GRVY Gravity Co Ltd

GRAVITY Co., Ltd. (Nasdaq: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, 2015, prepared in accordance with generally accepted accounting principles in the United States.

FINANCIAL RESULTS FOR THE THIRD QUARTER OF 2015

Revenues for the third quarter ended September 30, 2015 was KRW 8,671 million (US$ 7,603 thousand), representing a 5.9% decrease from KRW 9,217 million for the second quarter ended June 30, 2015 (“QoQ”) and a 9.2% decrease from KRW 9,545 million for the third quarter ended September 30, 2014 (“YoY”).

Review of Financial Results

Revenues

Royalty and license fee revenues for the third quarter of 2015 were KRW 2,765 million (US$ 2,424 thousand), representing a 0.4% decrease QoQ from KRW 2,777 million and a 14.2% decrease YoY from KRW 3,221 million. The decrease QoQ was primarily due to decreased revenues from Ragnarok Online II in Thailand and Vietnam. The Company recognized deferred revenues due a termination of license agreements in the second quarter of 2015 in such markets, which did not occur in the third quarter. The decrease YoY resulted mainly from decreased revenues from Ragnarok Online in Japan.

Subscription revenues for the third quarter of 2015 were KRW 1,965 million (US$ 1,723 thousand), representing a 2.2% increase QoQ from KRW 1,922 million and a 9.1% decrease YoY from KRW 2,161 million. The increase QoQ was mainly attributable to an increase in revenues from Ragnarok Online in Korea and the United States/Canada. The decrease YoY was largely due to decreased revenues from Ragnarok Online II in Taiwan and the United States/Canada.

Mobile game and application revenues were KRW 3,160 million (US$ 2,771 thousand) for the third quarter of 2015, representing a 14.7% decrease QoQ from KRW 3,703 million and a 4.1% decrease YoY from KRW 3,296 million. The decrease QoQ resulted primarily from decreased revenues from application development and operation service for 3rd parties. The decrease YoY was mainly driven by decreased revenues from Ragnarok: Path of Heroes.

Character merchandising and other revenues were KRW 781 million (US$ 685 thousand) for the third quarter 2015, representing a 4.2% decrease QoQ from KRW 815 million and a 9.9% decrease YoY from KRW 867 million.

Cost of Revenue and Operating Expenses

Cost of revenue was KRW 7,185 million (US$ 6,300 thousand) for the third quarter of 2015, representing a 2.9% decrease QoQ from KRW 7,401 million and a 8.0% decrease YoY from KRW 7,808 million. The decrease QoQ was mostly from decreased outsourcing fee and commission paid. The decrease YoY was mainly attributable to decreased depreciation expenses and outsourcing fee.

Operating expenses were KRW 4,135 million (US$ 3,626 thousand) for the third quarter of 2015, representing a 7.7% decrease QoQ from KRW 4,481 million and a 11.0% decrease YoY from KRW 4,644 million. The decrease QoQ was mainly due to decreased R&D expense and commission paid. The decrease YoY was mostly resulted from decreased advertising expense and salaries.

Loss before income tax expenses and others was KRW 2,148 million (US$ 1,884 thousand) for the third quarter of 2015 compared with loss before income tax expenses and others of KRW 2,434 million for the second quarter of 2015 and loss before income tax expenses and others of KRW 2,676 million for the third quarter of 2014.

As a result of the foregoing factors, Gravity recorded a net loss attributable to parent company of KRW 2,460 million (US$ 2,157 thousand) for the third quarter of 2015 compared with a net loss attributable to parent company of KRW 2,763 million for the second quarter of 2015 and a net loss attributable to parent company of KRW 3,035 million for the third quarter of 2014.

The balance of cash and cash equivalents and short-term financial instruments was KRW 38,864 million (US$ 34,076 thousand) as of September 30, 2015.

Note: For convenience purposes only, the KRW amounts have been expressed in U.S. dollars at the exchange rate of KRW 1,140.50 to US$ 1.00, the noon buying rate in effect on October 30, 2015 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, Taiwan and Thailand, and is currently commercially offered in 71 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, 2014 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.

GRAVITY Co., Ltd.
Consolidated Balance Sheet
(In millions of KRW and in thousands of US$)
	As of
	31-Dec-14								30-Sep-15
	KRW				US$				KRW				US$
Assets	(audited)				(unaudited)				(unaudited)				(unaudited)
Current assets:
Cash and cash equivalents		28,382				24,886				13,864				12,156
Short-term financial instruments		14,500				12,714				25,000				21,920
Accounts receivable, net		5,159				4,523				4,495				3,941
Other current assets		2,651				2,324				1,868				1,638
Total current assets		50,692				44,447				45,227				39,655
Property and equipment, net		1,213				1,064				912				800
Leasehold and other deposits		937				822				934				819
Intangible assets		9,973				8,744				6,977				6,118
Other non-current assets		281				246				381				333
Total assets		63,096				55,323				54,431				47,725
Liabilities and Equity
Current liabilities:
Accounts payable		2,713				2,379				2,477				2,172
Deferred revenue		5,727				5,021				4,874				4,274
Other current liabilities		1,211				1,062				719				630
Total current liabilities		9,651				8,462				8,070				7,076
Long-term deferred revenue		5,268				4,619				6,296				5,520
Accrued severance benefits		103				90				129				113
Other non-current liabilities		226				198				210				185
Total liabilities		15,248				13,369				14,705				12,894
Common shares		3,474				3,046				3,474				3,046
Additional paid-in capital		75,076				65,827				75,076				65,827
Retained earnings		(31,796	)			(27,879	)			(39,647	)			(34,763	)
Accumulated other comprehensive income		1,521				1,334				1,313				1,151
Total parent company shareholders' equity		48,275				42,328				40,216				35,261
Non-controlling interest		(427	)			(374	)			(490	)			(430	)
Total equity		47,848				41,954				39,726				34,831
Total liabilities and equity		63,096				55,323				54,431				47,725

* For convenience purposes only, the KRW amounts are expressed in U.S. dollars at the rate of KRW 1,140.50 to US$ 1.00, the noon buying rate in effect on October 30, 2015 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$, except for shares and ADS data)
			Three months ended																Nine months ended
			30-Jun-15				30-Sep-14				30-Sep-15								30-Sep-14				30-Sep-15
			(KRW)				(KRW)				(KRW)				(US$)				(KRW)				(KRW)				(US$)
			(unaudited)				(unaudited)				(unaudited)				(unaudited)				(unaudited)				(unaudited)				(unaudited)
Revenues:
Online games-subscription revenue				1,922				2,161				1,965				1,723				5,640				5,585				4,897
Online games-royalties and license fees				2,777				3,221				2,765				2,424				10,198				8,054				7,062
Mobile games and applications				3,703				3,296				3,160				2,771				11,733				11,066				9,703
Character merchandising and other revenue				815				867				781				685				2,989				2,252				1,975
Total net revenue				9,217				9,545				8,671				7,603				30,560				26,957				23,637
Cost of revenue				7,401				7,808				7,185				6,300				26,157				22,262				19,520
Gross profit				1,816				1,737				1,486				1,303				4,403				4,695				4,117
Operating expenses:
Selling, general and administrative				3,014				3,366				2,898				2,541				9,823				8,406				7,370
Research and development				1,465				1,278				1,237				1,085				3,068				4,160				3,648
Impairment loss on intangible assets				2			ㅡ				ㅡ				ㅡ				ㅡ					2				2
Total operating expenses				4,481				4,644				4,135				3,626				12,891				12,568				11,020
Operating loss				(2,665	)			(2,907	)			(2,649	)			(2,323	)			(8,488	)			(7,873	)			(6,903	)
Other income (expenses)
Interest income				181				259				154				135				817				537				471
Interest expense				(1	)			(2	)		ㅡ				ㅡ					(9	)			(3	)			(3	)
Foreign currency income (loss), net				51				(26	)			347				304				(164	)			402				353
Others, net			ㅡ				ㅡ				ㅡ				ㅡ				ㅡ				ㅡ				ㅡ
Loss before income tax expenses and equity loss on investments		(2,434			)			(2,676	)			(2,148	)			(1,884	)			(7,844	)			(6,937	)			(6,082	)
Income tax expenses				351				371				338				296				1,140				976				856
Loss before equity loss on investments				(2,785	)			(3,047	)			(2,486	)			(2,180	)			(8,984	)			(7,913	)			(6,938	)
Equity loss on investments, net			ㅡ				ㅡ				ㅡ				ㅡ				ㅡ				ㅡ				ㅡ
Net loss				(2,785	)			(3,047	)			(2,486	)			(2,180	)			(8,984	)			(7,913	)			(6,938	)
Net loss attributable to:
Non-controlling interest				(22	)			(12	)			(26	)			(23	)			51				(62	)			(54	)
Parent company				(2,763	)			(3,035	)			(2,460	)			(2,157	)			(9,035	)			(7,851	)			(6,884	)
Loss per share
- Basic and diluted				(398	)			(437	)			(354	)			(0.31	)			(1,300	)			(1,130	)			(0.99	)
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				(795	)			(874	)			(708	)			(0.62	)			(2,600	)			(2,260	)			(1.98	)

* For convenience purposes only, the KRW amounts are expressed in U.S. dollars at the rate of KRW 1,140.50 to US$ 1.00, the noon buying rate in effect on October 30, 2015 as quoted by the Federal Reserve Bank of New York.

(1) Each ADS represents two common shares.  

Contacts:

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