GRVY Gravity Co Ltd

GRAVITY Co., Ltd. (NasdaqGM: 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 first quarter ended March 31, 2019, prepared in accordance with international Financial Reporting Standards as issued by the International Accounting Standards Board and business updates.

FIRST QUARTER 2019 HIGHLIGHTS

• Gravity has announced that recorded the highest quarterly revenues and operating profit since it listed in NASDAQ in 2005.
• Total revenues were KRW 133,623 million (US$ 117,595 thousand), representing a 18.0% increase from the fourth quarter ended December 31, 2018 (“QoQ”) and a 101.5% increase from the first quarter ended March 31, 2018 (“YoY”).
• Operating profit was KRW 23,640 million (US$ 20,804 thousand), representing a 79.9% increase QoQ and a 390.5% increase YoY.
• Profit before income tax expenses was KRW 24,389million (US$ 21,463 thousand), representing an 82.7% increase QoQ and a 376.6% increase YoY.
• Net profit attributable to parent company was KRW 19,760 million (US$ 17,390 thousand), representing a 32.0% increase QoQ and a 456.8% increase YoY.

REVIEW OF FIRST QUARTER 2019 FINANCIAL RESULTS

Revenues

Subscription revenues for the first quarter of 2019 were KRW 6,256 million (US$ 5,506 thousand), representing a 28.2 % increase QoQ from KRW 4,880 million and a 29.7% decrease YoY from KRW 8,896 million. The increase QoQ was mainly attributable to increased revenues from Ragnarok Online in Korea and Taiwan, and Ragnarok Prequel in Taiwan. The decrease YoY was largely due to decreased revenues from Ragnarok Prequel in Taiwan and Ragnarok Online in Korea and Taiwan.

Royalty and license fee revenues for the first quarter of 2019 were KRW 3,720 million (US$ 3,274 thousand), representing a 34.4% increase QoQ from KRW 2,768 million and a 19.5% decrease YoY from KRW 4,619 million. The increase QoQ was primarily due to increased revenue from Ragnarok Online in Japan. The decrease YoY resulted mainly from decreased revenues from Ragnarok Online in Japan, Thailand, and Brazil.

Mobile game and application revenues were KRW 121,147 million (US$ 106,615 thousand) for the first quarter of 2019, representing a 17.7% increase QoQ from KRW 102,916 million and a 135.7% increase YoY from KRW 51,396 million. The increase QoQ resulted primarily from increased revenues from Ragnarok M: Eternal Love in Southeast Asia, North America, South America, and Oceania, which was launched on October 31, 2018 and on January 9, 2019, respectively. Such increase was partially offset by decreased revenues from Ragnarok M: Eternal Love in Taiwan and Korea. The increase YoY was primarily due to revenues from Ragnarok M: Eternal Love in Southeast Asia, North America, South America, and Oceania. This increase was partially offset by decreased revenue from Ragnarok M: Eternal Love in Taiwan and Korea, RO: Idle Poring in global markets except for China and Japan, and Ragnarok R in Taiwan and Korea.

Character merchandising and other revenues were KRW 2,500 million (US$ 2,200 thousand) for the first quarter of 2019, representing 6.3% decrease QoQ from KRW 2,668 million and a 78.6% increase YoY from KRW 1,400 million

Cost of Revenue

Cost of revenue was KRW 101,237 million (US$ 89,094 thousand) for the first quarter of 2019, representing a 10.9% increase QoQ from KRW 91,304 million and a 121.1% increase YoY from KRW 45,784 million. The increase QoQ was mainly due to increased commission paid for mobile game services related to Ragnarok M: Eternal love in North, South America and Oceania. The increase YoY was mostly from increased commission paid for mobile game services related to Ragnarok M: Eternal love in Southeast Asia, North, South America and Oceania.

Operating Expenses

Operating expenses were KRW 8,746 million (US$ 7,697 thousand) for the first quarter of 2019, representing a 0.5% decrease QoQ from KRW 8,787 million and a 44.3% decrease YoY from KRW 15,707 million. The decrease QoQ was mainly attributable to decreased salaries and research and development expenses. Such decrease was partially offset by increased advertising expenses. The decrease YoY was mostly resulted from decreased advertising expenses for Ragnarok M: Eternal Love and RO: Idle Poring in Korea.

Profit before income tax expenses

Profit before income tax expenses was KRW 24,389 million (US$ 21,463 thousand) for the first quarter of 2019 compared with profit before income tax expense of KRW 13,351 million for the fourth quarter of 2018 and profit before income tax expenses of KRW 5,117 million for the first quarter of 2018.

Net Profit

As a result of the foregoing factors, Gravity recorded a net profit attributable to parent company of KRW 19,760 million (US$ 17,390 thousand) for the first quarter of 2019 compared with net profit attributable to parent company of KRW 14,967 million for the fourth quarter of 2018 and a net profit attributable to parent company of KRW 3,549 million for the first quarter of 2018.

Liquidity

The balance of cash and cash equivalents and short-term financial instruments was KRW 127,330 million (US$ 112,057 thousand) as of March 31, 2019.

Note: For convenience purposes only, the KRW amounts have been expressed in U.S. dollars at the exchange rate of KRW 1,136.30 to US$ 1.00, the noon buying rate in effect on March 29, 2019 as quoted by the Federal Reserve Bank of New York.

GRAVITY BUSINESS UPDATE

Ragnarok Online IP-based Games

• Ragnarok M: Eternal Love, a MMORPG mobile game

Gravity is preparing for the service in Japan during 2019 after the launch of Ragnarok M: Eternal Love in North America, South America, and Oceania on January 9, 2019. The game will be published by GungHo Online Entertainment Inc, (“Gungho”) the licensee of Ragnarok Online in Japan and Gungho will make an official announcement of the game release in May.

• Ragnarok Web MMORPG, a web browser-based 3D new version of game

Ragnarok web MMORPG is scheduled to be launched in Taiwan, Hong Kong, and Macau in the second quarter of 2019. Gravity will start pre-registration for Ragnarok Web 3D on May 23, 2019.

• Other Ragnarok Online IP-based games

RO Click H5, a HTML 5 version of idle game, has launched in Korea on April 9, 2019. Gravity is collaborating with KT Corporation for co-marketing of 5G game. Gravity is also planning to launch this game globally in 2019.

A 3D Action MORPG mobile game, Ragnarok Spear of Odin, is expected to be launched in Taiwan, Hong Kong, and Macau in 2019. The game was developed by NeoCyon, our Korean based subsidiary and Gravity also is preparing the other games based on Ragnarok Online IP.

Other IP games

• A MORPG mobile game, RO X Dawn Break, will be launched in Indonesia on May 14, 2019. The game is published by Gravity Game Link, a joint venture in Indonesia.

Investor Presentation

Gravity issued an investor presentation. The presentation contains the Company’s recent business updates, results of first quarter in 2019 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 83 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, 2018 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-18								31-Jun-19
		KRW				US$				KRW				US$
		(audited)				(unaudited)				(unaudited)				(unaudited)
Assets
Current assets:
Cash and cash equivalents			86,051				75,729				111,830				98,416
Short-term financial instruments			9,500				8,361				15,500				13,641
Accounts receivable, net			60,664				53,387				50,691				44,610
Other receivables, net			255				224				250				220
Prepaid expenses			2,516				2,214				1,846				1,625
Other current assets			1,182				1,040				1,672				1,471
Total current assets			160,168				140,955				181,789				159,983
Property and equipment, net			1,498				1,319				5,148				4,531
Intangible assets			1,163				1,024				1,022				899
Deferred tax assets			7,413				6,524				6,978				6,141
Other non-current financial assets			1,494				1,315				1,497				1,317
Other non-current assets			1,438				1,265				1,597				1,406
Total assets			173,174				152,402				198,031				174,277
Liabilities and Equity
Current liabilities:
Accounts payable			71,928				63,300				75,127				66,115
Deferred revenue			16,476				14,500				14,395				12,668
Withholdings			2,019				1,777				2,178				1,917
Accrued expense			1,031				907				1,037				913
Income tax payable			1,944				1,711				2,640				2,324
Other current liabilities			123				108				1,926				1,694
Total current liabilities			93,521				82,303				97,303				85,631
Long-term deferred revenue			3,598				3,167				2,647				2,330
Other non-current liabilities			503				443				2,490				2,191
Total liabilities			97,622				85,913				102,440				90,152
Share capital			3,474				3,057				3,474				3,058
Capital surplus			27,141				23,885				27,140				23,885
Other components of equity			138				122				244				214
Retained earnings (Accumulated deficit)			45,405				39,958				65,165				57,348
Equity attributable to owners of the Parent Company			76,158				67,022				96,023				84,505
Non-controlling interest			(606	)			(533	)			(432	)			(380	)
Total equity			75,552				66,489				95,591				84,125
Total liabilities and equity			173,174				152,402				198,031				174,277

* For convenience purposes only, the KRW amounts are expressed in U.S. dollars at the rate of KRW 1,136.30 to US$ 1.00, the noon buying rate in effect on March 29, 2019 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
		31-Dec-18								31-Mar-18								31-Mar-19
		(KRW)				(US$)				(KRW)				(US$)				(KRW)				(US$)
		(unaudited)				(unaudited)				(unaudited)				(unaudited)				(unaudited)				(unaudited)
Revenues:
Online games-subscription revenue			4,880				4,295				8,896				7,829				6,256				5,506
Online games-royalties and license fees			2,768				2,436				4,619				4,065				3,720				3,274
Mobile games and applications			102,916				90,571				51,396				45,231				121,147				106,615
Character merchandising and other revenue			2,668				2,348				1,400				1,232				2,500				2,200
Total net revenue			113,232				99,650				66,311				58,357				133,623				117,595
Cost of revenue			91,304				80,352				45,784				40,292				101,237				89,094
Gross profit			21,928				19,298				20,527				18,065				32,386				28,501
Operating expenses:
Selling, general and administrative			5,921				5,211				13,827				12,169				6,665				5,865
Research and development			2,642				2,325				1,874				1,649				1,877				1,652
Others, net			224				197				6				5				204				180
Total operating expenses			8,787				7,733				15,707				13,823				8,746				7,697
Operating profit			13,141				11,565				4,820				4,242				23,640				20,804
Finance income(costs):
Finance income			533				469				590				519				1,062				934
Finance costs			(323	)			(284	)			(293	)			(258	)			(313	)			(275	)
Profit before income tax			13,351				11,750				5,117				4,503				24,389				21,463
Income tax expenses(profits)			(1,606	)			(1,413	)			1,593				1,402				4,627				4,072
Profit for the period			14,957				13,163				3,524				3,101				19,762				17,391
Profit attributable to:
Non-controlling interest			(10	)			(9	)			(25	)			(22	)			2				1
Owners of Parent company			14,967				13,172				3,549				3,123				19,760				17,390
Earning per share
- Basic and diluted			2,154				1.90				511				0.45				2,844				2.50
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
Earning per ADS(1)
- Basic and diluted			2,154				1.90				511				0.45				2,844				2.50

* For convenience, the KRW amounts are expressed in U.S. dollars at the rate of KRW 1,136.30 to US$1.00, the noon buying rate in effect on March 29, 2019 as quoted by the Federal Reserve Bank of New York.(1) Each ADS represents one common share.