Gravity Reports Second Quarter of 2016 Results

Date24 Aug 2016

CategoriesEarnings Releases And Operating Results

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 3^rd 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: [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 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		ㅡ			ㅡ				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		ㅡ				(1	)	ㅡ			ㅡ				(3	)	ㅡ			ㅡ
	Foreign currency income (loss), net			(858	)		51			163			141			55			(695	)		(602	)
	Others, net		ㅡ			ㅡ			ㅡ			ㅡ			ㅡ			ㅡ			ㅡ

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	)

(1) Each ADS represents two common shares.

Gravity Reports Second Quarter of 2016 Results

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