Gravity Reports Third Quarter of 2018 Results and Business Updates

Date : 10/31/2018 @ 10:30AM
Source : GlobeNewswire Inc.
Stock : Gravity Co., Ltd. ADS, Each Representing One-Fourth of A Share Of (MM) (GRVY)
Quote : 45.0  -9.4 (-17.28%) @ 12:15AM

Gravity Reports Third Quarter of 2018 Results and Business Updates

Gravity (NASDAQ:GRVY)
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– 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, 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 equivalents39,095  35,228   42,279  38,097 
 Short-term financial instruments22,500  20,275   23,500  21,176 
 Accounts receivable, net42,168  37,997   20,751  18,699 
 Other receivables, net698  629  128  116 
 Prepaid expenses3,027  2,728  2,251  2,028 
 Other current assets1,383  1,246   2,047  1,845 
  Total current assets108,871  98,103  90,956  81,961 
          
Property and equipment, net946  852   1,615  1,455 
Intangible assets1,036  934   526  474 
Deferred tax assets3,036  2,736   3,036  2,736 
Other non-current financial assets1,394  1,256  1,492  1,344 
Other non-current assets600  541  1,131    1,019 
  Total assets115,883  104,422  98,756  88,989 
          
Liabilities and Equity       
Current liabilities:       
 Accounts payable44,410  40,018   18,720  16,869 
 Deferred revenue16,100  14,508   12,361  11,139 
 Withholdings1,439  1,297  1,307  1,178 
 Accrued expense1,037  934  930  838 
 Income tax payable1,628  1,467  97  87 
 Other current liabilities130  117   117  105 
  Total current liabilities64,744  58,341  33,532  30,216 
Long-term deferred revenue6,581  5,930   4,393  3,959 
Other non-current liabilities560  505   493  444 
  Total liabilities71,885  64,776  38,418  34,619 
Share capital3,474  3,130  3,474  3,130 
Capital surplus27,164  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 Company44,560  40,152  60,934  54,907 
  Non-controlling interest(562) (506) (596) (537)
  Total equity43,998  39,646  60,338  54,370 
  Total liabilities and equity115,883  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 revenue6,116  9,126  6,005  5,411  28,766  21,017  18,938 
 Online games-royalties and license fees3,209  3,492  2,961  2,668  11,513  10,788  9,721 
 Mobile games and applications51,789  9,730  33,387  30,085  30,033  136,573  123,065 
 Character merchandising and other revenue1,912  1,375  1,848  1,665  3,791  5,160  4,650 
  Total net revenue63,026  23,723  44,201  39,829  74,103  173,538  156,374 
                
Cost of revenue43,150  13,923  29,806  26,858  42,714  118,740  106,996 
                
Gross profit19,876  9,800  14,395  12,971  31,389  54,798  49,378 
              
Operating expenses:             
 Selling, general and administrative9,470  4,943  5,602  5,048  17,048  28,899  26,041 
 Research and development1,742  1,436  1,760  1,586  3,340  5,376  4,844 
 Others, net341  (1) (51) (46) (93) 296  267 
  Total operating expenses11,553  6,378  7,311  6,588  20,295  34,571  31,152 
              
Operating profit8,323  3,422  7,084  6,383  11,094  20,227  18,226 
              
Finance income(costs):             
 Finance income892  200  58  52  1,117  1,540  1,387 
 Finance costs(573) (1) 187  169  (648) (679) (611)
               
                
Profit before income tax8,642  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 period6,600  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 company6,615  2,696  6,312  5,687  8,421  16,476  14,846 
Earning per share             
  - Basic and diluted952  388  908  0.82  1,212  2,371  2.14 
Weighted average number of shares outstanding             
  - Basic and diluted6,948,900  6,948,900  6,948,900  6,948,900  6,948,900  6,948,900  6,948,900 
Earning per ADS(1)             
  - Basic and diluted952  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.

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