OREANDA-NEWS. 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 first quarter ended March 31, 2016, prepared in accordance with generally accepted accounting principles in the United States.

FINANCIAL RESULTS FOR THE FIRST QUARTER OF 2016

Revenues for the first quarter ended March 31, 2016 was KRW 9,094 million (US$ 7,984 thousand), representing a 4.5% increase from KRW 8,703 million for the fourth quarter ended December 31, 2015 (“QoQ”) and a 0.3% increase from KRW 9,069 million for the first quarter ended March 31, 2015 (“YoY”).

Review of Financial Results

Revenues

Royalty and license fee revenues for the first quarter of 2016 were KRW 3,368 million (US$ 2,957 thousand), representing a 13.9% increase QoQ from KRW 2,956 million and a 34.1% increase YoY from KRW 2,512 million. The increase QoQ was primarily due to increased revenue from Ragnarok Online in Japan and the strengthening of the Japanese Yen against the Korean Won. The increase YoY resulted mainly from increased revenue from Ragnarok Online in Japan and Taiwan and the strengthening of the Japanese Yen against the Korean Won.

Mobile game and application revenues were KRW 2,616 million (US$ 2,297 thousand) for the first quarter of 2016, representing a 34.8% decrease QoQ from KRW 4,012 million and a 37.8% decrease YoY from KRW 4,203 million. The decrease QoQ and YoY resulted primarily from decreased revenues from Ragnarok: Path of Heroes and mobile applications for a third party.

Subscription revenues for the first quarter of 2016 were KRW 2,137 million (US$ 1,876 thousand), representing a 128.3% increase QoQ from KRW 936 million and a 25.9% increase YoY from KRW 1,698 million. The increase QoQ was mainly attributable to increased revenues from Ragnarok Online and Ragnarok Online II in the United States and Canada. The increase YoY was largely due to increased revenues from Ragnarok Online in the United States, Canada and Korea.

Character merchandising and other revenues were KRW 973 million (US$ 854 thousand) for the first quarter of 2016, representing a 21.8% increase QoQ from KRW 799 million and a 48.3% increase YoY from KRW 656 million.

Cost of Revenue and Operating Expenses

Cost of revenue was KRW 6,619 million (US$ 5,812 thousand) for the first quarter of 2016, representing a 17.5% decrease QoQ from KRW 8,020 million and a 13.8% decrease YoY from KRW 7,676 million. The decrease QoQ and YoY was mostly from i) decreased amortization of capitalized research and development cost of Ragnarok Online II, which was amortized and fully impaired in December 2015, and ii) a decrease in commission paid. The decrease YoY was partially offset by an increase in salaries resulting from the commercial launch of some of our mobile games.

Operating expenses were KRW 3,036 million (US$ 2,665 thousand) for the first quarter of 2016, representing a 69.8% decrease QoQ from KRW 10,038 million and a 23.2% decrease YoY from KRW 3,952 million. The decrease QoQ was mainly attributable to i) decreased impairment loss on intangible assets primarily due to the impairment of capitalized research and development cost of Ragnarok Online II and goodwill of NeoCyon in the fourth quarter of 2015, which did not occur in the first quarter of 2016 and ii) decreased research and development expenses. The decrease YoY mostly resulted from decreased research and development expenses.

Loss before income tax expenses and others was KRW 1,287 million (US$ 1,130 thousand) for the first quarter of 2016 compared with loss before income tax expenses and others of KRW 8,740 million for the fourth quarter of 2015 and loss before income tax expenses and others of KRW 2,355 million for the first quarter of 2015.

As a result of the foregoing factors, Gravity recorded a net loss attributable to parent company of KRW 1,701 million (US$ 1,493 thousand) for the first quarter of 2016 compared with a net loss attributable to parent company of KRW 9,113 million for the fourth quarter of 2015 and a net loss attributable to parent company of KRW 2,628 million for the first quarter of 2015.

The balance of cash and cash equivalents and short-term financial instruments was KRW 35,881 million (US$ 31,506 thousand) as of March 31, 2016.

Note: For convenience purposes only, the KRW amounts have been expressed in U.S. dollars at the exchange rate of KRW1,138.86 to US$ 1.00, the noon buying rate in effect on March 31, 2016 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 and Taiwan, and is currently commercially offered in 81 markets and countries.

 
GRAVITY Co., Ltd.
Consolidated Balance Sheet
 
(In millions of KRW and thousands of US$)
 
      As of
      31-Dec-15   31-Mar-16
      KRW   US$   KRW   US$
Assets (audited)   (unaudited)   (unaudited)   (unaudited)
Current assets:              
  Cash and cash equivalents   24,909       21,872       17,381       15,262  
  Short-term financial instruments   11,500       10,098       18,500       16,244  
  Accounts receivable, net   5,289       4,644       9,494       8,336  
  Other current assets   1,978       1,737       2,339       2,054  
    Total current assets   43,676       38,351       47,714       41,896  
                   
Property and equipment, net   882       774       779       684  
Leasehold and other deposits   954       838       948       832  
Intangible assets   132       116       123       108  
Other non-current assets   85       74       78       68  
    Total assets   45,729       40,153       49,642       43,588  
                   
Liabilities and Equity              
Current liabilities:              
  Accounts payable   2,971       2,609       8,269       7,261  
  Deferred revenue   4,997       4,388       6,950       6,103  
  Other current liabilities   836       734       517       454  
    Total current liabilities   8,804       7,731       15,736       13,818  
Long-term deferred revenue   6,600       5,795       5,221       4,584  
Accrued severance benefits   123       108       121       106  
Other non-current liabilities   210       185       210       184  
    Total liabilities   15,737       13,819       21,288       18,692  
Common shares   3,474       3,050       3,474       3,050  
Additional paid-in capital   75,076       65,922       75,076       65,922  
Accumulated deficit   (48,761 )     (42,816 )     (50,462 )     (44,309 )
Accumulated other comprehensive income   694       609       776       681  
    Total parent company shareholders' equity   30,483       26,765       28,864       25,344  
Non-controlling interest   (491 )     (431 )     (510 )     (448 )
    Total equity   29,992       26,334       28,354       24,896  
    Total liabilities and equity   45,729       40,153       49,642       43,588  
 

* For convenience purposes only, the KRW amounts are expressed in U.S. dollars at the rate of KRW 1,138.86 to US$ 1.00, the noon buying rate in effect on March 31, 2016 as quoted by the Federal Reserve Bank of New York.

 
GRAVITY Co., Ltd.
Consolidated Statements of Operations
 
(In millions of KRW and thousands of US$ except for share and ADS data)
 
      Three months ended
      31-Dec-15   31-Mar-15   31-Mar-16
      (KRW)   (US$)   (KRW)   (US$)   (KRW)   (US$)
      (unaudited)   (unaudited)   (unaudited)   (unaudited)   (unaudited)   (unaudited)
Revenues:                      
  Online games-subscription revenue   936       822       1,698       1,491       2,137       1,876  
  Online games-royalties and license fees   2,956       2,596       2,512       2,206       3,368       2,957  
  Mobile games and applications   4,012       3,523       4,203       3,691       2,616       2,297  
  Character merchandising and other revenue   799       701       656       576       973       854  
    Total net revenue   8,703       7,642       9,069       7,964       9,094       7,984  
                           
Cost of revenue   8,020       7,042       7,676       6,740       6,619       5,812  
                           
Gross profit   683       600       1,393       1,224       2,475       2,172  
                           
Operating expenses:                      
  Selling, general and administrative   3,075       2,700       2,494       2,190       2,688       2,360  
  Research and development   1,117       981       1,458       1,280       343       301  
  Impairment losses on intangible assets   5,846       5,133       ?       ?       5       4  
    Total operating expenses   10,038       8,814       3,952       3,470       3,036       2,665  
                           
Operating loss   (9,355 )     (8,214 )     (2,559 )     (2,246 )     (561 )     (493 )
                           
Other income (expenses):                      
  Interest income   138       121       202       177       132       116  
  Interest expense   (1 )     (1 )     (2 )     (2 )     ?       ?  
  Foreign currency income (loss), net   (146 )     (128 )     4       4       (858 )     (753 )
  Others, net   624       548       ?       ?       ?       ?  
                           
Loss before income tax expenses                      
  and equity loss on investments   (8,740 )     (7,674 )     (2,355 )     (2,067 )     (1,287 )     (1,130 )
                           
Income tax expenses   375       329       287       252       433       380  
                           
  Net loss   (9,115 )     (8,003 )     (2, 642 )     (2,319 )     (1,720 )     (1,510 )
Net income (loss) attributable to:                      
  Non-controlling interest   (2 )     (2 )     (14 )     (12 )     (19 )     (17 )
  Parent company   (9,113 )     (8,001 )     (2,628 )     (2,307 )     (1,701 )     (1,493 )
Loss per share                      
- Basic and diluted   (1,311 )     (1.15 )     (378 )     (0.33 )     (245 )     (0.21 )
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  
Loss per ADS(1)                      
- Basic and diluted   (2,622 )     (2.30 )     (756 )     (0.66 )     (490 )     (0.42 )