Savvy Trades and Investments

[Knowledge is King]

GRVY($14.95) train set to roll today; Q2 $.90 vs ($.40) loss; revenues up 200%


**note that the DJ news headline only reports EPS @$.45; but each each ADR represents two shares, so EP/ADR is really $.90


Gravity Reports Second Quarter of 2017 Results and Business Updates



Seoul, South Korea – August 9, 2017 – 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, 2017, prepared in accordance with generally accepted accounting principles in the United States.



SECOND QUARTER 2017 HIGHLIGHTS


•Total revenues were KRW 27,028 million (US$ 23,631 thousand), representing a 15.7% increase from the first quarter ended March 31, 2017 (“QoQ”) and a 198.4% increase from the second quarter ended June 30, 2016 (“YoY”).
•Operating income was KRW 4,373 million (US$ 3,823 thousand), representing a 32.6% increase QoQ and an increase of KRW 5,879 million (US$ 5,140 thousand) from KRW 1,506 million of operating loss in the same period last year.
•Income before income tax expenses was KRW 4,560 million (US$ 3,987 thousand), representing a 34.8% increase QoQ and an increase of KRW 5,772 million (US$ 5,047 thousand) from KRW 1,212 million of loss before income tax expenses in the same period last year.
•Net Income attributable to parent company was KRW 3,555 million (US$ 3,108 thousand), representing a 63.8% increase QoQ and an increase of KRW 5,160 million (US$ 4,511 thousand) from KRW 1,605 million of net loss attributable to parent company in the same period last year.



Mr. Hyun Chul Park, CEO of Gravity said, “We delivered a stronger set of financial results for the second quarter of 2017, compared to the first quarter of 2017 and the second quarter of 2016. Gravity is dedicated to continuously provide better game experiences and innovative content to our global game users.”



REVIEW OF SECOND QUARTER 2017 FINANCIAL RESULTS



Revenues



Subscription revenues were KRW 9,786 million (US$ 8,556 thousand), representing a 0.7% decrease QoQ from KRW 9,855 million and a 321.3% increase YoY from KRW 2,323million.



The decrease QoQ was mainly attributable to lower revenue from Ragnarok Online in Taiwan, which was partially offset by higher revenues derived from Ragnarok Online in United States and Canada and Dragonica Online in Taiwan. The Company launched Dragonica Online in Taiwan in May 2017. The increase YoY was largely due to strong revenue growth from Ragnarok Online and Ragnarok Prequel in Taiwan. The Company began to directly offer Ragnarok Online in Taiwan since June 2016 and Ragnarok Prequel was launched in Taiwan in July 2016.



Royalty and license fee revenues were KRW 3,546 million (US$ 3,100 thousand), representing a 20.8% decrease QoQ from KRW 4,475 million and a 28.3% increase YoY from KRW 2,763 million.



The decrease QoQ was primarily due to lower revenues from Ragnarok Online in Japan and Thailand. The increase YoY resulted mainly from revenue growth from Ragnarok Online in Thailand and Indonesia. Our local licensee, Electronic Extreme Ltd.(“Extreme”), successfully re-launched Ragnarok Online in Thailand and Indonesia in July 2016 and February 2017, respectively.



Mobile game and application revenues were KRW 12,239 million (US$ 10,701 thousand), representing a 51.8% increase QoQ from KRW 8,063 million and a 290.0% increase YoY from KRW 3,138 million.

The increase QoQ mainly reflected growth in revenue from launchings of Ragnarok R in Thailand and Korea in February 2017 and April 2017, respectively. The increase YoY resulted primarily from increased revenues from Ragnarok R in Taiwan, Thailand and Korea, which was launched in December 2016, February 2017 and April 2017, respectively.



Character merchandising and other revenues were KRW 1,457 million (US$ 1,274 thousand), representing 51.9% increase QoQ from KRW 959 million and a 74.9 % increase YoY from KRW 833 million.



Cost of Revenue



Cost of revenue was KRW 15,463 million (US$ 13,520 thousand), representing a 10.7% increase QoQ from KRW 13,969 million and a 125.9% increase YoY from KRW 6,846 million.

The increase QoQ was mainly due to: i) higher commission paid to mobile platforms including App Store and Google Play Store for mobile game distribution service for Ragnarok R in Korea; and ii) royalty payments related to Ragnarok R in Korea, which was launched in April 2017. The increase YoY was mostly from increased royalty payments, game channeling service fees and outsourcing fees related to Ragnarok R and Ragnarok Prequel. Also, such increase was also driven by higher commission paid to mobile platforms for service of Ragnarok R in Korea, Taiwan and Thailand.



Operating Expenses



Operating expenses were KRW 7,192 million (US$ 6,288 thousand), representing a 18.2% increase QoQ from KRW 6,085 million and a 93.5% increase YoY from KRW 3,717 million.

The increase QoQ was mainly attributable to higher advertising expenses related to marketing for Ragnarok R, which was officially launched in Korea in April, 2017. The increase YoY was mostly resulted from increased advertising expenses related to Ragnarok R and higher commission paid for payment gateway fees.



Income before income tax expenses



Income before income tax expenses was KRW 4,560 million (US$ 3,987 thousand) compared with income before income tax expense of KRW 3,382 million for the first quarter of 2017 and loss before income tax expenses of KRW 1,212 million for the second quarter of 2016.



Net Income



As a result of the foregoing factors, Gravity recorded a net income attributable to parent company of KRW 3,555 million (US$ 3,108 thousand) compared with net income attributable to parent company of KRW 2,170 million for the first quarter of 2017 and a net loss attributable to parent company of KRW 1,605 million for the second quarter of 2016.



Liquidity



The balance of cash and cash equivalents and short-term financial instruments was KRW 45,572 million (US$ 39,845 thousand) as of June 30, 2017.



Note: For convenience purposes only, the KRW amounts have been expressed in U.S. dollars at the exchange rate of KRW 1,143.75 to US$ 1.00, the noon buying rate in effect on June 30, 2017 as quoted by the Federal Reserve Bank of New York.



GRAVITY BUSINESS UPDATES


•Ragnarok M, an MMORPG mobile game



On August 8, 2017, Gravity, Shanghai the Dream Network Technology Co., Ltd. and X.D. Network Inc.(“the Partners”) announced that the Partners entered into an agreement to launch Ragnarok M in Taiwan, Korea and Thailand. Ragnarok M is scheduled to be launched in Taiwan during the fourth quarter of 2017 and the launching schedules for Korea and Thailand are to be announced in the future.



The Partners co-developed Ragnarok M based on the content of Ragnarok Online and Ragnarok M has drawn a large attention among Ragnarok Online users for its recreation of Ragnarok Online.


•Ragnarok R, a card RPG mobile game



The Company plans to launch Ragnarok R in United States and Canada during the fourth quarter of 2017. Also, such game is expected to be launched in more Asian markets in 2018.


•Ragnarok Online



Our local licensee, Extreme, re-launched Ragnarok Online in Philippines on June 20, 2017. Such game was successfully re-launched in Taiwan, Thailand and Indonesia. Gravity and Extreme plan to re-launch Ragnarok Online in more Asian markets.



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 79 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, 2016 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: [e-mail]



Ms. Ji Hee Kim
IR Manager
Gravity Co., Ltd.
Email: [e-mail]
Telephone: [phone]



# # #



GRAVITY Co., Ltd.
Consolidated Balance Sheet



(In millions of KRW and thousands of US$)



As of
31-Dec-16 30-June-17
KRW US$ KRW US$
Assets (audited) (unaudited) (unaudited) (unaudited)
Current assets:
Cash and cash equivalents 16,720 14,619 17,070 14,925
Short-term financial instruments 22,000 19,235 28,502 24,920
Accounts receivable, net 11,819 10,334 22,689 19,837
Other current assets 2,852 2,493 3,111 2,720
Total current assets 53,391 46,681 71,372 62,402

Property and equipment, net 593 518 870 760
Leasehold and other deposits 962 841 972 850
Intangible assets 91 80 85 75
Other non-current assets 153 134 98 85
Total assets 55,190 48,254 73,397 64,172

Liabilities and Equity
Current liabilities:
Accounts payable 10,033 8,772 15,709 13,735
Deferred revenue 9,689 8,471 11,871 10,379
Other current liabilities 964 843 2,161 1,889
Total current liabilities 20,686 18,086 29,741 26,003
Long-term deferred revenue 4,096 3,581 7,083 6,193
Accrued severance benefits 104 91 148 130
Other non-current liabilities 210 184 339 296
Total liabilities 25,096 21,942 37,311 32,622
Common shares 3,474 3,037 3,474 3,037
Additional paid-in capital 75,076 65,640 75,076 65,640
Accumulated deficit (48,511 ) (42,414 ) (42,786 ) (37,409 )
Accumulated other comprehensive income 617 540 912 798
Total parent company shareholders' equity 30,656 26,803 36,676 32,066
Non-controlling interest (562 ) (491 ) (590 ) (516 )
Total equity 30,094 26,312 36,086 31,550
Total liabilities and equity 55,190 48,254 73,397 64,172



* For convenience purposes only, the KRW amounts are expressed in U.S. dollars at the rate of KRW 1,143.75 to US$ 1.00, the noon buying rate in effect on June 30, 2017 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-17 30-Jun-16 30-Jun-17 30-Jun-16 30-Jun-17
(KRW) (KRW) (KRW) (US$) (KRW) (KRW) (US$)
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
Revenues:
Online games-subscription revenue 9,855 2,323 9,786 8,556 4,460 19,641 17,172
Online games-royalties and license fees 4,475 2,763 3,546 3,100 6,131 8,021 7,013
Mobile games and applications 8,063 3,138 12,239 10,701 5,968 20,302 17,750
Character merchandising and other revenue 959 833 1,457 1,274 1,592 2,416 2,112
Total net revenue 23,352 9,057 27,028 23,631 18,151 50,380 44,047

Cost of revenue 13,969 6,846 15,463 13,520 13,465 29,432 25,733

Gross profit 9,383 2,211 11,565 10,111 4,686 20,948 18,314

Operating expenses:
Selling, general and administrative 5,516 3,205 6,498 5,681 5,893 12,014 10,504
Research and development 569 512 694 607 855 1,263 1,104
Impairment losses on intangible assets ? ? ? ? 5 ? ?
Total operating expenses 6,085 3,717 7,192 6,288 6,753 13,277 11,608

Operating Income(loss) 3,298 (1,506 ) 4,373 3,823 (2,067 ) 7,671 6,706

Other income (expenses):
Interest income 133 131 139 122 263 272 238
Interest expense (3 ) ? (3 ) (3 ) ? (6 ) (5 )
Foreign currency income (loss), net (46 ) 163 51 45 (695 ) 5 4

Income(loss) before income tax expenses 3,382 (1,212 ) 4,560 3,987 (2,499 ) 7,942 6,943

Income tax expenses 1,228 410 1,017 889 843 2,245 1,963

Net income(loss) 2,154 (1,622 ) 3,543 3,098 (3,342 ) 5,697 4,980
Net income (loss) attributable to:
Non-controlling interest (16 ) (17 ) (12 ) (10 ) (36 ) (28 ) (25 )
Parent company 2,170 (1,605 ) 3,555 3,108 (3,306 ) 5,725 5,005
Earning(loss) per share
- Basic and diluted 312 (231 ) 512 0.45 (476 ) 824 0.72
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(loss) per ADS(1)
- Basic and diluted 624 (462 ) 1,024 0.90 (952 ) 1,648 1.44



* For convenience, the KRW amounts are expressed in U.S. dollars at the rate of KRW 1,143.75 to US$1.00, the noon buying rate in effect on June 30, 2017 as quoted by the Federal Reserve Bank of New York.



(1) Each ADS represents two common shares.





Source: GRAVITY Co., Ltd.