GungHo Online Entertainment : Financial Results for the 3rd Quarter of Fiscal Year Ending December 31, 2022

Financial Results for the 3rd Quarter of Fiscal Year Ending December 31, 2022

[Japanese GAAP] (Consolidated)

November 14, 2022

Name of listed company: GungHo Online Entertainment, Inc.

Stock exchange listing: Tokyo Stock Exchange

Code number: 3765

URL: https://www.gungho.co.jp/

Representative: Kazuki Morishita, Representative Director & President, CEO

Contact: Kazuya Sakai, Director & CFO, Executive General Manager of Finance Accounting Division

TEL: [phone]

Quarterly securities report issuing date: November 14, 2022

Dividend payment date: -

Supplemental information for quarterly financial statements: Yes

Quarterly financial results briefing session: Yes (For institutional investors and analysts)

(Amounts are rounded off to the nearest million yen)

1. Consolidated financial results for the 3rd quarter of fiscal year ending December 31, 2022 (January 1, 2022 through September 30, 2022)

(1) Consolidated operating results (accumulated)	(Percentages indicate the changes from previous year)
	Net sales			Operating profit		Ordinary profit		Quarterly net profit
	Millions of yen		%		Millions of yen	%		Millions of yen	%	Millions of yen		%
Nine months ended	72,471		-8.5		19,898	-24.5	21,707	-19.6		12,935		-30.2
September 30, 2022
Nine months ended	79,178		17.1		26,358	38.3	27,010	40.8		18,532		60.8
September 30, 2021
(Note) Comprehensive	Nine months ended 15,169 millions of yen		Nine months ended 20,832 millions of yen
income	September 30, 2022	(-27.2%)		September 30, 2021		(65.2%)
	Quarterly net profit per	Diluted quarterly net
	share			profit per share
			Yen		Yen

Nine months ended

207.42205.93

September 30, 2022

Nine months ended

274.05272.38

September 30, 2021

(2) Consolidated financial position
	Total assets	Net assets	Shareholders' equity
		ratio
	Millions of yen	Millions of yen		%
Nine months ended	138,238	124,060		79.7
September 30, 2022
Fiscal year ended	134,930	118,672		79.6
December 31, 2021
(Note) Shareholder's	Nine months ended	110,215 millions of yen	Fiscal year ended	107,360 millions of yen
equity	September 30, 2022			December 31, 2021

2. Dividends

			Dividends per share
		1st quarter	2nd quarter	3rd quarter		4th quarter	Total
		Yen	Yen	Yen		Yen	Yen
Fiscal	year ended	―	0.00	―		60.00	60.00
December 31, 2021
Fiscal year ending	―	0.00	―
December 31, 2022
Fiscal year ending
December 31, 2022					―	―
(Forecast)
(Note1)	Revision of forecasts for dividends most recently announced: No
(Note2)	Breakdown of year-end dividend for the fiscal year ended December 31, 2021: Ordinary dividend 30.00 yen
	Commemorative dividend 30.00 yen

3. Consolidated Earnings Forecast for the Fiscal Year Ending December 31, 2022(From January 1, 2022 to December 31, 2022)

The GungHo Group engages in the content business that is highly novel in nature and is subject to facing sudden, short- term changes in the operating environment. Since this makes it difficult to calculate proper and rational earnings forecasts, the Company adopts the policy of providing timely disclosure of financial results and summary of operations on a quarterly basis while refraining from disclosing its full-year consolidated earnings forecast.

*Notes
(1) Changes in significant subsidiaries during the period	: No

1. Adoption of any particular accounting methods for the preparation of quarterly : No consolidated financial statements
2. Changes in accounting policies, changes in accounting estimates and restatements

1)	Changes in accounting policies due to revisions of accounting standards	: Yes
2)	Changes in accounting policies due to reasons other than 1)		: No
3)	Changes in accounting estimates			: No
4)	Restatements			: No
(4) Number of shares of common stock issued
1)	Number of shares of common stock	As of September	91,199,116	Fiscal year ended	91,199,116
	outstanding at the end of the period
	30, 2022	shares	December 31, 2021	shares
	(including treasury shares)
2)	Number of treasury shares at the end of	As of September	29,308,553	Fiscal year ended	27,358,682
	the period	30, 2022	shares	December 31, 2021	shares
3)	Average number of shares during the third	As of September	62,360,583	As of September 30,	67,626,242
	quarter	30, 2022	shares	2021	shares

* This quarterly Summary of Consolidated Financial Results (Quarterly "Tanshin") is outside the scope of the external auditor's quarterly review procedure.

* Appropriate use of earnings forecast and other matters to note

・This document contains forward-looking statements including forecasts in relation to the results of operations and they are based on information available to the Company at the time of preparing the document along with certain assumptions that are deemed to be rational. Actual results may differ materially from those expressed or implied by the statements due to various factors. For the assumptions underlying the earnings forecast presented and other information regarding the use of such forecasts, please refer to "Information Related to the Consolidated Earnings Forecast and Other Future Projections" on page 3 of the Appendix.

• The Company plans on holding a financial results briefing session for investors as follows. All documents etc. distributed at the briefing session will be posted on the company's website after the briefing session is held.
• Financial results briefing session for institutional investors and analysts: Monday, November 14, 2022

○Table of Contents for Appendix
1. Qualitative Information Concerning Consolidated Financial Results
for the Quarter Under Review .....................................................................................................................	2
(1) Description of Operating Results..............................................................................................................	2
(2)	Description of Financial Position ..............................................................................................................	2
(3)	Information Related to the Consolidated Earnings Forecast and Other Future Projections......................	3
2. Quarterly Consolidated Financial Statements...............................................................................................	4
(1)	Quarterly Consolidated Balance Sheets...................................................................................................	4
(2)	Quarterly Consolidated Statements of Income and Quarterly Consolidated Statements of
	Comprehensive Income...........................................................................................................................	6
	Quarterly Consolidated Statements of Income (Nine-months Period).......................................................	6
	Quarterly Consolidated Statements of Comprehensive Income (Nine-months Period).............................	7
(3) Notes to the Quarterly Consolidated Financial Statements.......................................................................	8
	(Notes on the Going-concern Assumption).............................................................................................	8
	(Notes on Any Significant Changes to the Amount of Shareholders' Equity) ...........................................	8
	(Changes in accounting policies）..........................................................................................................	8
	(Segment Information)............................................................................................................................	9
	(Additional Information) ..........................................................................................................................	9
	(Significant Subsequent Events).............................................................................................................	9

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1. Qualitative Information Concerning Consolidated Financial Results for the Quarter

(1) Description of Operating Results

Japan's game market shrank in 2021 to 2.27 trillion yen*1, down 0.8% year-on-year, due to a slight decrease in the software market offsetting the growth in the hardware market.

On the other hand, the global game content market expanded in 2021 to 21,892.7 billion yen*1, up 6.1% year-on-year, owing to the continued growth of the mobile game market and the expansion of the PC online game market.

The outlook for the economy is unclear as it remains stagnant in certain areas due to the unstable international situation and COVID-19. However, there are signs of recovery.

Against this backdrop, our company continued to concentrate on game development with a focus on global distribution in aim of the "creation of new value," and in order to "maximize existing value," we have worked to maintain and expand MAU (Monthly Active Users: the number of users who log into the game at least once a month), and have made efforts to strengthen the brands of each of our games.

As for existing games, "Puzzle & Dragons" (referred to as "P&D" henceforth) has had continuous updates and events held, such as adding new dungeons, improving game contents, and collaborating with famous characters from other companies, all with the main objective of providing players with the ability to have continued long-term enjoyment of the game, and MAU continued to be firm. The P&D service marked the 10-year anniversary of its launch on February 20, 2022, so events were held to celebrate this milestone and efforts were made to encourage activity by its active users.

The MAU of a smartphone MMORPG "Ragnarok Origin" has been stable after follow-on updates and events.

The Nintendo SwitchTM "Ninja-Gum" action game "Ninjala" is continuing to expand its user base through collaboration events, online competitions, TV anime broadcasts, and a wide range of cross-media deployment, and the MAU continues to be firm even after the worldwide cumulative downloads exceeded nine million.

As for a new game, a multi-player online survival action game "DEATHVERSE: LET IT DIE" was launched on PlayStation®5 and PlayStation®4 on September 28, 2022*2.

Looking at the businesses of our subsidiaries, the Ragnarok-related titles distributed by Gravity Co., Ltd. and its consolidated subsidiaries are continuing to contribute to our consolidated financial results with ongoing updates and events.

As a result, the Company's consolidated results of operations for the period under review were as follows. Net sales decreased 8.5% year-on-year to JPY72,471 million, operating profit decreased 24.5% year-on-year to JPY19,898 million, ordinary profit decreased 19.6% year-on-year to JPY21,707 million, and quarterly net profit attributable to owners of parent company decreased 30.2% year-on-year to JPY12,935 million.

The GungHo Group is a single-segment company; therefore, no segment information is disclosed.

*1 "Famitsu" 2022 Game White Paper

*2 Japan Standard Time

(2) Description of Financial Position

Total assets for the period under review stood at JPY138,238 million, an increase of JPY3,307 million from the end of the previous fiscal year. This was mainly due to an increase in accounts receivable-trade and contract assets.

Total liabilities amounted to JPY14,177 million, a decrease of JPY2,080 million from the end of the previous fiscal year. This was primarily attributable to a decrease in income taxes payable due to the payment of income taxes.

Total net assets came to JPY124,060 million, an increase of JPY5,388 million from the end of the previous fiscal year. This was mainly due to the increase in retained earnings when the Company recognized the quarterly income attributable to owners of parent.

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