GRAVITY REPORTS THIRD QUARTER OF 2020 RESULTS AND BUSINESS UPDATES

Rhea-AI Summary

GRAVITY Co., Ltd. (GRVY) reported strong financial results for Q3 2020, with total revenues at KRW 131,795 million (US$ 113,034 thousand), marking a 49.0% QoQ and 69.9% YoY increase. Operating profit soared 110.6% QoQ to KRW 34,356 million (US$ 29,465 thousand), and net profit rose 93.1% QoQ to KRW 25,281 million (US$ 21,682 thousand). The growth was driven by successful launches of games like Ragnarok Origin in Korea and increased revenues from regional markets, despite declines in specific titles. The company also updated on several game launches planned for 2021.

Positive

• Total revenues increased 49.0% QoQ and 69.9% YoY to KRW 131,795 million.
• Operating profit rose 110.6% QoQ and 236.0% YoY to KRW 34,356 million.
• Net profit attributable to the parent company increased 93.1% QoQ and 182.4% YoY to KRW 25,281 million.
• Significant growth in subscription revenues by 19.3% QoQ and 176.0% YoY.

Negative

• Royalty and license fee revenues decreased 40.0% QoQ.
• Mobile game revenue growth was offset by declines in several existing titles.

Seoul, South Korea, Nov. 13, 2020 (GLOBE NEWSWIRE) -- GRAVITY Co., Ltd. (Nasdaq GM: 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, 2020, prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board and business updates.

THIRD QUARTER 2020 HIGHLIGHTS

• Total revenues were KRW 131,795 million (US$ 113,034 thousand), representing a 49.0% increase from the second quarter ended June 30, 2020 (“QoQ”) and a 69.9% increase from the third quarter ended September 30, 2019 (“YoY”).
• Operating profit was KRW 34,356 million (US$ 29,465 thousand), representing a 110.6% increase QoQ and a 236.0% increase YoY.
• Profit before income tax expenses was KRW 33,675 million (US$ 28,881 thousand), representing a 106.2% increase QoQ and a 200.3% increase YoY.
• Net profit attributable to parent company was KRW 25,281 million (US$ 21,682 thousand), representing a 93.1% increase QoQ and a 182.4% increase YoY.

REVIEW OF THIRD QUARTER 2020 FINANCIAL RESULTS

Revenues

Subscription revenues for the third quarter of 2020 were KRW 29,159 million (US$ 25,008 thousand), representing a 19.3% increase QoQ from KRW 24,448 million and a 176.0% increase YoY from KRW 10,564 million. The increase QoQ was mainly attributable to increased revenues from Ragnarok Online in Thailand that was re-launched on May 28, 2020 and Brazil. Such increase was partially offset by decreased revenues from Ragnarok H5 in Indonesia and Ragnarok Online in Taiwan. The increase YoY was largely due to increased revenues from Ragnarok Online in Thailand and United States.

Royalty and license fee revenues for the third quarter of 2020 were KRW 2,674 million (US$ 2,293 thousand), representing a 40.0% decrease QoQ from KRW 4,459 million and a 3.5% increase YoY from KRW 2,583 million. The decrease QoQ was primarily due to temporarily generated revenue from collaboration event with Garena’s Free Fire items based on Ragnarok Online IP in previous quarter. The increase YoY resulted mainly from increased revenue from Ragnarok Online in Japan. Such increase was partially offset by decreased revenue from Ragnarok Online in Thailand.

Mobile game revenues were KRW 95,531 million (US$ 81,933 thousand) for the third quarter of 2020, representing a 76.1% increase QoQ from KRW 54,249 million and a 59.0% increase YoY from KRW 60,086 million. The increase QoQ resulted primarily from increased revenues from Ragnarok Origin in Korea that was launched on July 7, 2020 and Ragnarok M: Eternal Love in Southeast Asia. Such increase was partially offset by decreased revenues from Ragnarok Tactics in Korea and Taiwan, Ragnarok H5 in Indonesia, and Ragnarok M: Eternal Love in Korea and Taiwan. The increase YoY was primarily due to revenues from Ragnarok Origin in Korea that was launched on July 7, 2020, Ragnarok M: Eternal Love in Taiwan. This increase was partially offset by decreased revenues from Ragnarok M: Eternal Love in Japan, Southeast Asia, North America, South America and Oceania, and Korea.

Other revenues were KRW 4,431 million (US$ 3,800 thousand) for the third quarter of 2020, representing a 16.4% decrease QoQ from KRW 5,302 million and a 2.3% increase YoY from KRW 4,333 million

Cost of Revenues

Cost of revenue was KRW 74,107 million (US$ 63,558 thousand) for the third quarter of 2020, representing a 45.0% increase QoQ from KRW 51,098 million and a 32.2% increase YoY from KRW 56,058 million. The increase QoQ was mainly due to increased commission paid for mobile game services related to Ragnarok Origin in Korea that was launched on July 7, 2020. The increase YoY was mostly from increased commission paid for mobile game services related to Ragnarok Origin in Korea that was launched on July 7, 2020.

Operating Expenses

Operating expenses were KRW 23,332 million (US$ 20,011 thousand) for the third quarter of 2020, representing a 10.9% increase QoQ from KRW 21,047 million and a 106.8% increase YoY from KRW 11,282 million. The increase QoQ was mainly attributable to increased research and development expenses and commission paid for payment gate way fees related to Ragnarok Online in Thailand. The increase YoY was mostly resulted from increased advertising expenses for Ragnarok Origin in Korea, commission paid for payment gate way fees related to Ragnarok Online in Thailand, research and development expenses, and salaries.

Profit before income tax expenses

Profit before income tax expenses was KRW 33,675 million (US$ 28,881 thousand) for the third quarter of 2020 compared with profit before income tax expense of KRW 16,335 million for the second quarter of 2020 and profit before income tax expenses of KRW 11,213 million for the third quarter of 2019.

Net Profit

As a result of the foregoing factors, Gravity recorded a net profit attributable to parent company of KRW 25,281 million (US$ 21,682 thousand) for the third quarter of 2020 compared with net profit attributable to parent company of KRW 13,095 million for the second quarter of 2020 and a net profit attributable to parent company of KRW 8,952 million for the third quarter of 2019.

Liquidity

The balance of cash and cash equivalents and short-term financial instruments was KRW 171,800 million (US$ 147,345 thousand) as of September 30, 2020.

Note: For convenience purposes only, the KRW amounts have been expressed in U.S. dollars at the exchange rate of KRW 1,165.97 to US$ 1.00, the noon buying rate in effect on September 30, 2020 as quoted by the Federal Reserve Bank of New York.

GRAVITY BUSINESS UPDATE

Ragnarok Online IP-based Games

• Ragnarok Origin, a MMORPG mobile game

Ragnarok Origin was launched in Korea on July 7, 2020 and is being prepared for launch in Japan in 1^st half of 2021.

• Ragnarok X: Next Generation, a MMORPG mobile game

Ragnarok X: Next Generation was launched in Taiwan, Hong Kong and Macau on October 15, 2020 and is being prepared for launch in Southeast Asia in 1^st half of 2021.

• The Labyrinth of Ragnarok, an Idle MMORPG mobile game

The Labyrinth of Ragnarok was launched in Philippines, Singapore and Malaysia on October 14, 2020. This game is being prepared for launch in Thailand and Indonesia in December 2020.

• Other Ragnarok Online IP-based games

The Lost Memories: a Song of Valkyrie, a Story RPG mobile game, is expected to be launched in Thailand in 1^st half of 2021. The game was developed by NeoCyon, Inc., our subsidiary in Korea.

Action RO2: Spear of Odin, a 3D Action MORPG mobile game, is expected to be launched in Indonesia, Malaysia, Philippines, Singapore and Australia in 1^st half of 2021. The game was developed by NeoCyon, Inc., our subsidiary in Korea.

Other IP games

Tactical Warfare, a First-Person Shooter (FPS) game, has started pre-registration and will be launched in North, Central and South America in the fourth quarter of 2020. The game is published by Gravity Interactive, Inc., a subsidiary in the United States.

Tera Classic, a MMORPG mobile game, has started pre-registration and will be launched in Japan in January 2021. The game is published by Gravity Game Arise, Inc., a subsidiary in Japan.

Investor Presentation

Gravity issued an investor presentation. The presentation contains the Company’s recent business updates, results of third quarter in 2020 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 93 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, 2019 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 Lee
Ms. Hye Ji An
IR Unit
Gravity Co., Ltd.
Email: ir@gravity.co.kr
Telephone: +82-2-2132-7800

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GRAVITY Co., Ltd.
Consolidated Statements of Financial Position

(In millions of KRW and thousands of US$)

		As of
		31-Dec-19								30-Sep-20
		KRW				US$				KRW				US$
		(audited)				(unaudited)				(unaudited)				(unaudited)
Assets
Current assets:
Cash and cash equivalents			79,428				68,122				116,800				100,174
Short-term financial instruments			39,500				33,877				55,000				47,171
Accounts receivable, net			32,253				27,662				55,570				47,660
Other receivables, net			56				48				0				0
Prepaid expenses			1,962				1,683				2,782				2,386
Other current assets			2,664				2,285				1,137				975
Total current assets			155,863				133,677				231,289				198,366
Property and equipment, net			6,663				5,715				7,201				6,176
Intangible assets			1,717				1,473				1,733				1,486
Deferred tax assets			7,667				6,576				7,885				6,763
Other non-current financial assets			1,770				1,518				1,777				1,524
Other non-current assets			1,745				1,494				5,255				4,508
Total assets			175,425				150,453				255,140				218,823
Liabilities and Equity
Current liabilities:
Accounts payable			37,496				32,159				56,668				48,602
Deferred revenue			10,748				9,218				15,194				13,031
Withholdings			1,764				1,513				3,463				2,970
Accrued expense			1,175				1,008				1,182				1,014
Income tax payable			2,618				2,245				3,325				2,852
Other current liabilities			1,986				1,703				2,629				2,255
Total current liabilities			55,787				47,846				82,461				70,724
Long-term deferred revenue			98				84				5,037				4,320
Other non-current liabilities			3,774				3,237				3,368				2,889
Total liabilities			59,659				51,167				90,866				77,933
Share capital			3,474				2,979				3,474				2,979
Capital surplus			27,128				23,266				27,110				23,251
Other components of equity			274				235				896				768
Retained earnings			84,668				72,616				132,307				113,474
Equity attributable to owners of the Parent Company			115,544				99,096				163,787				140,472
Non-controlling interest			222				190				487				418
Total equity			115,766				99,286				164,274				140,890
Total liabilities and equity			175,425				150,453				255,140				218,823

* For convenience purposes only, the KRW amounts are expressed in U.S. dollars at the rate of KRW 1,165.97 to US$ 1.00, the noon buying rate in effect on September 30, 2020 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																	Nine months ended
		30-Jun-20				30-Sep-19				30-Sep-20									30-Sep-19							30-Sep-20
		(KRW)				(KRW)				(KRW)				(US$)							(KRW)							(KRW)				(US$)
		(unaudited)				(unaudited)				(unaudited)				(unaudited)							(unaudited)							(unaudited)				(unaudited)
Revenues:
Online games-subscription revenue			24,448				10,564				29,159				25,008							23,566							63,500				54,461
Online games-royalties and license fees			4,459				2,583				2,674				2,293							9,135							10,676				9,156
Mobile games			54,249				60,086				95,531				81,933							245,189							205,762				176,473
Other revenue			5,302				4,333				4,431				3,800							11,426							13,575				11,643
Total net revenue			88,458				77,566				131,795				113,034							289,316							293,513				251,733
Cost of revenues			51,098				56,058				74,107				63,558							214,153							174,079				149,300
Gross profit			37,360				21,508				57,688				49,476							75,163							119,434				102,433
Operating expenses:
Selling, general and administrative expenses			17,643				8,984				18,042				15,474							21,382							46,692				40,046
Research and development			3,254				2,349				4,550				3,902							6,658							10,676				9,156
Others, net			150				(51	)			740				635							259							1,041				893
Total operating expenses			21,047				11,282				23,332				20,011							28,299							58,409				50,095
Operating profit			16,313				10,226				34,356				29,465							46,864							61,025				52,338
Finance income(costs):
Finance income			627				1,353				822				705							3,556							3,000				2,573
Finance costs			(605	)			(366	)			(1,503	)			(1,289		)					(781		)					(2,765	)			(2,371		)
Profit before income tax			16,335				11,213				33,675				28,881							49,639							61,260				52,540
Income tax expenses			3,293				2,357				8,390				7,196							10,192							13,687				11,739
Profit for the year			13,042				8,856				25,285				21,685							39,447							47,573				40,801
Profit attributable to:
Non-controlling interest			(53	)			(96	)			4				3							(126		)					(66	)			(57		)
Owners of Parent company			13,095				8,952				25,281				21,682							39,573							47,639				40,858
Earning per share
- Basic and diluted			1,884				1,288				3,638				3.10							5,695							6,856				5.9
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			1,884				1,288				3,638				3.10							5,695							6,856				5.9

* For convenience, the KRW amounts are expressed in U.S. dollars at the rate of KRW 1,165.97 to US$1.00, the noon buying rate in effect on September 30, 2020 as quoted by the Federal Reserve Bank of New York.
(1) Each ADS represents one common share.

FAQ

What are the key financial results for GRVY in Q3 2020?

GRAVITY reported a total revenue of KRW 131,795 million, and a net profit of KRW 25,281 million for Q3 2020.

How much did GRVY's operating profit increase in Q3 2020?

The operating profit for Q3 2020 increased by 110.6% QoQ.

What factors contributed to the revenue growth for GRVY?

Revenue growth was primarily driven by the successful launch of Ragnarok Origin and increased regional revenues.

When is GRAVITY planning to launch new games?

GRAVITY is preparing to launch several games in the first half of 2021, including Ragnarok Origin in Japan.