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Sea Limited Reports First Quarter 2020 Results

·34 min read

Sea Limited (NYSE: SE) ("Sea" or the "Company") today announced its financial results for the first quarter ended March 31, 2020.

"Our company’s mission is to better the lives of consumers and small businesses through technology - and I believe that this mission is more important now than ever given the disruptions we are all facing as a result of the coronavirus crisis," said Forrest Li, Sea’s Chairman and Group Chief Executive Officer.

"We are fortunate to be in a strong position to play a part in helping our communities navigate these challenging times and get back on the road to recovery. In addition to contributing funds and essential medical equipment to the frontline fight against the virus, we are doing everything we can to support economic recovery across our markets, leveraging the strengths of our platforms as market leaders in the digital economy. Among many other efforts we made to empower our communities, we launched SME recovery programs, including providing special assistance to small businesses to onboard our platforms, accelerated the growth of the staple and essential goods segment of our e-commerce platform to meet increased consumer demand, and quickened the pace of the rollout of our mobile wallet services to facilitate our users’ growing need for online transactions. Through these efforts to harness the benefits of the digital economy, we are helping our communities better navigate near-term turbulence and, at the same time, building even stronger bonds with consumers and merchants across our platforms and the broader communities in our ecosystem.

"The coronavirus crisis is driving a step change in the growth of the digital economy globally, materially accelerating a shift to online lifestyles that is broad, deep, and, in our view, irreversible. We believe that Sea, as a market leader in some of the key sectors of the digital economy, is gaining and will continue to gain a disproportionate share of the resulting growth in our markets. Like all businesses, Sea has been stress-tested by the crisis. Our robust performance through the first quarter and beyond, as we responded to surges in user demands and navigated significant disruption, underlines the fundamental strength, resilience, and adaptability of our business. We believe this will, in the long run, enable us to capture the further accelerated and expanded growth opportunities presented to all of our core businesses across our markets."

First Quarter 2020 Highlights

  • Group

    • Total adjusted revenue was US$913.9 million, up 57.9% year-on-year from US$578.8 million for the first quarter of 2019.

    • Total gross profit was US$206.8 million, up 424.1% year-on-year from US$39.5 million for the first quarter of 2019.

    • Total adjusted EBITDA was US$(69.9) million compared to US$(32.0) million for the first quarter of 2019.

  • Digital Entertainment

    • Adjusted revenue was US$512.4 million, up 30.3% year-on-year from US$393.3 million for the first quarter of 2019.

    • Adjusted EBITDA was US$298.4 million, up 32.2% year-on-year from US$225.8 million for the first quarter of 2019.

    • Adjusted EBITDA margin increased to 58.2% for the first quarter of 2020 from 57.4% for the first quarter of 2019.

    • Quarterly active users ("QAUs") reached 402.1 million, an increase of 48.0% year-on-year from 271.6 million for the first quarter of 2019.

    • Quarterly paying users grew by 72.5% year-on-year to 35.7 million, accounting for 8.9% of QAUs for the first quarter of 2020, increasing from 7.6% for the same period in 2019.

    • Average revenue per user was US$1.3 compared to US$1.4 for the first quarter of 2019.

    • Our self-developed global hit game, Free Fire, recently hit a new record high of over 80 million peak daily active users and, according to App Annie1, was the highest grossing mobile game in Latin America and in Southeast Asia in the first quarter of 2020. Free Fire was also ranked third globally by downloads for Google Play in the mobile games category in the first quarter of 2020, according to App Annie1.

    • In April 2020, Free Fire hit another record high in monthly paying users, which more than doubled year-on-year, and in India, monthly paying users already accounted for over 10% of monthly active users.

    • We continue to focus on esports and community building activities to engage with our rapidly expanding user base. In the first quarter of 2020, we organized more than double the number of esports tournaments online for Free Fire compared to the first quarter of 2019, with these tournaments accumulating over 90 million views.

  • E-commerce

    • Gross merchandise value ("GMV") growth accelerated to 74.3% year-on-year to reach US$6.2 billion for the first quarter, compared to 64.8% year-on-year in the fourth quarter of 2019.

    • Gross orders totaled 429.8 million, an increase of 111.2% year-on-year from 203.5 million for the first quarter of 2019.

    • Gross orders growth further accelerated to more than 140% year-on-year in April 2020.

    • Adjusted revenue was US$314.0 million, up 110.5% year-on-year from US$149.2 million for the first quarter of 2019.

    • Adjusted revenue included US$236.7 million of marketplace revenue2, up 132.1% year-on-year from US$102.0 million for the first quarter of 2019, and US$77.3 million of product revenue3, up 63.6% year-on-year from US$47.2 million for the first quarter of 2019.

    • Adjusted revenue as a percentage of total GMV increased to 5.1% in the first quarter of 2020, up from 4.2% for the same period a year ago. Adjusted marketplace revenue as a percentage of total GMV was 3.8 % in the first quarter of 2020.

    • Sales and marketing expenses were US$206.0 million, compared to US$147.9 million for the first quarter of 2019.

    • Adjusted EBITDA was US$(260.0) million compared to US$(235.3) million for the first quarter of 2019. Adjusted EBITDA loss per order decreased by 48.3% to US$0.60, compared to US$1.16 for the first quarter of 2019.

    • In Indonesia, where Shopee is the largest e-commerce platform by orders, it registered over 185 million orders for the market in the first quarter, or a daily average of over 2 million orders, an increase of 122.6% year-on-year. Shopee also ranked first in Indonesia by average monthly active users, downloads, and total time spent in app on Android, in the Shopping category in the first quarter of 2020, according to App Annie1.

    • Both in Southeast Asia and in Taiwan, Shopee ranked number one in the Shopping category by average monthly active users, and total time spent in app on Android, for first quarter of 2020, according to App Annie1.

    • Shopee also ranked number one in the Shopping category by downloads in Southeast Asia, and was among the top three worldwide by downloads in the same category for first quarter of 2020, according to App Annie1.

Digital Financial Services Update

Our digital financial services offerings experienced accelerated growth in the first quarter, spurred by the rapid and accelerating adoption of digital options by consumers and businesses in our region, as well as Shopee’s sustained, fast growth and deepening integration with SeaMoney.

Our mobile wallet total payment volume ("TPV") for the first quarter exceeded US$1 billion, a milestone we achieved about a year after we started to integrate the mobile wallet service with our Shopee platform. Moreover, quarterly paying users for our mobile wallet services surpassed 10 million for the first quarter of 2020. In the month of April 2020, more than 40% of Shopee’s gross orders in Indonesia, our largest market for SeaMoney, were paid using our mobile wallet service. We continued to rapidly expand our suite of online and offline third-party use cases and partnerships. For instance, in March 2020, we joined forces with Google to offer our mobile wallet as a payment option for the Google Play Store in Thailand.

As a result of the accelerating expansion of the digital economy, and rising demand for online and contactless payments, we believe SeaMoney’s long-term market opportunities are rapidly expanding. We are therefore highly confident in SeaMoney’s growth prospects, and fully focused on maximizing the significant long-term growth potential of SeaMoney.

1 Rankings data for App Annie is based on combined data from the Google Play and iOS App Stores, unless otherwise stated. Southeast Asia rankings are based on Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam. Latin America rankings are based on Argentina, Brazil, Chile, Colombia, Mexico and Uruguay.
2 Marketplace revenue mainly consists of transaction-based fees and advertising income and revenue generated from other value-added services.
3 Product revenue mainly consists of revenue generated from direct sales.

Unaudited Summary of Financial Results

(Amounts are expressed in thousands of US dollars "$" except for per share data)

For the Three Months
ended March 31,

2019

2020

$

$

YOY%

Revenue

Service revenue

Digital Entertainment

173,399

369,683

113.2%

E-commerce and other services

130,663

266,545

104.0%

Sales of goods

47,804

78,692

64.6%

351,866

714,920

103.2%

Cost of revenue

Cost of service

Digital Entertainment

(84,642)

(142,692)

68.6%

E-commerce and other services

(174,365)

(285,524)

63.8%

Cost of goods sold

(53,403)

(79,904)

49.6%

(312,410)

(508,120)

62.6%

Gross profit

39,456

206,800

424.1%

Other operating income

3,453

25,316

633.2%

Sales and marketing expenses

(177,978)

(308,316)

73.2%

General and administrative expenses

(75,628)

(126,933)

67.8%

Research and development expenses

(28,509)

(64,586)

126.5%

Total operating expenses

(278,662)

(474,519)

70.3%

Operating loss

(239,206)

(267,719)

11.9%

Non-operating (loss) income, net

(442,780)(1)

11,235

(102.5)%

Income tax expense

(7,205)

(23,237)

222.5%

Share of results of equity investees

(418)

(1,070)

156.0%

Net loss

(689,609)

(280,791)

(59.3)%

Net loss excluding share-based compensation and changes in fair value of the 2017 convertible notes (2)

(237,290)

(239,388)

0.9%

Basic and diluted loss per share based on net loss excluding share-based compensation and changes in fair value of the 2017 convertible notes attributable to Sea Limited’s ordinary shareholders (2)

(0.64)

(0.52)

(18.8)%

Adjusted revenue of Digital Entertainment (2)

393,306

512,424

30.3%

Adjusted revenue of E-commerce (2)

149,191

313,973

110.5%

Adjusted revenue of Digital Financial Services (2)

2,836

10,707

277.5%

Adjusted revenue of Other Services (2)

33,485

76,816

129.4%

Total adjusted revenue (2)

578,818

913,920

57.9%

Adjusted EBITDA for Digital Entertainment (2)

225,816

298,435

32.2%

Adjusted EBITDA for E-commerce (2)

(235,253)

(260,019)

10.5%

Adjusted EBITDA for Digital Financial Services (2)

(11,912)

(101,583)

752.8%

Adjusted EBITDA for Other Services (2)

(8,484)

(2,582)

(69.6)%

Unallocated expenses (3)

(2,130)

(4,117)

93.3%

Total adjusted EBITDA (2)

(31,963)

(69,866)

118.6%

(1) This was primarily due to fair value loss of $436.1 million on the 2017 convertible notes as our share prices during the quarter significantly exceeded the conversion prices of the 2017 convertible notes.
(2) For a discussion of the use of non-GAAP financial measures, see "Non-GAAP Financial Measures."
(3) Unallocated expenses are mainly related to share-based compensation and general and corporate administrative costs such as professional fees and other miscellaneous items that are not allocated to segments. These expenses are excluded from segment results as they are not reviewed by the Chief Operating Decision Maker ("CODM") as part of segment performance.

Three Months Ended March 31, 2020 Compared to Three Months Ended March 31, 2019

Revenue

The table below sets forth revenue and adjusted revenue generated from our reported segments. Amounts are expressed in thousands of US dollars ("$").

For the Three Months ended March 31,

2019

2020

$

% of

revenue

$

% of

revenue

YOY%

Revenue

Service revenue

Digital Entertainment

173,399

49.3

369,683

51.7

113.2%

E-commerce and other services

130,663

37.1

266,545

37.3

104.0%

Sales of goods

47,804

13.6

78,692

11.0

64.6%

Total revenue

351,866

100.0

714,920

100.0

103.2%

2019

2020

$

% of total
adjusted
revenue

$

% of total
adjusted
revenue

YOY%

Adjusted revenue

Service revenue

Digital Entertainment

393,306

67.9

512,424

56.1

30.3%

E-commerce and other services

137,615

23.8

322,804

35.3

134.6%

Sales of goods

47,897

8.3

78,692

8.6

64.3%

Total adjusted revenue

578,818

100.0

913,920

100.0

57.9%

Our total revenue increased by 103.2% to US$714.9 million in the first quarter of 2020 from US$351.9 million in the first quarter of 2019. Our total adjusted revenue increased by 57.9% to US$913.9 million in the first quarter of 2020 from US$578.8 million in the first quarter of 2019. These increases were mainly driven by the growth in each of the segments detailed as follows:

  • Digital Entertainment: Revenue increased by 113.2% to US$369.7 million in the first quarter of 2020 from US$173.4 million in the first quarter of 2019. Adjusted revenue increased by 30.3% to US$512.4 million in the first quarter of 2020 from US$393.3 million in the first quarter of 2019. This increase was primarily due to the increase in our active user base as well as the deepened paying user penetration, and in particular, the continued success of our self-developed game Free Fire.

  • E-commerce and other services: Revenue increased by 104.0% to US$266.5 million in the first quarter of 2020 from US$130.7 million in the first quarter of 2019. Adjusted revenue increased by 134.6% to US$322.8 million in the first quarter of 2020 from US$137.6 million in the first quarter of 2019. This increase was primarily driven by the growth of our e-commerce marketplace, and positive developments in each of our marketplace revenue streams – transaction-based fees, value-added services, and advertising. It is a result of our commitment to continuously enhance our service offerings as we seek to create greater value for our platform users.

  • Sales of goods: Revenue and adjusted revenue increased by 64.6% and 64.3% respectively to US$78.7 million in the first quarter of 2020, primarily due to the increase in our product offerings.

Cost of Revenue

Our total cost of revenue increased by 62.6% to US$508.1 million in the first quarter of 2020 from US$312.4 million in the first quarter of 2019.

  • Digital Entertainment: Cost of revenue increased by 68.6% to US$142.7 million in the first quarter of 2020 from US$84.6 million in the first quarter of 2019. The increase was largely in line with revenue growth in our digital entertainment business. Improvement in gross profit margins was largely due to higher revenue contribution from our self-developed game.

  • E-commerce and other services: Cost of revenue for our e-commerce and other services combined increased by 63.8% to US$285.5 million in the first quarter of 2020 from US$174.4 million in the first quarter of 2019. The increase was primarily due to costs incurred in line with growth of our e-commerce marketplace, including, among other costs, higher bank transaction fees driven by GMV growth, higher costs associated with value-added services and other ancillary services we provided to our e-commerce platform users, as well as higher staff compensation and benefit costs.

  • Cost of goods sold: Cost of goods sold increased by 49.6% to US$79.9 million in the first quarter of 2020 from US$53.4 million in the first quarter of 2019. The increase was largely in line with the increase in our product offerings.

Other Operating Income

Our other operating income increased by 633.2% to US$25.3 million in the first quarter of 2020 from US$3.5 million in the first quarter of 2019. The increase in our other operating income was mainly due to the rebates from e-commerce related logistic services provided by third parties.

Sales and Marketing Expenses

Our total sales and marketing expenses increased by 73.2% to US$308.3 million in the first quarter of 2020 from US$178.0 million in the first quarter of 2019. The table below sets forth the breakdown of the sales and marketing expenses of our two major reporting segments. Amounts are expressed in thousands of US dollars ("$").

For the Three Months
ended March 31,

2019

2020

YOY%

Sales and Marketing Expenses

$

$

Digital Entertainment

19,989

26,815

34.1%

E-commerce

147,897

206,044

39.3%

  • Digital Entertainment: Sales and marketing expenses increased by 34.1% to US$26.8million in the first quarter of 2020 from US$20.0 million in the first quarter of 2019. The increase was primarily due to esports and other user engagement activities for the enlarged user base of the existing games.

  • E-commerce: Sales and marketing expenses increased by 39.3% to US$206.0 million in the first quarter of 2020 from US$147.9 million in the first quarter of 2019. The increase in marketing efforts was aligned with our strategy to fully capture the market growth opportunity and was primarily attributable to the ramping up of brand marketing as well as higher staff compensation and benefit costs.

General and Administrative Expenses

Our general and administrative expenses increased by 67.8% to US$126.9 million in the first quarter of 2020 from US$75.6 million in the first quarter of 2019. This increase was primarily due to higher staff compensation and benefit costs as well as increase in office facilities and related expenses.

Research and Development Expenses

Our research and development expenses increased by 126.5% to US$64.6 million in the first quarter of 2020 from US$28.5 million in the first quarter of 2019, primarily due to the increase in research and development staff force.

Non-operating Income or Losses, Net

Non-operating income or losses consist of interest income, interest expense, investment gain (loss), fair value change for the 2017 convertible notes and foreign exchange gain (loss). We recorded a net non-operating income of US$11.2 million in the first quarter of 2020, compared to a net non-operating loss of US$442.8 million in the first quarter of 2019. The net non-operating loss in the first quarter of 2019 was primarily due to a fair value loss of US$436.1 million arising from the fair value accounting treatment for the 2017 convertible notes.

Income Tax Expense

We had a net income tax expense of US$23.2 million and US$7.2 million in the first quarter of 2020 and 2019, respectively. The income tax expense in the first quarter of 2020 was primarily due to withholding tax and corporate income tax expenses incurred by our digital entertainment segment.

Net Loss

As a result of the foregoing, we had net losses of US$280.8 million and US$689.6 million in the first quarter of 2020 and 2019, respectively.

Net Loss Excluding Share-based Compensation and Changes in Fair Value of the 2017 Convertible Notes

Net loss excluding share-based compensation and changes in fair value of the 2017 convertible notes, was US$239.4 million and US$237.3 million in the first quarter of 2020 and 2019, respectively.

Basic and Diluted Loss Per Share Based on Net Loss Excluding Share-based Compensation and Changes in Fair Value of the 2017 Convertible Notes Attributable to Sea Limited’s Ordinary Shareholders

Basic and diluted loss per share based on net loss excluding share-based compensation and changes in fair value of the 2017 convertible notes, was US$0.52 and US$0.64 in the first quarter of 2020 and 2019, respectively.

Webcast and Conference Call Information

The Company’s management will host a conference call today to review Sea’s business and financial performance.

Details of the conference call and webcast are as follows:

Date and time:

7:30 AM U.S. Eastern Time on May 18, 2020

7:30 PM Singapore / Hong Kong Time on May 18, 2020

Webcast link:

https://services.choruscall.com/links/se200518.html

Dial in numbers:

US Toll Free: 1-888-317-6003

Hong Kong: 800-963-976

International: 1-412-317-6061

Singapore: 800-120-5863

United Kingdom: 08-082-389-063

Passcode for Participants:

7099128

A replay of the conference call will be available at the Company’s investor relations website (https://www.seagroup.com/investor/financials). An archived webcast will be available at the same link above.

About Sea Limited

Sea Limited (NYSE: SE) is a leading global consumer internet company founded in Singapore in 2009. Our mission is to better the lives of consumers and small businesses with technology. We operate three core businesses across digital entertainment, e-commerce, as well as digital payments and financial services, known as Garena, Shopee, and SeaMoney, respectively. Garena is a leading global online games developer and publisher. Shopee is the largest pan-regional e-commerce platform in Southeast Asia and Taiwan. SeaMoney is a leading digital payments and financial services provider in Southeast Asia.

Forward-Looking Statements

This announcement contains forward-looking statements. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates," "confident," "guidance," and similar statements. Among other things, statements that are not historical facts, including statements about Sea’s beliefs and expectations, the business, financial and market outlook, and projections from its management in this announcement, as well as Sea’s strategic and operational plans, contain forward-looking statements. Sea may also make written or oral forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission (the "SEC"), in its annual report to shareholders, in press releases, and other written materials, and in oral statements made by its officers, directors, or employees to third parties. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement, including but not limited to the following: Sea’s goals and strategies; its future business development, financial condition, financial results, and results of operations; the growth in, and market size of, the digital entertainment, e-commerce and digital financial services industries in the markets where it operates, including segments within those industries; changes in its revenue, costs or expenditures; its ability to continue to source, develop and offer new and attractive online games and to offer other engaging digital entertainment content; the growth of its digital entertainment, e-commerce and digital financial services businesses and platforms; the growth in its user base, level of user engagement, and monetization; its ability to continue to develop new technologies and/or upgrade its existing technologies; growth and trends of its markets and competition in its industries; government policies and regulations relating to its industries; general economic and business conditions in its markets; and the impact of widespread health developments, including the recent global coronavirus pandemic, and the responses thereto (such as voluntary and in some cases, mandatory quarantines as well as shut downs and other restrictions on travel and commercial, social and other activities) which could materially and adversely affect, among other things, the business and manufacturing activities of its sellers, merchants and logistics providers, the global supply chain including those of its sellers’ and merchants’, and consumer discretionary spending. Further information regarding these and other risks is included in Sea’s filings with the SEC. All information provided in this press release and in the attachments is as of the date of this press release, and Sea undertakes no obligation to update any forward-looking statement, except as required under applicable law.

Non-GAAP Financial Measures

To supplement our consolidated financial statements, which are prepared and presented in accordance with U.S. GAAP, we use the following non-GAAP financial measures to help evaluate our operating performance:

  • "Adjusted revenue" of our digital entertainment segment represents revenue of the digital entertainment segment plus change in digital entertainment deferred revenue. This financial measure is used as an approximation of cash spent by our users in the applicable period that is attributable to our digital entertainment segment. Although other companies may present such measures related to gross billings differently or not at all, we believe that the adjusted revenue of our digital entertainment segment provides useful information to investors about the segment’s core operating results, enhancing their understanding of our past performance and future prospects.

  • "Adjusted revenue" of our e-commerce segment represents revenue of the e-commerce segment (currently consisting of marketplace revenue and product revenue) plus certain revenues that were net-off against their corresponding sales incentives. This financial measure enables our investors to follow trends in our e-commerce monetization capability over time and is a useful performance measure.

  • "Adjusted revenue" of our digital financial services segment represents revenue of the digital financial services segment plus certain revenues that were net-off against their corresponding sales incentives.

  • "Adjusted revenue" of our other services segment represents revenue of the other services segment plus certain revenues that were net-off against their corresponding sales incentives.

  • "Total adjusted revenue" represents the sum of adjusted revenue of all our segments combined. This financial measure enables our investors to follow trends in our overall group monetization capability over time and is a useful performance measure.

  • "Net loss excluding share-based compensation and changes in fair value of the 2017 convertible notes" represents net loss before share-based compensation and changes in fair value of convertible notes. This financial measure helps to identify underlying trends in our business that could otherwise be distorted by the effect of certain expenses that are included in net loss. The use of this measure has its limitations in that it does not include all items that impact the net loss or income for the period, and share-based compensation and changes in fair value of convertible notes are significant expenses.

  • "Net loss excluding share-based compensation and changes in fair value of the 2017 convertible notes attributable to Sea Limited’s ordinary shareholders" represents net loss attributable to Sea Limited’s ordinary shareholders before share-based compensation and changes in fair value of convertible notes. This financial measure helps to identify underlying trends in our business that could otherwise be distorted by the effect of certain expenses that are included in net loss. The use of this measure has its limitations in that it does not include all items that impact the net loss or income for the period, and share-based compensation and changes in fair value of convertible notes are significant expenses.

  • "Basic and diluted loss per share based on net loss excluding share-based compensation and changes in fair value of the 2017 convertible notes attributable to Sea Limited’s ordinary shareholders" represents net loss excluding share-based compensation and changes in fair value of the 2017 convertible notes attributable to Sea Limited’s ordinary shareholders divided by the weighted average number of shares outstanding during the period.

  • "Adjusted EBITDA" for our digital entertainment segment represents operating income (loss) before share-based compensation plus (a) depreciation and amortization expenses, and (b) the net effect of changes in deferred revenue and its related cost for our digital entertainment segment. Although other companies may calculate adjusted EBITDA differently or not present it at all, we believe that the segment adjusted EBITDA helps to identify underlying trends in our operating results, enhancing their understanding of the past performance and future prospects.

  • "Adjusted EBITDA" for our e-commerce segment, digital financial services segment and other services segment represents operating income (loss) before share-based compensation plus (a) depreciation and amortization expenses, and (b) intersegment sales incentives. Although other companies may calculate adjusted EBITDA differently or not present it at all, we believe that the segment adjusted EBITDA helps to identify underlying trends in our operating results, enhancing their understanding of the past performance and future prospects.

  • "Total adjusted EBITDA" represents the sum of adjusted EBITDA of all our segments combined, plus unallocated expenses. Although other companies may calculate adjusted EBITDA differently or not present it at all, we believe that the total adjusted EBITDA helps to identify underlying trends in our operating results, enhancing their understanding of the past performance and future prospects.

These non-GAAP financial measures have limitations as analytical tools. None of the above financial measures should be considered in isolation or construed as an alternative to revenue, net loss/income, or any other measure of performance or as an indicator of our operating performance. These non-GAAP financial measures presented here may not be comparable to similarly titled measures presented by other companies. Other companies may calculate similarly titled measures differently, limiting their usefulness as comparative measures to Sea’s data. We compensate for these limitations by reconciling the non-GAAP financial measures to their nearest U.S. GAAP financial measures, all of which should be considered when evaluating our performance. We encourage you to review our financial information in its entirety and not rely on any single financial measure.

The tables below present selected financial information of our reporting segments, the non-GAAP financial measures that are most directly comparable to GAAP financial measures, and the related reconciliations between the financial measures. Amounts are expressed in thousands of US dollars ("$") except for number of shares & per share data.

For the Three Months ended March 31, 2020

Digital Entertainment

E-commerce

Digital Financial Services

Other Services(3)

Unallocated expenses(4)

Consolidated

$

$

$

$

$

$

Revenue

369,683

263,195(1)

10,345

71,697

-

714,920

Changes in deferred revenue

142,741

-

-

-

-

142,741

Sales incentives net-off

-

50,778

362

5,119

-

56,259

Adjusted revenue

512,424

313,973(2)

10,707

76,816

-

913,920

Operating income (loss)

174,037

(291,699)

(94,385)

(10,239)

(45,433)

(267,719)

Net effect of changes in deferred revenue and its related cost

118,543

-

-

-

-

118,543

Intersegment sales incentives

-

4,097

(8,514)

4,417

-

-

Depreciation and Amortization

5,855

27,583

1,316

3,240

-

37,994

Share-based compensation

-

-

-

-

41,316

41,316

Adjusted EBITDA

298,435

(260,019)

(101,583)

(2,582)

(4,117)

(69,866)

For the Three Months ended March 31, 2019

Digital Entertainment

E-commerce

Digital Financial Services

Other Services(3)

Unallocated expenses(4)

Consolidated

$

$

$

$

$

$

Revenue

173,399

142,694(1)

2,288

33,485

-

351,866

Changes in deferred revenue

219,907

-

-

-

-

219,907

Sales incentives net-off

-

6,497

548

-

-

7,045

Adjusted revenue

393,306

149,191(2)

2,836

33,485

-

578,818

Operating income (loss)

56,470

(253,473)

(12,461)

(11,413)

(18,329)

(239,206)

Net effect of changes in deferred revenue and its related cost

165,501

-

-

-

-

165,501

Depreciation and Amortization

3,845

18,220

549

2,929

-

25,543

Share-based compensation

-

-

-

-

16,199

16,199

Adjusted EBITDA

225,816

(235,253)

(11,912)

(8,484)

(2,130)

(31,963)

(1) For the first quarter of 2020, revenue of $263,195 included marketplace revenue of $185,930 and product revenue of $77,265 net of sales incentives. For the first quarter of 2019, revenue of $142,694 included marketplace revenue of $95,566 and product revenue of $47,128 net of sales incentives.
(2) For the first quarter of 2020, adjusted revenue of $313,973 included marketplace revenue of $236,708 and product revenue of $77,265. For the first quarter of 2019, adjusted revenue of $149,191 included marketplace revenue of $101,970 and product revenue of $47,221.
(3) A combination of multiple business activities that does not meet the quantitative thresholds to qualify as reportable segments are grouped together as "Other Services."
(4) Unallocated expenses are mainly related to share-based compensation and general and corporate administrative costs such as professional fees and other miscellaneous items that are not allocated to segments. These expenses are excluded from segment results as they are not reviewed by the CODM as part of segment performance.

For the Three Months
ended March 31,

2019

2020

$

$

Net loss

(689,609)

(280,791)

Share-based compensation

16,199

41,316

Changes in fair value of the 2017 convertible notes

436,120

87

Net loss excluding share-based compensation and changes in fair value of the 2017 convertible notes

(237,290)

(239,388)

Net profit attributable to non-controlling interests

(746)

(722)

Net loss excluding share-based compensation and changes in fair value of the 2017 convertible notes attributable to Sea Limited’s ordinary shareholders

(238,036)

(240,110)

Weighted average shares used in loss per share computation:

Basic and diluted

370,724,164

462,194,052

Basic and diluted loss per share based on net loss excluding share-based compensation and changes in fair value of the 2017 convertible notes attributable to Sea Limited’s ordinary shareholders

(0.64)

(0.52)

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

Amounts expressed in thousands of US dollars ("$") except for number of shares & per share data

For the Three Months
ended March 31,

2019

2020

$

$

Revenue

Service revenue

Digital Entertainment

173,399

369,683

E-commerce and other services

130,663

266,545

Sales of goods

47,804

78,692

Total revenue

351,866

714,920

Cost of revenue

Cost of service

Digital Entertainment

(84,642)

(142,692)

E-commerce and other services

(174,365)

(285,524)

Cost of goods sold

(53,403)

(79,904)

Total cost of revenue

(312,410)

(508,120)

Gross profit

39,456

206,800

Operating income (expenses):

Other operating income

3,453

25,316

Sales and marketing expenses

(177,978)

(308,316)

General and administrative expenses

(75,628)

(126,933)

Research and development expenses

(28,509)

(64,586)

Total operating expenses

(278,662)

(474,519)

Operating loss

(239,206)

(267,719)

Interest income

4,012

9,291

Interest expense

(10,066)

(24,609)

Investment gain, net

2,047

5,111

Changes in fair value of convertible notes

(436,120)(1)

(87)

Foreign exchange (loss) gain

(2,653)

21,529

Loss before income tax and share of results of equity investees

(681,986)

(256,484)

Income tax expense

(7,205)

(23,237)

Share of results of equity investees

(418)

(1,070)

Net loss

(689,609)

(280,791)

Net profit attributable to non-controlling interests

(746)

(722)

Net loss attributable to Sea Limited’s ordinary shareholders

(690,355)

(281,513)

Loss per share:

Basic and diluted

(1.86)

(0.61)

Weighted average shares used in loss per share computation:

Basic and diluted

370,724,164

462,194,052

(1) Fair value loss of $436.1 million on the 2017 convertible notes was recorded as our share prices significantly exceeded the conversion prices of the 2017 convertible notes.

UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS

Amounts expressed in thousands of US dollars ("$")

As of
December 31,

As of
March 31,

2019

2020

$

$

ASSETS

Current assets

Cash and cash equivalents

3,118,988

2,599,702

Restricted cash

434,938

505,396

Accounts receivable, net

187,035

160,003

Prepaid expenses and other assets

535,187

717,243

Inventories, net

26,932

34,222

Short-term investments

102,324

30,468

Amounts due from related parties

4,735

3,549

Total current assets

4,410,139

4,050,583

Non-current assets

Property and equipment, net

318,620

301,314

Operating lease right-of-use assets, net

182,965

185,550

Intangible assets, net

15,020

39,925

Long-term investments

113,797

143,175

Prepaid expenses and other assets

65,684

192,576

Restricted cash

16,652

18,207

Deferred tax assets

70,340

78,152

Goodwill

30,952

223,342

Total non-current assets

814,030

1,182,241

Total assets

5,224,169

5,232,824

UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS

Amounts expressed in thousands of US dollars ("$")

As of
December 31,

As of
March 31,

2019

2020

$

$

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities

Accounts payable

69,370

50,956

Accrued expenses and other payables

980,805

1,136,018

Advances from customers

65,062

78,635

Amounts due to related parties

34,990

36,802

Short-term borrowings

1,258

2,382

Operating lease liabilities

56,320

56,456

Deferred revenue

1,097,868

1,032,593

Convertible notes

29,481

Income tax payable

27,212

34,775

Total current liabilities

2,362,366

2,428,617

Non-current liabilities

Accrued expenses and other payables

25,802

19,602

Long-term borrowings

358

111

Operating lease liabilities

144,000

142,132

Deferred revenue

160,708

298,834

Convertible notes

1,356,332

1,374,724

Deferred tax liabilities

975

857

Unrecognized tax benefits

976

972

Total non-current liabilities

1,689,151

1,837,232

Total liabilities

4,051,517

4,265,849

UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS

Amounts expressed in thousands of US dollars ("$")

As of
December 31,

As of
March 31,

2019

2020

$

$

Shareholders’ equity

Class A Ordinary shares

154

156

Class B Ordinary shares

76

76

Additional paid-in capital

4,687,284

4,758,964

Accumulated other comprehensive income

5,449

(26,543)

Statutory reserves

46

46

Accumulated deficit

(3,530,585)

(3,812,098)

Total Sea Limited shareholders’ equity

1,162,424

920,601

Non-controlling interests

10,228

46,374

Total shareholders’ equity

1,172,652

966,975

Total liabilities and shareholders’ equity

5,224,169

5,232,824

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Amounts expressed in thousands of US dollars ("$")

For the Three Months ended
March 31,

2019

2020

$

$

Net cash used in operating activities

(17,815)

(223,679)

Net cash used in investing activities

(91,250)

(147,066)

Net cash generated from (used in) financing activities

1,527,875

(24,757)

Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash

1,843

(51,771)

Net increase (decrease) in cash, cash equivalents and restricted cash

1,420,653

(447,273)

Cash, cash equivalents and restricted cash at beginning of the period

1,259,312

3,570,578

Cash, cash equivalents and restricted cash at end of the period

2,679,965

3,123,305

UNAUDITED SEGMENT INFORMATION

The Company has three reportable segments, namely digital entertainment, e-commerce and digital financial services. The Chief Operating Decision Maker ("CODM") reviews the performance of each segment based on revenue and certain key operating metrics of the operations and uses these results for the purposes of allocating resources to and evaluating the financial performance of each segment. Amounts are expressed in thousands of US dollars ("$").

For the Three Months ended March 31, 2020

Digital
Entertainment

E-commerce

Digital
Financial
Services

Other
Services(1)

Unallocated
expenses(2)

Consolidated

$

$

$

$

$

$

Revenue

369,683

263,195

10,345

71,697

-

714,920

Operating income (loss)

174,037

(291,699)

(94,385)

(10,239)

(45,433)

(267,719)

Non-operating income, net

11,235

Income tax expense

(23,237)

Share of results of equity investees

(1,070)

Net loss

(280,791)

For the Three Months ended March 31, 2019

Digital
Entertainment

E-commerce

Digital
Financial
Services

Other
Services(1)

Unallocated
expenses(2)

Consolidated

$

$

$

$

$

$

Revenue

173,399

142,694

2,288

33,485

-

351,866

Operating income (loss)

56,470

(253,473)

(12,461)

(11,413)

(18,329)

(239,206)

Non-operating loss, net

(442,780)

Income tax expense

(7,205)

Share of results of equity investees

(418)

Net loss

(689,609)

(1) A combination of multiple business activities that does not meet the quantitative thresholds to qualify as reportable segments are grouped together as "Other Services."
(2) Unallocated expenses are mainly related to share-based compensation and general and corporate administrative costs such as professional fees and other miscellaneous items that are not allocated to segments. These expenses are excluded from segment results as they are not reviewed by the CODM as part of segment performance.

View source version on businesswire.com: https://www.businesswire.com/news/home/20200518005302/en/

Contacts

Martin Reidy
Investors / analysts: ir@seagroup.com
Media: media@seagroup.com