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Gravity Reports Third Quarter of 2018 Results and Business Updates

Seoul, South Korea, Oct. 31, 2018 (GLOBE NEWSWIRE) -- – GRAVITY Co., Ltd. (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, 2018, prepared in accordance with international Financial Reporting Standards as issued by the International Accounting Standards Board. 

THIRD QUARTER 2018 HIGHLIGHTS

  • Total revenues were KRW 44,201 million (US$ 39,829 thousand), representing a 29.9% decrease from the second quarter ended June 30, 2018 (“QoQ”) and an 86.3% increase from the third quarter ended September 30, 2017 (“YoY”).
  • Operating profit was KRW 7,084 million (US$ 6,383 thousand), representing a 14.9% decrease QoQ and a 107% increase YoY.
  • Profit before income tax expenses was KRW 7,329 million (US$ 6,604 thousand), representing a 15.2% decrease QoQ and a 102.4% increase YoY.
  • Net profit attributable to parent company was KRW 6,312 million (US$ 5,687 thousand), representing a 4.6% decrease QoQ and a 134.1% increase YoY.

REVIEW OF THIRD QUARTER 2018 FINANCIAL RESULTS

Revenues

Subscription revenues for the third quarter of 2018 were KRW 6,005 million (US$ 5,411 thousand), representing a 1.8% decrease QoQ from KRW 6,116 million and a 34.2% decrease YoY from KRW 9,126 million. The decrease QoQ was mainly attributable to decreased revenues from Ragnarok Online and Ragnarok Prequel in Taiwan and Ragnarok Online in the United States and Canada, which was partially offset by increased revenue from Ragnarok Online in Korea. The decrease YoY was largely due to decreased revenues from Ragnarok Online and Ragnarok Prequel in Taiwan, which partially offset by increased revenue from Ragnarok Online in Korea.  

Royalty and license fee revenues for the third quarter of 2018 were KRW 2,961 million (US$ 2,668 thousand), representing a 7.7% decrease QoQ from KRW 3,209 million and a 15.2% decrease YoY from KRW 3,492 million. The decrease QoQ was primarily due to decreased revenue of Ragnarok Online in Japan. This decrease was partially offset by increased revenue from Ragnarok Online in Russia, which was re-launched on August 15, 2018. The decrease YoY resulted mainly from decreased revenues from Ragnarok Online in the Philippines and Japan, which was partially offset by increased revenue from Ragnarok Online in Russia.

Mobile game and application revenues were KRW 33,387 million (US$ 30,085 thousand) for the third quarter of 2018, representing a 35.5% decrease QoQ from KRW 51,789 million and a 243.1% increase YoY from KRW 9,730 million. The QoQ decrease was mainly due to decreased revenues from Ragnarok M in Korea and Taiwan and RO: Idle Poring in global markets except for China and Japan. The increase YoY was primarily due to revenue contribution of Ragnarok M in Korea and Taiwan, which partially offset by decreased revenues from Ragnarok R in Taiwan, Korea, and Thailand.

Character merchandising and other revenues were KRW 1,848 million (US$ 1,665 thousand) for the third quarter of 2018, representing 3.3% decrease from KRW 1,912 million and a 34.4% increase YoY from KRW 1,375 million.

Cost of Revenue

Cost of revenue was KRW 29,806 million (US$ 26,858 thousand) for the third quarter of 2018, representing a 30.9% decrease QoQ from KRW 43,150 million and a 114.1% increase YoY from KRW 13,923 million. The decrease QoQ was mainly due to decreased commission paid for mobile game services related to Ragnarok M in Taiwan and Korea and outsourcing fees. The increase YoY was mostly from increased commission paid for mobile game services related to Ragnarok M in Taiwan and Korea and salaries.

Operating Expenses

Operating expenses were KRW 7,311 million (US$ 6,588 thousand) for the third quarter of 2018, representing a 36.7% decrease QoQ from KRW 11,553 million and a 14.6% increase YoY from KRW 6,378 million. The decrease QoQ was mainly attributable to decreased advertising expenses for marketing for Ragnarok M in Korea. The increase YoY was mostly increased research and development expenses related to mobile games and salaries.

Profit before income tax expenses

Profit before income tax expenses was KRW 7,329 million (US$ 6,604 thousand) for the third quarter of 2018 compared with profit before income tax expense of KRW 8,642 million for the second quarter of 2018 and profit before income tax expenses of KRW 3,621 million for the third quarter of 2017.

Net Profit

As a result of the foregoing factors, Gravity recorded a net profit attributable to parent company of KRW 6,312 million (US$ 5,687 thousand) for the third quarter of 2018 compared with net profit attributable to parent company of KRW 6,615 million for the second quarter of 2018 and a net profit attributable to parent company of KRW 2,696 million for the third quarter of 2017.

Liquidity

The balance of cash and cash equivalents and short-term financial instruments was KRW 65,779 million (US$ 59,273 thousand) as of September 30, 2018.

Note: For convenience purposes only, the KRW amounts have been expressed in U.S. dollars at the exchange rate of KRW 1,109.76 to US$ 1.00, the noon buying rate in effect on September 28, 2018 as quoted by the Federal Reserve Bank of New York.

GRAVITY BUSINESS UPDATE

Ragnarok Online IP-based Games

  • Ragnarok M, an MMORPG mobile game

Gravity launched Ragnarok M in Southeast Asia (“SEA”) on October 31, 2018. Pre-registration of this Southeast Asia version began on September 19, hit over 2,500,000 signups via Official website/Google Play/Apple App store. The SEA version is available in five languages including English, Simplified Chinese, Thai, Indonesian and Vietnamese. The launch areas are 11 countries including Thailand, Indonesia, the Philippines, Singapore, Malaysia and Vietnam. Gravity plans to start pre-registration Ragnarok M in North and South America and Oceania during 2018 and launch in the first quarter of 2019. Also, Gravity is preparing for the service in Japan.

  • Ragnarok R, a card RPG mobile game

Ragnarok R locally named as Ragnarok Rush was launched in Indonesia on September 12, 2018 by the local publisher, Gravindo. Based on revenues, such game ranked the third in Google Play Store after launching, at its peak.

  • Ragnarok Prequel, a web browser-based MMORPG game

Ragnarok Prequel 2, the sequel Ragnarok Prequel with 3D visual is scheduled to be launched in Taiwan in the first half of 2019.

  • Other Ragnarok Online IP-based games

A 3D MO Action RPG mobile game, Spear of Odin, is expected to be launched in Taiwan in the first half of 2019.

Investor Presentation

Gravity issued an investor presentation. The presentation contains the Company’s recent business updates, results of the third 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

#     #     #


GRAVITY Co., Ltd.
Consolidated Statements of Financial Position

(In millions of KRW and thousands of US$)

      As of
      31-Dec-17   30-Sep-18
      KRW   US$   KRW   US$
Assets (audited)   (unaudited)   (unaudited)   (unaudited)
Current assets:              
  Cash and cash equivalents 39,095     35,228      42,279     38,097  
  Short-term financial instruments 22,500     20,275      23,500     21,176  
  Accounts receivable, net 42,168     37,997      20,751     18,699  
  Other receivables, net 698     629     128     116  
  Prepaid expenses 3,027     2,728     2,251     2,028  
  Other current assets 1,383     1,246      2,047     1,845  
    Total current assets 108,871     98,103     90,956     81,961  
                   
Property and equipment, net 946     852      1,615     1,455  
Intangible assets 1,036     934      526     474  
Deferred tax assets 3,036     2,736      3,036     2,736  
Other non-current financial assets 1,394     1,256     1,492     1,344  
Other non-current assets 600     541     1,131       1,019  
    Total assets 115,883     104,422     98,756     88,989  
                   
Liabilities and Equity              
Current liabilities:              
  Accounts payable 44,410     40,018      18,720     16,869  
  Deferred revenue 16,100     14,508      12,361     11,139  
  Withholdings 1,439     1,297     1,307     1,178  
  Accrued expense 1,037     934     930     838  
  Income tax payable 1,628     1,467     97     87  
  Other current liabilities 130     117      117     105  
    Total current liabilities 64,744     58,341     33,532     30,216  
Long-term deferred revenue 6,581     5,930      4,393     3,959  
Other non-current liabilities 560     505      493     444  
    Total liabilities 71,885     64,776     38,418     34,619  
Share capital 3,474     3,130     3,474     3,130  
Capital surplus 27,164     24,477     27,140     24,456  
Other components of equity (40 )   (36 )   (118 )   (106 )
Retained earnings (Accumulated deficit) 13,962     12,581     30,438     27,427  
    Equity attributable to owners of the Parent Company 44,560     40,152     60,934     54,907  
    Non-controlling interest (562 )   (506 )   (596 )   (537 )
    Total equity 43,998     39,646     60,338     54,370  
    Total liabilities and equity 115,883     104,422     98,756     88,989  

* For convenience purposes only, the KRW amounts are expressed in U.S. dollars at the rate of KRW 1,109.76 to US$ 1.00, the noon buying rate in effect on September 28, 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   Nine months ended
      30-Jun-18   30-Sep-17   30-Sep-18   30-Sep-17   30-Sep-18
      (KRW)   (KRW)   (KRW)   (US$)   (KRW)   (KRW)   (US$)
      (unaudited)   (unaudited)   (unaudited)   (unaudited)   (unaudited)   (unaudited)   (unaudited)
Revenues:                          
  Online games-subscription revenue 6,116     9,126     6,005     5,411     28,766     21,017     18,938  
  Online games-royalties and license fees 3,209     3,492     2,961     2,668     11,513     10,788     9,721  
  Mobile games and applications 51,789     9,730     33,387     30,085     30,033     136,573     123,065  
  Character merchandising and other revenue 1,912     1,375     1,848     1,665     3,791     5,160     4,650  
    Total net revenue 63,026     23,723     44,201     39,829     74,103     173,538     156,374  
                               
Cost of revenue 43,150     13,923     29,806     26,858     42,714     118,740     106,996  
                               
Gross profit 19,876     9,800     14,395     12,971     31,389     54,798     49,378  
                           
Operating expenses:                          
  Selling, general and administrative 9,470     4,943     5,602     5,048     17,048     28,899     26,041  
  Research and development 1,742     1,436     1,760     1,586     3,340     5,376     4,844  
  Others, net 341     (1 )   (51 )   (46 )   (93 )   296     267  
    Total operating expenses 11,553     6,378     7,311     6,588     20,295     34,571     31,152  
                           
Operating profit 8,323     3,422     7,084     6,383     11,094     20,227     18,226  
                           
Finance income(costs):                          
  Finance income 892     200     58     52     1,117     1,540     1,387  
  Finance costs (573 )   (1 )   187     169     (648 )   (679 )   (611 )
                             
                               
Profit before income tax 8,642     3,621     7,329     6,604     11,563     21,088     19,002  
                               
Income tax expenses(profits) 2,042     914     1,024     923     3,159     4,659     4,198  
                               
    Profit for the period 6,600     2,707     6,305     5,681     8,404     16,429     14,804  
Profit attributable to:                          
  Non-controlling interest (15 )   11     (7 )   (6 )   (17 )   (47 )   (42 )
  Owners of Parent company 6,615     2,696     6,312     5,687     8,421     16,476     14,846  
Earning per share                          
    - Basic and diluted 952     388     908     0.82     1,212     2,371     2.14  
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 952     388     908     0.82     1,212     2,371     2.14  

* For convenience, the KRW amounts are expressed in U.S. dollars at the rate of KRW 1,109.76 to US$ 1.00, the noon buying rate in effect on September 28, 2018 as quoted by the Federal Reserve Bank of New York.

 (1) Each ADS represents one common share.