Gravity(GRVY) - 2023 Q1 - Quarterly Report

Financial Performance - Total revenue for 2022 was W 232,717,405 thousand, a decrease of 19.3% from W 288,258,376 thousand in 2021[16] - Operating profit for 2022 was W 62,144,800 thousand, down 20.5% from W 78,174,467 thousand in 2021[16] - Profit for the year decreased to W 54,914,724 thousand in 2022, a decline of 15.2% compared to W 64,732,833 thousand in 2021[16] - The company reported a gross profit of W 120,204,998 thousand in 2022, down 17.9% from W 146,443,113 thousand in 2021[16] - Total expenses for 2022 were W 170,572,605 thousand, down 18.8% from W 210,083,909 thousand in 2021[153] - Research and development expenses decreased to W 12,160,829 thousand in 2022 from W 18,101,978 thousand in 2021, a reduction of 32.8%[156] - Micro transaction and subscription revenue decreased to W 80,679,602 thousand in 2022 from W 92,578,768 thousand in 2021, representing a decline of 12.9%[149] - Revenue from mobile games dropped to W 74,830,047 thousand in 2022, down 15.0% from W 88,114,690 thousand in 2021[149] Cash Flow and Liquidity - Cash and cash equivalents increased to W 42,985,625 thousand in 2022 from W 26,602,122 thousand in 2021, representing a growth of 61.5%[13] - Net cash provided by operating activities was W 45,514,786 in 2022, down from W 70,320,586 in 2021, indicating a decrease of about 35%[20] - Net cash used in investing activities significantly reduced to W 26,443,349 in 2022 from W 88,153,976 in 2021, a decrease of approximately 70%[20] - The company recognized a total cash outflow of W 2,118,456 thousand for leases in 2022, compared to W 1,963,708 thousand in 2021[169] - The company’s cash generated from operations was W 12,550,795 thousand in 2021, a decrease from W 18,716,916 thousand in 2020[162] Assets and Liabilities - Total assets rose to W 292,309,340 thousand in 2022, up 13.0% from W 258,665,573 thousand in 2021[13] - Total liabilities decreased significantly to W 31,717,523 thousand in 2022, down 40.1% from W 52,988,480 thousand in 2021[15] - Total financial liabilities at amortized cost decreased to W 18,078,201 thousand in 2022 from W 32,483,876 thousand in 2021, representing a reduction of about 44.0%[115] - The company's total liabilities decreased significantly to W 31,717,523 thousand in 2022 from W 52,988,480 thousand in 2021, resulting in a debt ratio reduction from 26% to 12%[173] - The total carrying amount of property and equipment is W 3,520,385 thousand, a decrease from W 5,608,320 thousand in 2021, reflecting a depreciation expense of W 2,382,370 thousand for 2022[137] Shareholder and Equity Information - Major shareholder GungHo Online Entertainment, Inc. holds 59.31% of the company's shares as of December 31, 2021[22] - The company’s total equity increased to W 260,591,817 thousand in 2022 from W 205,677,093 thousand in 2021, representing a growth of approximately 26.7%[173] - The number of shares issued remains constant at 6,948,900, with a total common share value of W 3,474,450,000 as of December 31, 2022[146] Revenue Recognition and Accounting Policies - The company estimates game user life cycles to recognize revenue from micro-transactions, reflecting a strategic approach to revenue recognition[27] - The company recognizes revenue for license fees through the straight-line method during the contract period, ensuring consistent revenue recognition over time[101] - The company deferred revenue for remaining virtual currency possessed by active paying users at the end of the reporting period, indicating a focus on revenue recognition based on user engagement[99] - The company has no refund obligation after game users purchase virtual currency, which supports revenue stability from micro-transactions[98] Investments and Subsidiaries - Total investment in subsidiaries increased to W 26,732,334 thousand in 2022, up from W 21,679,845 thousand in 2021, representing a growth of 23.3%[130] - Gravity Game Vision Limited was established in 2022, contributing to the increase in total investments in subsidiaries[129] - The total assets of Gravity Game Vision Limited reached W 63,608,043 thousand in 2022, with a profit of W 17,090,044 thousand, indicating a successful market entry[134] - Gravity Game Hub PTE., Ltd. reported a loss of W 3,081,397 thousand in 2022, highlighting challenges in its operations[134] Financial Instruments and Risk Management - The company recognized a total net income from financial instruments of 4,922,787 thousand won in 2022, up from 3,887,952 thousand won in 2021, which is an increase of approximately 26.5%[116] - The company measures foreign exchange risk at a rate of 10% for each foreign currency, reflecting management's assessment of potential fluctuations[175] - The sensitivity analysis indicates that a 10% increase in USD exchange rate would increase profit before tax by W 3,456,381 in 2022[175] Internal Control and Compliance - The management's report on the effectiveness of Internal Control over Financial Reporting (ICFR) states that the ICFR is designed and operating effectively as of December 31, 2022[193] - The review of ICFR was conducted in accordance with standards established by the Korean Institute of Certified Public Accountants, focusing on the company's compliance with the relevant guidelines[194] - The CEO and ICFR Officer assessed the design and operation of the company's ICFR for the year ending December 31, 2022, ensuring reliable financial information[199]