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GRAVITY Announces Third Quarter 2019 Financial Results and Business Updates

November 14, 2019 GMT

Seoul, Nov. 14, 2019 (GLOBE NEWSWIRE) -- 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 third quarter ended September 30, 2019, prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board and business updates.

THIRD QUARTER 2019 HIGHLIGHTS

-- Total revenues were KRW 77,566 million (US$ 64,863 thousand), representing a 0.7% decrease from the second quarter ended June 30, 2019 (“QoQ”) and a 75.5% increase from the third quarter ended September 30, 2018 (“YoY”). -- Operating profit was KRW 10,226 million (US$ 8,551 thousand), representing a 21.3% decrease QoQ and a 44.4% increase YoY. -- Profit before income tax expenses was KRW 11,213 million (US$ 9,376 thousand), representing a 20.1% decrease QoQ and a 53.0% increase YoY. -- Net profit attributable to parent company was KRW 8,952 million (US$ 7,485 thousand), representing a 17.6% decrease QoQ and a 41.8% increase YoY.

REVIEW OF THIRD QUARTER 2019 FINANCIAL RESULTS

Revenues

Subscription revenues for the third quarter of 2019 were KRW 10,564 million (US$ 8,834 thousand), representing a 56.6 % increase QoQ from KRW 6,746 million and a 75.9% increase YoY from KRW 6,005 million. The increase QoQ was mainly attributable to increased revenues from Ragnarok Online in Taiwan, Brazil, and Ragnarok Prequel 2 in Taiwan. The increase YoY was largely due to increased revenues from Ragnarok Online in Taiwan, Brazil and Ragnarok Prequel 2 in Taiwan. Such increase was partially offset by decreased revenue from Ragnarok Prequel in Taiwan.

Royalty and license fee revenues for the third quarter of 2019 were KRW 2,583 million (US$ 2,160 thousand), representing an 8.8% decrease QoQ from KRW 2,832 million and a 12.8% decrease YoY from KRW 2,961 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 Brazil and Thailand.

Mobile game and application revenues were KRW 61,238 million (US$ 51,209 thousand) for the third quarter of 2019, representing a 7.9% decrease QoQ from KRW 66,463 million and a 83.4% increase YoY from KRW 33,387 million. The decrease QoQ resulted primarily from decreased revenues from Ragnarok M: Eternal Love in Southeast Asia, North America, South America, Oceania, and Taiwan. Such decrease was partially offset by increased revenues from Ragnarok M: Eternal Love in Japan, Korea and Ragnarok H5 that has launched on September 19, 2019 in Korea. The increase YoY was primarily due to revenues from Ragnarok M: Eternal Love in Southeast Asia, Japan, North America, South America, Oceania, and Ragnarok H5 launched in September in Korea. This increase was partially offset by decreased revenues from Ragnarok M: Eternal Love in Taiwan and Korea.

Character merchandising and other revenues were KRW 3,181 million (US$ 2,660 thousand) for the third quarter of 2019, representing 52.5% increase QoQ from KRW 2,086 million and a 72.1% increase YoY from KRW 1,848 million

Cost of Revenue

Cost of revenue was KRW 56,058 million (US$ 46,877 thousand) for the third quarter of 2019, representing a 1.4% decrease QoQ from KRW 56,858 million and a 88.1% increase YoY from KRW 29,806 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. 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, Oceania, and Japan.

Operating Expenses

Operating expenses were KRW 11,282 million (US$ 9,435 thousand) for the third quarter of 2019, representing a 36.4% increase QoQ from KRW 8,271 million and a 54.3% increase YoY from KRW 7,311 million. The increase QoQ was mainly attributable to increased advertising expenses for Ragnarok M: Eternal Love in Korea, Ragnarok H5 launched in September in Korea, and re-launched Ragnarok Online in Indonesia. The increase YoY was mostly resulted from increased advertising expenses for Ragnarok M: Eternal Love in Korea, Ragnarok H5 launched in September in Korea, re-launched Ragnarok Online in Indonesia, research and development expenses and salaries.

Profit before income tax expenses

Profit before income tax expenses was KRW 11,213 million (US$ 9,376 thousand) for the third quarter of 2019 compared with profit before income tax expense of KRW 14,037 million for the second quarter of 2019 and profit before income tax expenses of KRW 7,329 million for the third quarter of 2018.

Net Profit

As a result of the foregoing factors, Gravity recorded a net profit attributable to parent company of KRW 8,952 million (US$ 7,485 thousand) for the third quarter of 2019 compared with net profit attributable to parent company of KRW 10,861 million for the second quarter of 2019 and a net profit attributable to parent company of KRW 6,312 million for the third quarter of 2018.

Liquidity

The balance of cash and cash equivalents and short-term financial instruments was KRW 120,259 million (US$ 100,564 thousand) as of September 30, 2019.

Note: For convenience purposes only, the KRW amounts have been expressed in U.S. dollars at the exchange rate of KRW 1,195.85 to US$ 1.00, the noon buying rate in effect on September 30, 2019 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 is scheduled to be launched in Korea in 2020. The game embodies Ragnarok’s game elements to the highest level of graphics on the mobile device.

-- Ragnarok M: Eternal Love, a MMORPG mobile game

Ragnarok M: Eternal Love has launched in Europe (except for some regions) and Russia on October 16, 2019.

-- Ragnarok Tactics, a SRPG mobile game

Ragnarok Tactics has launched in Thailand on November 8, 2019. On the launching day, the game ranked as the first in free download rankings and the second in gross rankings of Apple App Store. The game is scheduled to be launched in Korea in the first half of 2020.

-- Other Ragnarok OnlineIP-based games

Gravity has launched Ragnarok Click H5, a Click Action RPG game, globally on November 13, 2019.

The company has been preparing to launch Ragnarok H5, an idle RPG game, in Indonesia in the first quarter of 2020.

Other IP games

-- The Color of Dream Fantasy Latele, a MMORPG mobile game,has launched in Japan on October 16, 2019.

Investor Presentation

Gravity issued an investor presentation. The presentation contains the Company’s recent business updates, results of the third 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. ---------------------------------------------------

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, 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 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-Sep-19 -------------------- -------------------- KRW US$ KRW US$ (audited) (unaudite (unaudite (unaudite d) d) d) Assets Current assets: Cash and cash equivalents 86,051 71,958 88,759 74,223 Short-term financial instruments 9,500 7,944 31,500 26,341 Accounts receivable, net 60,664 50,729 39,409 32,955 Other receivables, net 255 213 199 166 Prepaid expenses 2,516 2,104 1,929 1,613 Other current assets 1,182 988 3,749 3,135 ------- ------- ------- ------- Total current assets 160,168 133,936 165,545 138,433 Property and equipment, net 1,498 1,253 6,833 5,714 Intangible assets 1,163 973 1,568 1,311 Deferred tax assets 7,413 6,199 8,866 7,414 Other non-current financial assets 1,494 1,249 1,662 1,390 Other non-current assets 1,438 1,202 1,727 1,444 ------- ------- ------- ------- Total assets 173,174 144,812 186,201 155,706 ------- ------- ------- ------- Liabilities and Equity Current liabilities: Accounts payable 71,928 60,148 44,258 37,010 Deferred revenue 16,476 13,778 12,795 10,700 Withholdings 2,019 1,688 2,119 1,772 Accrued expense 1,031 862 1,049 878 Income tax payable 1,944 1,626 3,204 2,679 Other current liabilities 123 102 1,889 1,580 ------- ------- ------- ------- Total current liabilities 93,521 78,204 65,314 54,619 ------- ------- ------- ------- Long-term deferred revenue 3,598 3,009 1,294 1,082 Other non-current liabilities 503 421 3,564 2,980 ------- ------- ------- ------- Total liabilities 97,622 81,634 70,172 58,681 ------- ------- ------- ------- Share capital 3,474 2,905 3,474 2,905 Capital surplus 27,141 22,695 27,128 22,685 Other components of equity 138 115 814 680 Retained earnings (Accumulated deficit) 45,405 37,970 84,978 71,061 ------- ------- ------- ------- Equity attributable to owners of the Parent Company 76,158 63,685 116,394 97,331 ------- ------- ------- ------- Non-controlling interest (606 ) (507 ) (365 ) (306 ) ------- ------- ------- ------- Total equity 75,552 63,178 116,029 97,025 ------- ------- ------- ------- Total liabilities and equity 173,174 144,812 186,201 155,706 ------- ------- ------- -------

* For convenience purposes only, the KRW amounts are expressed in U.S. dollars at the rate of KRW 1,195.85 to US$ 1.00, the noon buying rate in effect on September 30, 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 Nine months ended ---------------------------------------------------- -------------------------------------- 30-Jun-19 30-Sep-18 30-Sep-19 30-Sep-18 30-Sep-19 ---------- ---------- ------------------------ ---------- ------------------------ (KRW) (KRW) (KRW) (US$) (KRW) (KRW) (US$) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) Revenues: Online games-subscription 6,746 6,005 10,564 8,834 21,017 23,566 19,706 revenue Online games-royalties 2,832 2,961 2,583 2,160 10,788 9,135 7,639 and license fees Mobile games and 66,463 33,387 61,238 51,209 136,573 248,848 208,093 applications Character merchandising and 2,086 1,848 3,181 2,660 5,160 7,767 6,495 other revenue --------- --------- --------- --------- --------- --------- --------- Total net revenue 78,127 44,201 77,566 64,863 173,538 289,316 241,933 Cost of revenue 56,858 29,806 56,058 46,877 118,740 214,153 179,080 --------- --------- --------- --------- --------- --------- --------- Gross profit 21,269 14,395 21,508 17,986 54,798 75,163 62,853 Operating expenses: Selling, general 5,733 5,602 8,984 7,513 28,899 21,382 17,880 and administrative Research and 2,432 1,760 2,349 1,965 5,376 6,658 5,568 development Others, net 106 (51 ) (51 ) (43 ) 296 259 217 --------- --------- --------- --------- --------- --------- --------- Total operating 8,271 7,311 11,282 9,435 34,571 28,299 23,665 expenses Operating profit 12,998 7,084 10,226 8,551 20,227 46,864 39,188 Finance income (costs): Finance income 1,141 58 1,353 1,131 1,540 3,556 2,974 Finance costs (102 ) 187 (366) (306) (679 ) (781 ) (653) --------- --------- --------- --------- --------- --------- --------- Profit before 14,037 7,329 11,213 9,376 21,088 49,639 41,509 income tax Income tax 3,208 1,024 2,357 1,971 4,659 10,192 8,523 expenses(profits) --------- --------- --------- --------- --------- --------- --------- Profit for the 10,829 6,305 8,856 7,405 16,429 39,447 32,986 period Profit attributable to: Non-controlling (32 ) (7) (96 ) (80 ) (47 ) (126 ) (105) interest --------- --------- --------- --------- --------- --------- --------- Owners of Parent 10,861 6,312 8,952 7,485 16,476 39,573 33,091 company --------- --------- --------- --------- --------- --------- --------- Earning per share - Basic and 1,563 908 1,288 1.08 2,371 5,695 4.76 diluted --------- --------- --------- --------- --------- --------- --------- Weighted average number of shares outstanding - Basic and 6,948,900 6,948,900 6,948,900 6,948,900 6,948,900 6,948,900 6,948,900 diluted --------- --------- --------- --------- --------- --------- --------- Earning per ADS(1) - Basic and 1,563 908 1,288 1.08 2,371 5,695 4.76 diluted --------- --------- --------- --------- --------- --------- ---------

* For convenience, the KRW amounts are expressed in U.S. dollars at the rate of KRW 1,195.85 to US$1.00, the noon buying rate in effect on September 30, 2019 as quoted by the Federal Reserve Bank of New York.(1) Each ADS represents one common share.