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 second quarter ended June 30, 2019, prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board and business updates.

SECOND QUARTER 2019 HIGHLIGHTS

• Total revenues were KRW 78,127 million (US$ 67,667 thousand), representing a 41.5% decrease from the first quarter ended March 31, 2019 (“QoQ”) and a 24.0% increase from the second quarter ended June 30, 2018 (“YoY”).
• Operating profit was KRW 12,998 million (US$ 11,257 thousand), representing a 45.0% decrease QoQ and a 56.2% increase YoY.
• Profit before income tax expenses was KRW 14,037million (US$ 12,158 thousand), representing a 42.4% decrease QoQ and a 62.4% increase YoY.
• Net profit attributable to parent company was KRW 10,861 million (US$ 9,407 thousand), representing a 45.0% decrease QoQ and a 64.2% increase YoY.

REVIEW OF SECOND QUARTER 2019 FINANCIAL RESULTS

Revenues

Subscription revenues for the second quarter of 2019 were KRW 6,746 million (US$ 5,843 thousand), representing a 7.8 % increase QoQ from KRW 6,256 million and a 10.3% increase YoY from KRW 6,116 million. The increase QoQ was mainly attributable to increased revenue from Ragnarok Online in Taiwan. The increase YoY was largely due to increased revenues from Ragnarok online in Taiwan and Korea. Such increase was partially offset by decreased revenue from Ragnarok Prequel in Taiwan.

Royalty and license fee revenues for the second quarter of 2019 were KRW 2,832 million (US$ 2,452 thousand), representing a 23.9% decrease QoQ from KRW 3,720 million and a 11.7% decrease YoY from KRW 3,209 million. The decrease QoQ was primarily due to decreased revenue from Ragnarok Online in Japan. The decrease YoY resulted mainly from decreased revenues from Ragnarok Online in Thailand and Brazil.

Mobile game and application revenues were KRW 66,463 million (US$ 57,565 thousand) for the second quarter of 2019, representing a 45.1% decrease QoQ from KRW 121,147 million and a 28.3% increase YoY from KRW 51,789 million. The decrease QoQ resulted primarily from decreased revenues from Ragnarok M: Eternal Love in Southeast Asia, North America, South America, and Oceania, Taiwan, and Korea. Such decrease was partially offset by revenue from Ragnarok M: Eternal Love in Japan, which was launched on June 5, 2019. The increase YoY was primarily due to revenues from Ragnarok M: Eternal Love in Southeast Asia, North America, South America, Oceania, and Japan. This increase was partially offset by decreased revenues from Ragnarok M: Eternal Love in Korea and Taiwan. 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 2,086 million (US$ 1,807 thousand) for the second quarter of 2019, representing 16.6% decrease QoQ from KRW 2,500 million and a 9.1% increase YoY from KRW 1,912 million.

Cost of Revenue

Cost of revenue was KRW 56,858 million (US$ 49,246 thousand) for the second quarter of 2019, representing a 43.8% decrease QoQ from KRW 101,237 million and a 31.8% increase YoY from KRW 43,150 million. The decrease QoQ was mainly due to decreased commission paid for mobile game services related to Ragnarok M: Eternal love in Southeast Asia, North America, South America and Oceania, Taiwan, and Korea. The increase YoY was mostly from increased commission paid for mobile game services related to Ragnarok M: Eternal love in Southeast Asia, North America, South America and Oceania and salaries.

Operating Expenses

Operating expenses were KRW 8,271 million (US$ 7,164 thousand) for the second quarter of 2019, representing a 5.4% decrease QoQ from KRW 8,746 million and a 28.4% decrease YoY from KRW 11,553 million. The decrease QoQ was mainly attributable to decreased advertising expenses for Ragnarok M: Eternal Love in Korea. Such decrease was partially offset by increased commission paid and research and development expenses. The decrease YoY was mostly resulted from decreased advertising expenses for Ragnarok M: Eternal Love in Korea. Such decrease was partially offset by increased research and development expenses and salaries.

Profit before income tax expenses

Profit before income tax expenses was KRW 14,037 million (US$ 12,158 thousand) for the second quarter of 2019 compared with profit before income tax expense of KRW 24,389 million for the first quarter of 2019 and profit before income tax expenses of KRW 8,642 million for the second quarter of 2018.

Net Profit

As a result of the foregoing factors, Gravity recorded a net profit attributable to parent company of KRW 10,861 million (US$ 9,407 thousand) for the second quarter of 2019 compared with net profit attributable to parent company of KRW 19,760 million for the first quarter of 2019 and a net profit attributable to parent company of KRW 6,615 million for the second quarter of 2018.

Liquidity

The balance of cash and cash equivalents and short-term financial instruments was KRW 111,164 million (US$ 96,281 thousand) as of June 30, 2019.

Note: For convenience purposes only, the KRW amounts have been expressed in U.S. dollars at the exchange rate of KRW 1,154.58 to US$ 1.00, the noon buying rate in effect on June 28, 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

Ragnarok M: Eternal Love (locally named Ragnarok Masters in Japan) has launched in Japan on June 5, 2019 by GungHo Online Entertainment Inc, (“GungHo”), the licensee of Ragnarok Online. Also, Gravity is preparing the service for Europe (except for some regions), Turkey and Russia in the third quarter of 2019.

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

Ragnarok web MMORPG has launched in Taiwan, Hong Kong and Macau on June 5, 2019.

• Other Ragnarok Online IP-based games

Gravity is planning to launch RO Click H5, a HTML 5 version of idle game globally in September 2019.

A 3D Action MORPG mobile game, Ragnarok Spear of Odin, is expected to be launched in Taiwan, Hong Kong, and Macau in the second half of 2019. The game was developed by NeoCyon, our subsidiary in Korea.

Ragnarok Online

• The company is scheduled to be re-launched Ragnarok Online in Indonesia in September 2019. The publisher of the game has changed from Gravindo to Gravity Game Link, a joint venture in Indonesia.

        Other IP games

•  The Color of Dream Fantasy Latele, a MMORPG mobile game, is expected to be launched in Japan during the second half of 2019.

Investor Presentation

Gravity issued an investor presentation. The presentation contains the Company’s recent business updates, results of second 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. Jin LeeMs. Minji Oh IR Unit Gravity Co., Ltd. Email: ir@gravity.co.kr Telephone: +82-2-2132-7800~1

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GRAVITY Co., Ltd.Consolidated Statements of Financial Position

(In millions of KRW and thousands of US$)

		As of
		31-Dec-18								30-Jun-19
		KRW				US$				KRW				US$
		(audited)				(unaudited)				(unaudited)				(unaudited)
Assets
Current assets:
Cash and cash equivalents			86,051				74,530				88,664				76,793
Short-term financial instruments			9,500				8,228				22,500				19,488
Accounts receivable, net			60,664				52,542				34,817				30,156
Other receivables, net			255				221				239				207
Prepaid expenses			2,516				2,179				2,096				1,815
Other current assets			1,182				1,024				2,390				2,070
Total current assets			160,168				138,724				150,706				130,529
Property and equipment, net			1,498				1,297				5,843				5,061
Intangible assets			1,163				1,007				1,687				1,461
Deferred tax assets			7,413				6,421				7,035				6,093
Other non-current financial assets			1,494				1,294				1,554				1,346
Other non-current assets			1,438				1,245				1,411				1,222
Total assets			173,174				149,988				168,236				145,712
Liabilities and Equity
Current liabilities:
Accounts payable			71,928				62,298				38,350				33,215
Deferred revenue			16,476				14,270				12,421				10,758
Withholdings			2,019				1,749				1,456				1,261
Accrued expense			1,031				893				1,050				909
Income tax payable			1,944				1,684				2,005				1,737
Other current liabilities			123				106				2,135				1,849
Total current liabilities			93,521				81,000				57,417				49,729
Long-term deferred revenue			3,598				3,116				1,960				1,698
Other non-current liabilities			503				436				2,401				2,080
Total liabilities			97,622				84,552				61,778				53,507
Share capital			3,474				3,009				3,474				3,009
Capital surplus			27,141				23,506				27,140				23,506
Other components of equity			138				120				277				240
Retained earnings (Accumulated deficit)			45,405				39,326				76,026				65,847
Equity attributable to owners of the Parent Company			76,158				65,961				106,917				92,602
Non-controlling interest			(606	)			(525	)			(459	)			(397	)
Total equity			75,552				65,436				106,458				92,205
Total liabilities and equity			173,174				149,988				168,236				145,712

* For convenience purposes only, the KRW amounts are expressed in U.S. dollars at the rate of KRW 1,154.58 to US$ 1.00, the noon buying rate in effect on June 28, 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																Six months ended
		31-Mar-19				30-Jun-18				30-Jun-19								30-Jun-18				30-Jun-19
		(KRW)				(KRW)				(KRW)				(US$)				(KRW)				(KRW)				(US$)
		(unaudited)				(unaudited)				(unaudited)				(unaudited)				(unaudited)				(unaudited)				(unaudited)
Revenues:
Online games-subscription revenue			6,256				6,116				6,746				5,843				15,012				13,002				11,261
Online games-royalties and license fees			3,720				3,209				2,832				2,452				7,828				6,552				5,675
Mobile games and applications			121,147				51,789				66,463				57,565				103,185				187,610				162,492
Character merchandising and other revenue			2,500				1,912				2,086				1,807				3,312				4,586				3,972
Total net revenue			133,623				63,026				78,127				67,667				129,337				211,750				183,400
Cost of revenue			101,237				43,150				56,858				49,246				88,934				158,095				136,929
Gross profit			32,386				19,876				21,269				18,421				40,403				53,655				46,471
Operating expenses:
Selling, general and administrative			6,665				9,470				5,733				4,966				23,297				12,398				10,738
Research and development			1,877				1,742				2,432				2,106				3,616				4,309				3,732
Others, net			204				341				106				92				347				310				268
Total operating expenses			8,746				11,553				8,271				7,164				27,260				17,017				14,738
Operating profit			23,640				8,323				12,998				11,257				13,143				36,638				31,733
Finance income(costs):
Finance income			1,062				892				1,141				989				1,482				2,203				1,907
Finance costs			(313	)			(573	)			(102	)			(88	)			(866	)			(415	)			(359	)
Profit before income tax			24,389				8,642				14,037				12,158				13,759				38,426				33,281
Income tax expenses(profits)			4,627				2,042				3,208				2,779				3,635				7,835				6,786
Profit for the year			19,762				6,600				10,829				9,379				10,124				30,591				26,495
Profit attributable to:
Non-controlling interest			2				(15	)			(32	)			(28	)			(40	)			(30	)			(26	)
Owners of Parent company			19,760				6,615				10,861				9,407				10,164				30,621				26,521
Earning per share
- Basic and diluted			2,844				952				1,563				1.40				1,463				4,407				3.80
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			2,844				952				1,563				1.40				1,463				4,407				3.80

* For convenience, the KRW amounts are expressed in U.S. dollars at the rate of KRW 1,154.58 to US$1.00, the noon buying rate in effect on June 28, 2019 as quoted by the Federal Reserve Bank of New York.(1) Each ADS represents one common shares.