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Sea Limited Reports Third Quarter 2017 Results

SINGAPORE, Nov. 21, 2017 /PRNewswire/ -- Sea Limited (SE), a leader in Digital Entertainment, E-Commerce and Digital Financial Services across Greater Southeast Asia, today announced its financial results for the quarter ended September 30, 2017.

"In the third quarter of 2017, Sea has continued to build on its strong leadership position. We exceeded our internal performance expectations and delivered strong organic growth," said Forrest Li, Chairman and Group CEO of Sea. "We are continuing to invest for the future and are confident about the long-term potential of our business and the Greater Southeast Asia region."

Highlights for the Third Quarter

  • Sea Limited -- pushing ahead with strong top line growth

    Total GAAP revenue plus change in Digital Entertainment deferred revenue and E-Commerce commission income[1], was US$151.7 million, up 73% year-over-year from the third quarter in 2016, and up 21% sequentially from the second quarter of 2017.
  • Digital Entertainment -- momentum accelerating on growing user base

    Digital Entertainment GAAP revenue plus change in Digital Entertainment deferred revenue[2], was US$134.5 million, up 62% year-over-year from $83.2 million in the third quarter of 2016. Garena's quarterly active users increased 54% year-over-year to 69.0 million, monthly active users in the last month of the quarter increased 61% year-over-year to 42.7 million, and quarterly paying users increased 38% year-over-year to 6.5 million.
  • E-Commerce -- continued share gains on robust growth

    Shopee Gross Merchandise Value ("GMV") increased 219% year-over-year and 30% quarter-on-quarter to US$1,064.8 million. Gross orders for the quarter increased 204% year-over-year and 45% quarter-on-quarter to 65.9 million. E-Commerce GAAP revenue plus commission income[3] for the quarter was US$5.7 million, up 111% quarter-on-quarter. User engagement continues to be robust, with 5.9 million average monthly active buyers, up 247% year-over-year from 1.7 million in the third quarter of 2016. Shopee achieved 3.7 monthly orders per active buyer and an average order value of US$16.2. Consistent with our mobile-centric strategy, more than 93% of Shopee orders in the third quarter were transacted through our mobile app.
  • Digital Financial Services -- rapid adoption continues

    AirPay Gross Transaction Value ("GTV") increased 172% year-over-year and 29% quarter-on-quarter to US$448.2 million.
  • Synergies across our three core platforms continue to deepen, with early success in cross-selling Shopee to our Garena users as well as increased integration between Shopee and AirPay for payments.

"Industry-leading innovation remains core to our success," said Group President Nick Nash. "The application of data science and cross-platform synergies is a crucial element of our strategy. A practical example can be seen in our Garena business, where our gross billings grew even faster than our quarterly active users, which speaks to our improving monetization per user. Likewise, our recent initiative to cross-sell Shopee to our Arena of Valor mobile game players has generated strong results and is helping us develop deeper relationships with our users."

Commentary on GAAP Financials                          

Similar to many other leading online gaming companies, we use Digital Entertainment GAAP revenue plus change in Digital Entertainment deferred revenue as an approximation of Digital Entertainment Gross Billings, which is closely related to the operating metrics like quarterly active users. As we grow, we accumulate a deferred revenue balance to be recognized in future periods. Consequently, the GAAP recognized revenue is often delayed relative to the actual cash inflows. We disclose Digital Entertainment GAAP revenue and also deferred revenue balance for this segment at the end of each period to enable our investors to follow the trends in gross billings over time.

In the E-Commerce segment, certain sales incentives that we provide to our ecosystem as a result of concurrent sales transacted on Shopee's platform are recorded as deductions from the corresponding commission income we collected. These deductions can be applied to the extent of the entire value of the transaction commissions. The remaining sales incentives are booked under sales and marketing expenses.  As a result, the current GAAP revenue only includes the advertising income but not the commission income.  We assess the monetization capability of the E-Commerce business by adding back these transaction commissions to the E-Commerce GAAP revenue. We disclose E-Commerce GAAP revenue and also the commission income together with the sales incentives deducted from such commission income to enable our investors to follow the trends in our overall monetization capability over time.

On a GAAP basis, total consolidated revenue for the third quarter was US$94.1 million and consolidated gross profit for the third quarter was US$10.8 million. GAAP sales and marketing expenses for the quarter were US$131.6 million, GAAP general and administrative expenses were US$33.3 million, and GAAP research and development expenses were US$7.7 million.

Interest income, interest expense, investment gain, and net foreign exchange gain / (loss) was a net gain of US$25.8 million in the third quarter of 2017. This result was primarily attributable to an investment gain from the disposal of an equity investee in Vietnam and net gain on the re-measurement of investments from other holdings, partially offset by interest expense. As a result, Sea had losses before income tax and share of results of equity investees of US$134.9 million in the third quarter of 2017.

US$2.1 million third quarter negative income tax reflects deferred tax assets recognized on increasing deferred revenue arising from the Digital Entertainment segment. Note that we did not recognize any deferred tax assets arising from Sea's new growth businesses like Shopee.

As a result, Sea had a net loss of US$132.8 million for the quarter. Adjusted net loss, which is net loss adjusted to remove share-based compensation expense, was US$127.1 million for the quarter[4].

Sea had US$581.5 million in cash and cash equivalents as of September 30, 2017, which does not reflect proceeds of US$939.9 million, net of underwriting discounts, from our October 20th initial public offering and over-allotment exercise.

Guidance

For fiscal year 2017, we currently expect total GAAP revenue plus change in Digital Entertainment deferred revenue and E-Commerce commission income to be US$540.0 million to US$550.0 million for the fiscal year 2017, representing a year-over-year growth of 53% to 56% compared to the fiscal year 2016.

For the E-Commerce segment, we currently expect GMV to be between US$3.8 billion to US$4.0 billion for the fiscal year 2017, representing a year-over-year growth of 230 % to 248% compared to the fiscal year 2016.

Webcast and Conference Call Information

Mr. Forrest Li, Founder, Chairman and Group Chief Executive Officer; Mr. Nick Nash, Group President; Mr. Tony Hou, Group Chief Financial Officer; and Mr. Alan Hellawell, Group Chief Strategy Officer, 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:            

7:00 PM U.S. Eastern Time on 21 November


8:00 AM Singapore/ Hong Kong Time on 22 November



Webcast link:              

http://mms.prnasia.com/SE/20171121/default.aspx



Dial in numbers:         

US Toll Free: 1-888-317-6003                       

Hong Kong: 800-963976


International: 1-412-317-6061                       

China: 4001-206115



Passcode for participants:

7463763

PowerPoint slides will be presented during the live webcast and will be available on our website for download.

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

For enquiries, please contact:

Investors / analysts: ir@seagroup.com
Media: media@seagroup.com or sea@brunswickgroup.com

About Sea Limited

Sea's mission is to better the lives of the consumers and small businesses of Greater Southeast Asia with technology.  Greater Southeast Asia includes the key markets of Indonesia, Taiwan, Vietnam, Thailand, the Philippines, Malaysia and Singapore, which collectively had 585.3 million people and US$3.0 trillion of GDP in 2016. Sea operates three platforms across Digital Entertainment, E-Commerce, and Digital Financial Services, known as Garena, Shopee, and AirPay, respectively. Sea's platforms are supported by over 6,000 employees across seven markets.

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" and similar statements. Among other things, statements that are not historical facts, including statements about Sea's beliefs and expectations, the business and financial outlook and projections from 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 and results of operations; the growth in, and market size of, the digital entertainment, e-commerce and digital financial services industries in GSEA, including segments within those industries; changes in its revenue, costs or expenditures; its ability to continue to source and offer new and attractive online games and to offer other engaging digital entertainment content; the growth of Digital Financial Services platform; the growth of E-Commerce platform; the growth in its user base and level of engagement; its ability to continue to develop new technologies and/or upgrade its existing technologies; growth of and trends of competition in its industry; government policies and regulations relating to its industry; and general economic and business conditions in the markets it has businesses. 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:

  • "Digital Entertainment Gross Billings" represent GAAP 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 during in the period for the Digital Entertainment segment. We believe that such measure provides useful information to investors about the segment's core operating results, enhancing their understanding of the past performance and future prospects. However, other companies may calculate gross billings differently or not at all, which reduces its usefulness as a direct comparative measure.
  • "E-Commerce Monetization" represents GAAP revenue (currently consisting of advertising income) of the E-Commerce segment plus commission income (before deducting sales incentives from commission income). This financial measure enables our investors to follow trends in our E-Commerce monetization capability over time and is a useful performance measure.
  • "Group Monetization" represents total GAAP revenue plus change in Digital Entertainment deferred revenue and E-Commerce commission income as an approximation of overall monetization capability. This measure provides useful information to investors for the reasons above.
  • "Adjusted Net Loss" represents net loss excluding share based compensation expense. We believe that the adjusted net loss 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 adjusted net loss 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 is a recurring significant expense.

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 GAAP 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 performance.  We encourage you to review our financial information in its entirety and not rely on a single financial measure.

The tables below present details on 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 ("$").

1           DIGITAL ENTERTAINMENT GROSS BILLINGS





For the Three Months ended September 30,

For the Nine Months ended September 30,


2016

2017

2016

2017


$

$

$

$


(unaudited)

(unaudited)

(unaudited)

(unaudited)






Digital Entertainment GAAP revenue

86,178

79,799

245,578

258,844

Change in Digital Entertainment deferred revenue

(2,982)

54,749

6,209

101,736












83,196

134,548

251,787

360,580






2          E-COMMERCE MONETIZATION





For the Three Months ended September 30,

For the Nine Months ended September 30,


2016

2017

2016

2017


$

$

$

$


(unaudited)

(unaudited)

(unaudited)

(unaudited)






E-Commerce GAAP revenue

--

2,786

--

4,052

E-Commerce commission income, gross

--

2,883

--

4,330












--

5,669

--

8,382






3          GROUP MONETIZATION


For the Three Months ended September 30,

For the Nine Months ended September 30,


2016

2017

2016

2017


$

$

$

$


(unaudited)

(unaudited)

(unaudited)

(unaudited)











Total GAAP revenue

90,523

94,094

257,209

289,586

Change in Digital Entertainment deferred revenue

(2,982)

54,749

6,209

101,736

E-Commerce commission income, gross

--

2,883

--

4,330












87,541

151,726

263,418

395,652
















4          ADJUSTED NET LOSS


For the Three Months ended September 30,

For the Nine Months ended September 30,


2016

2017

2016

2017


$

$

$

$


(unaudited)

(unaudited)

(unaudited)

(unaudited)











Net loss

(65,592)

(132,831)

(152,719)

(298,026)

Share-based compensation

5,376

5,698

18,586

17,059












(60,216)

(127,133)

(134,133)

(280,967)






 

 

 

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 September 30,

For the Nine Months ended September 30,


Note

2016

2017

2016

2017



$

$

$

$



(unaudited)

(unaudited)

(unaudited)

(unaudited)







Revenue






Digital Entertainment


86,178

79,799

245,578

258,844

Others

1

4,345

14,295

11,631

30,742













Total revenue

2

90,523

94,094

257,209

289,586







Cost of revenue






Digital Entertainment


(46,496)

(55,577)

(138,016)

(157,746)

Others


(12,253)

(27,698)

(31,405)

(68,073)













Total cost of revenue


(58,749)

(83,275)

(169,421)

(225,819)













Gross profit


31,774

10,819

87,788

63,767













Operating income (expenses):






Other operating income


367

959

1,688

1,340

Sales and marketing expenses

3

(51,530)

(131,571)

(125,609)

(269,556)

General and administrative expenses


(27,934)

(33,262)

(71,079)

(86,114)

Research and development expenses


(5,591)

(7,661)

(15,023)

(20,652)













Total operating expenses


(84,688)

(171,535)

(210,023)

(374,982)













Operating loss


(52,914)

(160,716)

(122,235)

(311,215)

Interest income


184

1,689

470

2,162

Interest expense


(5)

(8,461)

(14)

(17,458)

Investment (loss) gain


(5,103)

34,302

(5,587)

33,943

Foreign exchange gain (loss)


1,052

(1,728)

(1,516)

(2,517)













Loss before income tax and share of results of equity investees


(56,786)

(134,914)

(128,882)

(295,085)

Income tax expense


(3,522)

2,147

(9,593)

(2,015)

Share of results of equity investees


(5,284)

(64)

(14,244)

(926)













Net loss


(65,592)

(132,831)

(152,719)

(298,026)







Net loss attributable to non-controlling interests


664

150

2,092

201













Net loss attributable to Sea Limited's ordinary shareholders


(64,928)

(132,681)

(150,627)

(297,825)



















Adjusted net loss


(60,216)

(127,133)

(134,133)

(280,967)







Loss per share:






Basic and diluted


(0.38)

(0.75)

(0.88)

(1.69)







Shares used in loss per share computation:






Basic and diluted


171,548,248

177,902,368

170,971,653

175,970,648

1           REVENUE - OTHERS

Among Revenue - Others includes zero commission income and $2,786 advertising income for E-Commerce segment for the quarter ended September 30, 2017. Zero commission income and $4,052 advertising income were recognised for E-Commerce segment for the nine months ended September 30, 2017. Details of the commission income are further analysed as follows:


For the Three Months ended September 30,

For the Nine Months ended September 30,


2016

2017

2016

2017


$

$

$

$


(unaudited)

(unaudited)

(unaudited)

(unaudited)






Commission income

--

2,883

--

4,330

Shopee coins and other sales

Incentives

--

(2,883)

--

(4,330)












--

--

--

--











Sales incentives in excess of the commission income are recognized as selling and marketing expenses.

2          REVENUE BY REPORTABLE SEGMENT


For the Three Months ended September 30,

For the Nine Months ended September 30,


2016

2017

2016

2017


$

$

$

$


(unaudited)

(unaudited)

(unaudited)

(unaudited)






Revenue










Digital Entertainment

86,178

80,516

245,578

260,635

E-Commerce

--

3,181

--

4,366

Digital Financial Services

5,938

12,719

13,155

32,114

All others

2,531

11,496

7,476

19,377

Inter segment

(4,124)

(13,818)

(9,000)

(26,906)












90,523

94,094

257,209

289,586






3          SALES AND MARKETING EXPENSES

During the quarter ended September 30, 2016 and 2017, sales and marketing expenses relating to our Digital Entertainment segment accounted for 21% and 16% of our total sales and marketing expenses respectively, while sales and marketing expenses relating to our E-Commerce segment accounted for 70% and 78% of our total sales and marketing expenses respectively.

During the nine months ended September 30, 2016 and 2017, sales and marketing expenses relating to our Digital Entertainment segment accounted for 24% and 17% of our total sales and marketing expenses respectively, while sales and marketing expenses relating to our E-Commerce segment accounted for 65% and 76% of our total sales and marketing expenses respectively.

4          DEFERRED REVENUE FOR DIGITAL ENTERTAINMENT


 


As of September 30,


2016

2017


$

$


(unaudited)

(unaudited)




Deferred revenue for Digital Entertainment

257,947

360,629











 

 


UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS

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





As of

December 31,

As of

September 30,


2016

2017


$

$



(unaudited)




ASSETS



Current assets



Cash and cash equivalents

170,078

581,474

Restricted cash

18,607

69,426

Accounts receivable, net

35,074

57,830

Prepaid expenses and other assets

79,443

149,382

Inventories, net

3,947

7,272

Amounts due from related parties

2,735

1,384







Total current assets

309,884

866,768




Non-current assets



Property and equipment, net

31,123

47,934

Intangible assets, net

29,963

42,048

Long-term investments

45,072

27,132

Prepaid expenses and other assets

32,299

54,492

Restricted cash

2,139

2,280

Deferred tax assets

35,295

44,775

Deferred initial public offering costs

4,818

Goodwill

30,952







Total non-current assets

175,891

254,431







Total assets

485,775

1,121,199








 

 

UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS

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





As of

December 31,

As of

September 30,


2016

2017


$

$



(unaudited)




LIABILITIES, MEZZANINE EQUITY AND SHAREHOLDERS' EQUITY



Current liabilities



Accounts payable

 

5,990

9,338

Accrued expenses and other payables

102,086

218,451

Advances from customers

15,459

24,061

Amount due to related parties

9,696

25,251

Short-term bank borrowings

1,858

1,976

Deferred revenue

122,218

161,784

Income taxes payable

6,449

8,973







Total current liabilities

263,756

449,834







Non-current liabilities






Accrued expenses and other payables

4,480

4,870

Deferred revenue

137,259

200,882

Convertible promissory notes

674,411

Unrecognized tax benefits

855

2,362







Total non-current liabilities

142,594

882,525







Total liabilities

406,350

1,332,359















 

 

UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS

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





As of

December 31,

As of

September 30,


2016

2017


$

$



(unaudited)




Mezzanine equity



Seed contingently redeemable convertible preference shares

500

500

Series A contingently redeemable convertible preference shares

10,000

10,000

Series B contingently redeemable convertible preference shares

194,575

194,575







Total mezzanine equity

205,075

205,075







Shareholders' equity



Ordinary shares

88

91

Additional paid-in capital

370,615

410,156

Accumulated other comprehensive income

8,587

9,025

Statutory reserves

46

46

Accumulated deficit

(505,006)

(843,885)







Total Sea Limited shareholders' deficit

(125,670)

(424,567)

Non-controlling interests

20

8,332







Total shareholders' deficit

(125,650)

(416,235)




Total liabilities, mezzanine equity and shareholders' deficit

485,775

1,121,199




















 

 

 

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

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





Three months ended

September 30,

Nine months ended

September 30,


2016

2017

2016

2017


$

$

$

$


(unaudited)

(unaudited)

(unaudited)

(unaudited)






Net cash used in operating activities

(36,477)

(89,814)

(72,608)

(220,986)

Net cash used in investing activities

(13,401)

(50,081)

(42,792)

(67,474)

Net cash generated from financing activities

31,541

69,466

199,624

696,442

Effect of foreign exchange rate changes on cash and cash equivalents

359

843

1,506

3,414

Net (decrease) increase in cash and cash equivalents

(17,978)

(69,586)

85,730

411,396

Cash and cash equivalents at beginning of the period

219,911

651,060

116,203

170,078

Cash and cash equivalents at end of the period

201,933

581,474

201,933

581,474







 

 

 

SUPPLEMENTAL OPERATIONAL METRICS








For the three months
ended September 30,
2017





Digital Entertainment

Unit

Timeframe






Quarterly active users

millions

period

69.0

Monthly active users (last month)

millions

last month of period

42.7

Quarterly paying users

millions

period

6.5





E-Commerce








Gross GMV

US$ millions

period

1,064.8

Gross orders

millions

period

65.9

Gross GMV (last month)

US$ millions

last month of period

389.2





Market breakdown (by % orders)




  Indonesia

%

period

36% - 38%

  Taiwan

%

period

33% - 35%

  Vietnam

%

period

9% - 11%

  Thailand

%

period

7% - 9%

  Philippines

%

period

4% - 6%

  Singapore and Malaysia

%

period

5% - 7%





Category breakdown (by % GMV)




  Fashion

%

period

29%

  Health & Beauty

%

period

16%

  Baby Products

%

period

11%

  Home & Living

%

period

12%

  Computers, Cellphones, and Cameras

%

period

10%

  Others

%

period

22%





Quarterly average monthly active users

millions

period (average)

14.0

Quarterly average monthly active sellers

millions

period (average)

1.9

Quarterly average monthly active buyers

millions

period (average)

5.9





% of mobile orders

%

period

93%





Digital Financial Services








GTV

US$ millions

period

448.2

 

 


[1]

For a discussion of the use of non-GAAP financial measures, see "Non-GAAP Financial Measures"

[2]

For a discussion of the use of non-GAAP financial measures, see "Non-GAAP Financial Measures"

[3]

For a discussion of the use of non-GAAP financial measures, see "Non-GAAP Financial Measures"

[4]

For a discussion of the use of non-GAAP financial measures, see "Non-GAAP Financial Measures"

 

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