIRD QUARTER OF 2016

Revenues

Revenues for the third quarter ended September 30, 2016 was KRW 15,746 million (US$ 13,143 thousand), representing a 73.9% increase from KRW 9,057 million for the second quarter ended June 30, 2016 (“QoQ”) and a 81.6% increase from KRW 8,671 million for the third quarter ended September 30, 2015 (“YoY”).

Subscription revenues for the third quarter of 2016 were KRW 8,497 million (US$ 7,093 thousand), representing a 265.8% increase QoQ from KRW 2,323 million and a 332.4% increase YoY from KRW 1,965 million. The increase QoQ and YoY was mainly attributable to increased revenues from Ragnarok Online and Xianjing RO Chuanshuo WEB in Taiwan. The Company commenced its direct game service of Ragnarok Online on June 15, 2016 and launched Xianjing RO Chuanshuo WEB on July 13, 2016 in such area.

Royalty and license fee revenues for the third quarter of 2016 were KRW 3,736 million (US$ 3,119 thousand), representing a 36.4% increase QoQ from KRW 2,738 million and a 35.1% increase YoY from KRW 2,765 million. The increase QoQ was primarily due to increased revenue from Ragnarok Online in Thailand, which was partially offset by decreased revenue from Ragnarok Online in Japan.  The increase YoY was resulted mainly from increased revenues from Ragnarok Online in Thailand and Japan. Ragnarok Online was relaunched in Thailand by a local licensee on July 13, 2016.

Mobile game and application revenues were KRW 2,170 million (US$ 1,811 thousand) for the third quarter of 2016, representing a 13.0% decrease QoQ from KRW 2,495 million and a 31.3% decrease YoY from KRW 3,160 million. The decrease QoQ was primarily from decreased revenue from Ragnarok: Path of Heroes and the decrease YoY was resulted primarily from decreased revenues from Ragnarok: Path of Heroes and Battle Ship.

Character merchandising and other revenues were KRW 1,343 million (US$ 1,120 thousand) for the third quarter of 2016, representing a 10.5% decrease QoQ from KRW 1,501 million and a 72.0% increase YoY from KRW 781 million. The decrease QoQ was primarily due to decreased revenues from web site development and operation service provided for third parties and the increase 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

Cost of revenue was KRW 6,734 million (US$ 5,621 thousand) for the third quarter of 2016, representing a 1.6% decrease QoQ from KRW 6,846 million and a 6.3% decrease YoY from KRW 7,185 million. The decrease QoQ was mostly attributable to the decreased salaries, which was partially offset by increased commission paid for game service in Taiwan. 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. The decrease YoY, however, was partially offset by increased commission paid for game service in Taiwan.

Operating Expenses

Operating expenses were KRW 5,466 million (US$ 4,562 thousand) for the third quarter of 2016, representing a 47.1% increase QoQ from KRW 3,717 million and a 32.2% increase YoY from KRW 4,135 million. The increase QoQ and YoY was mainly due to an increase in commission paid and advertising expenses in Taiwan. The increase YoY, however, was partially offset by decreased research and development expenses.

Income before income tax expenses and others

Income before income tax expenses and others was KRW 3,524 million (US$ 2,942 thousand) for the third quarter of 2016 compared with loss before income tax expenses and others of KRW 1,212 million for the second quarter of 2016 and loss before income tax expenses and others of KRW 2,148 million for the third quarter of 2015.

Net Income

As a result of the foregoing factors, Gravity recorded a net income attributable to parent company of KRW 3,087 million (US$ 2,577 thousand) for the third quarter of 2016 compared with a net loss attributable to parent company of KRW 1,605 million for the second quarter of 2016 and a net loss attributable to parent company of KRW 2,460 million for the third quarter of 2015.

Liquidity

The balance of cash and cash equivalents and short-term financial instruments was KRW 35,792 million (US$ 29,877 thousand) as of September 30, 2016.

Note: For convenience purposes only, the KRW amounts are expressed in U.S. dollars at the rate of KRW 1,197.98 to US$ 1.00, the noon buying rate in effect on September 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-Sep-16
   KRW US$ KRW US$
Assets(audited) (unaudited) (unaudited) (unaudited)
Current assets:       
 Cash and cash equivalents 24,909   20,793   9,292   7,756 
 Short-term financial instruments 11,500   9,599   26,500   22,121 
 Accounts receivable, net 5,289   4,415   11,846   9,888 
 Other current assets 1,978   1,651   2,642   2,205 
  Total current assets 43,676   36,458   50,280   41,970 
          
Property and equipment, net 882   736   587   490 
Leasehold and other deposits 954   796   954   796 
Intangible assets 132   110   101   84 
Other non-current assets 85   71   338   284 
  Total assets 45,729   38,171   52,260   43,624 
          
Liabilities and Equity       
Current liabilities:       
 Accounts payable 2,971   2,480   8,468   7,069 
 Deferred revenue 4,997   4,171   8,884   7,415 
 Other current liabilities 836   698   631   527 
  Total current liabilities 8,804   7,349   17,983   15,011 
Long-term deferred revenue 6,600   5,509   3,914   3,267 
Accrued severance benefits 123   103   111   93 
Other non-current liabilities 210   175   210   175 
  Total liabilities 15,737   13,136   22,218   18,546 
Common shares 3,474   2,900   3,474   2,900 
Additional paid-in capital 75,076   62,669   75,076   62,669 
Accumulated deficit (48,761)  (40,703)  (48,980)  (40,885)
Accumulated other comprehensive income 694   579   1,027   857 
  Total parent company shareholders' equity 30,483   25,445   30,597   25,541 
Non-controlling interest (491)  (410)  (555)  (463)
  Total equity 29,992   25,035   30,042   25,078 
  Total liabilities and equity 45,729   38,171   52,260   43,624 

* For convenience purposes only, the KRW amounts are expressed in U.S. dollars at the rate of KRW 1,197.98 to US$ 1.00, the noon buying rate in effect on September 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 share and ADS data)

   Three months ended Nine months ended
   30-Jun-16 30-Sep-15 30-Sep-16 30-Sep-15 30-Sep-16
   (KRW) (KRW) (KRW) (US$) (KRW) (KRW) (US$)
   (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
Revenues:             
 Online games-subscription revenue 2,323   1,965   8,497   7,093   5,585   12,957   10,816 
 Online games-royalties and license fees 2,738   2,765   3,736   3,119   8,054   9,842   8,215 
 Mobile games and applications 2,495   3,160   2,170   1,811   11,066   7,281   6,078 
 Character merchandising and other revenue 1,501   781   1,343   1,120   2,252   3,817   3,185 
  Total net revenue 9,057   8,671   15,746   13,143   26,957   33,897   28,294 
                
Cost of revenue 6,846   7,185   6,734   5,621   22,262   20,199   16,861 
                
Gross profit 2,211   1,486   9,012   7,522   4,695   13,698   11,433 
Operating expenses:             
 Selling, general and administrative 3,205   2,898   4,982   4,158   8,406   10,875   9,077 
 Research and development 512   1,237   484   404   4,160   1,339   1,118 
 Impairment loss on intangible assets      2   5   4 
  Total operating expenses 3,717   4,135   5,466   4,562   12,568   12,219   10,199 
                
Operating income(loss) (1,506)  (2,649)  3,546   2,960   (7,873)  1,479   1,234 
                
Other income (expenses)             
 Interest income 131   154   128   107   537   391   326 
 Interest expense     (3)  
 Foreign currency income (loss), net 163   347   (153)  (128)  402   (848)  (707)
 Others, net   3   3    3   3 
Income(loss) before income tax expenses             
and equity income(loss) on investments (1,212)  (2,148)  3,524   2,942   (6,937)  1,025   856 
                
Income tax expenses 410   338   465   388   976   1,308   1,092 
                
  Net income(loss) (1,622)  (2,486)  3,059   2,554   (7,913)  (283)  (236)
Net income(loss) attributable to:             
  Non-controlling interest (17)  (26)  (28)  (23)  (62)  (64)  (54)
  Parent company (1,605)  (2,460)  3,087   2,577   (7,851)  (219)  (182)
Income(loss) per share             
  - Basic and diluted (231)  (354)  444   0.37   (1,130)  (32)  (0.03)
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 
Income(loss) per ADS(1)             
  - Basic and diluted (462)  (708)  888   0.74   (2,260)  (64)  (0.06)

* For convenience purposes only, the KRW amounts are expressed in U.S. dollars at the rate of KRW 1,197.98 to US$ 1.00, the noon buying rate in effect on September 30, 2016 as quoted by the Federal Reserve Bank of New York.

(1) Each ADS represents two common shares.