Market Overview

Sea Limited Reports Second Quarter 2018 Results

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Sea Limited (NYSE:SE) ("Sea" or the "Company") today announced its
financial results for the quarter ended June 30, 2018.

"Sea again delivered strong results in the second quarter of 2018 as we
capitalized on our ability to anticipate and quickly adapt to evolving
industry dynamics," said Forrest Li, Chairman and Group Chief Executive
Officer of Sea. "Shopee continued to expand rapidly across all markets,
strengthening its leadership in the region. Our monetization strategy
for Shopee is delivering ahead of expectations, even at this early
stage. Marketplace revenue surged by more than 69% sequentially to
US$37.3 million, as more merchants invested in our value-added services
to deepen engagement with their customers. GMV increased more than 14%
sequentially to US$2.2 billion, while sales and marketing expenses as a
percentage of GMV continued to decline as our growing scale enabled
further cost efficiencies."

Mr. Li continued, "In digital entertainment, our efforts to deepen our
diversification into mobile games, self-development, and new markets
globally are yielding encouraging results. In the month of June,
self-developed game revenue accounted for approximately 13% of adjusted
digital entertainment revenue, a new record high, driven by the breakout
success of our first self-developed global hit, Free Fire."

Second Quarter 2018 Key Metrics

  • Group
    • Total adjusted revenue was US$219.6 million, up 71.0% year-on-year
      from US$128.4 million for the second quarter of 2017 and up 11.4%
      quarter-on-quarter from US$197.0 million for the first quarter of
      2018.
    • Total adjusted EBITDA was US$(161.9) million, compared to
      US$(50.9) million for the second quarter of 2017 and US$(144.7)
      million for the first quarter of 2018.
  • Digital Entertainment
    • Adjusted revenue was US$139.1 million, up 19.0% year-on-year from
      US$116.9 million for the second quarter of 2017 and a decrease of
      4.7% quarter-on-quarter from US$146.0 million for the first
      quarter of 2018. The quarter-on-quarter drop was primarily
      attributable to a decrease in the number of paying users in
      Vietnam, as a result of measures launched in April by Vietnam's
      leading mobile operators to restrict the use of prepaid telco
      cards for online game top-ups. We are actively strengthening
      alternative top-up channels to assist our paying users in Vietnam.
    • Adjusted EBITDA was US$48.6 million, up 20.8% year-on-year from
      US$40.2 million for the second quarter of 2017 and decreased 11.6%
      quarter-on-quarter from US$55.0 million for the first quarter of
      2018.
    • Quarterly active users ("QAUs") reached 160.6 million, an increase
      of 150.2% year-on-year from 64.2 million for the second quarter of
      2017 and up 26.8% quarter-on-quarter from 126.7 million for the
      first quarter of 2018.
    • Average revenue per user ("ARPU") was US$0.9 compared to US$1.8
      for the second quarter of 2017 and US$1.2 for the first quarter of
      2018.
  • E-commerce
    • Gross merchandise value ("GMV") was US$2.2 billion, an increase of
      170.6% year-on-year from US$821.2 million for the second quarter
      of 2017 and up 14.4% quarter-on-quarter from US$1.9
      billion for the first quarter of 2018.
    • Gross orders for the quarter totaled 127.8 million, an increase of
      180.9% year-on-year from 45.5 million for the second quarter of
      2017 and up 14.7% quarter-on-quarter from 111.4 million for the
      first quarter of 2018.
    • Adjusted revenue was US$58.8 million, up 2,164.7% year-on-year
      from US$2.6 million for the second quarter of 2017 and up 74.3%
      quarter-on-quarter from US$33.7 million for the first quarter of
      2018. Adjusted revenue included US$37.3 million of marketplace
      revenue1 and US$21.5 million of product revenue2.
    • Adjusted EBITDA was US$(188.3) million, compared to US$(76.2)
      million for the second quarter of 2017 and US$(179.6) million for
      the first quarter of 2018.
    • Sales and marketing as a percentage of GMV stood at 6.2%, and
      improved from 6.8% for the second quarter of 2017 and 6.6% for the
      first quarter of 2018.
  • Digital Financial Services
    • Gross transaction value of our digital financial services as a
      whole ("GTV") was US$2.5 billion, an increase of 608.0%
      year-on-year from US$348.0 million for the second quarter of 2017
      and up 44.7% quarter-on-quarter from US$1.7 billion for the first
      quarter of 2018. The growth was attributable to the payment
      processing services provided by AirPay to Shopee in most of our
      markets, which, depending on the operational arrangement in each
      relevant market, may include payments from buyers to Shopee
      accounts under Shopee Guarantee as well as outgoing payments from
      Shopee accounts to Shopee seller accounts that are operationally
      handled by AirPay.

_____________________________________
1
Marketplace revenue mainly consists of commission and advertising income
and revenue generated from other value-added services.
2
Product revenue mainly consists of revenue generated from direct sales.

Strategic Business Updates

Digital Entertainment

As growing smartphone penetration continues to improve access to online
games globally, Garena has taken steps to leverage our leading position
in the industry and our clear competitive strengths to capture the
growth opportunities ahead. In particular, we have focused on three key
strategic initiatives – moving from PC-only to mobile-first, moving from
pure game publishing to both game publishing and development, and
expanding from a regional footprint to a global presence.

These efforts continue to generate positive results. In June 2018,
approximately 73% of our adjusted revenue for digital entertainment was
derived from mobile games, approximately 13% was generated by our
self-developed game, and approximately 7% was derived from outside the
seven core markets in our region.

Free Fire, our first self-developed hit game, remains one of the
leading games in the battle royale category in our region, and during
the quarter was among the top-ranked games in its category in the App
Store and on the Google Play Store in several non-core markets,
including Brazil and Mexico. Its daily active user ("DAU") count has
reached a record high of more than 16 million. With the development of
various monetization features in the game such as the season pass
concept, we see encouraging results from monetizing the game, which
accounted for an increasingly significant share of our adjusted revenue
for digital entertainment.

Moreover, we continue to explore opportunities to expand the focus of
our game business to capture new trends and opportunities, including
those related to esports and game streaming, to further enhance our user
engagement and develop additional avenues of income.

For example, Garena was one of the organizers of the Arena of Valor
World Cup ("AOV World Cup") held in Los Angeles in late July. Garena
organized a series of tournaments across the region leading to the
final. In our markets, the competitions in aggregate attracted over 33
million views online across all streaming platforms, with the final
attracting over 5 million views. We believe the enthusiasm generated by
the esports and streaming activities further enhanced the user
engagement of the game, which has recently achieved a record high DAU
count of more than 14 million.

Our efforts to foster strong community engagement around our key titles
on streaming platforms continued to gain traction. According to research
by Newzoo on the global esports streaming market, two of our esports
channels – Garena and Vietnam Esports TV – ranked in the top five
Youtube channels globally in terms of esports hours viewed during the
first quarter of 2018.

E-commerce

In the second quarter of 2018, Shopee continued to demonstrate robust
growth in GMV, gross orders, and adjusted revenue, complemented by
continuing efficiency improvements.

We also recorded significant growth in marketplace revenue of 69.3%
quarter-on-quarter, well ahead of the GMV growth rate, as a larger
number of sellers made use of our expanding suite of offerings, from
advertising tools to value-added services such as fulfillment and
logistics.

Shopee is also benefiting from ever-improving economies of scale as the
number of buyers and sellers on the platform grows, and users build
greater loyalty to the platform. During the quarter, sales and marketing
expenses as a percentage of GMV fell once again to 6.2%, compared to
6.6% in the first quarter of 2018.

Other Developments

Convertible Notes Offering

In June 2018, we raised US$575 million in aggregate principal amount of
2.25% convertible senior notes due 2023. The offering size was increased
from the original US$400 million to US$500 million to address investor
demand, and the subsequent full exercise by the initial purchasers of a
15% ‘greenshoe' option brought the total offering to US$575 million.

The additional capital further bolsters our balance sheet, and
strengthens our ability to address the evolving needs of the users in
our region, be they in digital entertainment, e-commerce, or digital
financial services. The net proceeds from this offering will be used for
business expansion and other general corporate purposes.

Unaudited Summary of Financial Results

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

 
 

For the Three Months

ended June 30,

2017   2018  
$   $ YOY%
     
Revenue
Digital Entertainment 91,459 108,029 18.1 %
Others   10,088       75,750   650.9 %
101,547 183,779 81.0 %
 
Cost of revenue
Digital Entertainment (52,892 ) (61,981 ) 17.2 %
Others   (22,814 )     (113,216 ) 396.3 %
  (75,706 )     (175,197 ) 131.4 %
Gross profit   25,841       8,582   (66.8 )%
Other operating income 163 1,707 947.2 %
Sales and marketing expenses (74,087 ) (165,075 ) 122.8 %
General and administrative expenses (27,644 ) (51,849 ) 87.6 %
Research and development expenses   (6,739 )     (12,882 ) 91.2 %
Total operating expenses   (108,307 )     (228,099 ) 110.6 %
Operating loss (82,466 ) (219,517 ) 166.2 %
Non-operating loss, net (7,193 ) (30,752 ) 327.5 %
Income tax (expense) credit (2,230 ) 170 (107.6 )%
Share of results of equity investees   (230 )     (689 ) 199.6 %
Net loss   (92,119 )     (250,788 ) 172.2 %
Adjusted net loss (1)   (86,871 )     (198,715 ) 128.7 %
 
Adjusted revenue of Digital Entertainment (1) 116,892 139,102 19.0 %
Adjusted revenue of E-commerce (1) 2,597 58,815 2,164.7 %
Adjusted revenue of Digital Financial Services (1) 5,342 3,413 (36.1 )%
Revenue of Other Services   3,596       18,229   406.9 %
Total adjusted revenue (1)   128,427       219,559   71.0 %
 
Adjusted EBITDA for Digital Entertainment (1) 40,243 48,612 20.8 %
Adjusted EBITDA for E-commerce (1) (76,233 ) (188,315 ) (147.0 )%
Adjusted EBITDA for Digital Financial Services (1) (11,044 ) (6,780 ) 38.6 %
Adjusted EBITDA for Other Services (1) (2,664 ) (12,937 ) (385.6 )%
Unallocated expenses (2)   (1,165 )     (2,510 ) (115.5 )%
Total adjusted EBITDA (1)   (50,863 )     (161,930 ) (218.4 )%

(1) For a discussion of the use of non-GAAP financial
measures, see "Non-GAAP Financial Measures."
(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 Chief Operation Decision Maker ("CODM") as part of segment
performance.

Three Months Ended June 30, 2018 Compared to Three Months Ended
June 30, 2017

Revenue

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

  For the Three Months ended June 30,  
2017   2018
$  

% of
revenue

$  

% of
revenue

YOY%
 
Revenue  
Digital Entertainment

91,459

 

90.1

 

108,029

 

58.8

 

18.1 %
E-commerce 1,150 1.1 54,655 29.7 4,652.6 %
Digital Financial Services 5,342 5.3 2,866 1.6 (46.3 )%
Other Services   3,596   3.5   18,229   9.9 406.9 %
  101,547   100.0   183,779   100.0 81.0 %
 
2017 2018
$

% of total
adjusted
revenue

$

% of total
adjusted
revenue

YOY%
 
Adjusted revenue of Digital Entertainment 116,892 91.0 139,102 63.4 19.0 %
Adjusted revenue of E-commerce 2,597 2.0 58,815 26.8 2,164.7 %
Adjusted revenue of Digital Financial Services 5,342 4.2 3,413 1.6 (36.1 )%
Revenue of Other Services   3,596   2.8   18,229   8.2 406.9 %
Total adjusted revenue   128,427   100.0   219,559   100.0 71.0 %
 

Our total revenue increased by 81.0% to US$183.8 million in the second
quarter of 2018 from US$101.5 million in the second quarter of 2017. Our
total adjusted revenue increased by 71.0% to US$219.6 million in the
second quarter of 2018 from US$128.4 million in the second quarter of
2017. These increases were mainly driven by the growth in each of the
segments detailed as follows:

  • Digital Entertainment: Revenue increased by 18.1% to US$108.0
    million in the second quarter of 2018 from US$91.5 million in the
    second quarter of 2017. Adjusted revenue increased by 19.0% to
    US$139.1 million in the second quarter of 2018 from US$116.9 million
    in the second quarter of 2017. This increase was primarily due to
    improvements in monetization of our existing games and the launch of
    new games.
  • E-commerce: Revenue increased by 4,652.6% to US$54.7 million in
    the second quarter of 2018 from US$1.2 million in the second quarter
    of 2017. Adjusted revenue increased by 2,164.7% to US$58.8 million in
    the second quarter of 2018 from US$2.6 million in the second quarter
    of 2017. This increase was primarily due to the growth of our GMV and
    the additional services and product offerings we introduced to sellers
    under ‘Service by Shopee,' ‘Shopee Logistics Service,' as well as the
    other value-added services.
  • Digital Financial Services: Revenue decreased by 46.3% to
    US$2.9 million in the second quarter of 2018 from US$5.3 million in
    the second quarter of 2017. Adjusted revenue decreased by 36.1% to
    US$3.4 million in the second quarter of 2018 from US$5.3 million in
    the second quarter of 2017, as we switched to focus our efforts on
    strengthening our infrastructure to support our existing platforms.
    The decrease was also in part due to the restrictive measures imposed
    by Vietnam's leading mobile operators on using prepaid telco cards for
    online game top-ups.
  • Other Services: Revenue increased by 406.9% to US$18.2 million
    in the second quarter of 2018 from US$3.6 million in the second
    quarter of 2017. The increase was primarily due to ancillary services
    we provide to our e-commerce platform users.

Cost of Revenue

Our total cost of revenue increased by 131.4% to US$175.2 million in the
second quarter of 2018 from US$75.7 million in the second quarter of
2017.

  • Digital Entertainment: Cost of revenue increased by 17.2% to
    US$62.0 million in the second quarter of 2018 from US$52.9 million in
    the second quarter of 2017. The increase was primarily due to the
    increase in royalty payments to game developers as well as in other
    costs directly associated with our digital entertainment segment which
    were largely in line with the revenue growth of our business.
  • Others: Cost of revenue for our other segments combined
    increased by 396.3% to US$113.2 million in the second quarter of 2018
    from US$22.8 million in the second quarter of 2017. The increase was
    primarily due to the costs incurred following the launch of ‘Service
    by Shopee,' ‘Shopee Logistics Service,' and direct sales at the end of
    2017; higher bank transaction fees driven by GMV growth from our
    e-commerce business; higher costs associated with other ancillary
    services we provided to our e-commerce platform users; as well as
    higher staff compensation and benefit costs.

Sales and Marketing Expenses

Our total sales and marketing expenses increased by 122.8% to US$165.1
million in the second quarter of 2018 from US$74.1 million in the second
quarter of 2017. The table below sets forth the breakdown of our sales
and marketing expenses of our two major reporting segments. Amounts are
expressed in thousands of US dollars ("$").

     

For the Three Months

 

ended June 30,

2017

 

 

2018

 

YOY%
Sales and Marketing Expenses $   $  
   
Digital Entertainment 11,858 18,916 59.5 %
E-commerce 55,906 138,042 146.9 %
 
  • Digital Entertainment: Sales and marketing expenses increased
    by 59.5% to US$18.9 million in the second quarter of 2018 from US$11.9
    million in the second quarter of 2017. The increase was primarily due
    to the launch of new games and our continued efforts to expand the
    user bases of our existing games.
   

For the Three Months

ended June 30,

2017   2018
Digital Entertainment $ $
 
Sales and marketing expenses   11,858     18,916  
Adjusted revenue   116,892     139,102  
Sales and marketing expenses as a percentage of adjusted revenue   10.1 %   13.6 %
 

Sales and marketing expenses as a percentage of adjusted revenue
increased to 13.6% in the second quarter of 2018 from 10.1% in the
second quarter of 2017. This was mainly due to increased expenses on the
launching of new games, while the monetization impact of these new games
was not fully captured within the same period.

  • E-commerce: Sales and marketing expenses increased by 146.9% to
    US$138.0 million in the second quarter of 2018 from US$55.9 million in
    the second quarter of 2017. The increase in marketing efforts was
    aligned with our strategy to fully capture the market growth
    opportunity and was primarily attributable to shipping and other
    promotions on our platform that were designed to increase our user
    base and enhance user engagement.
   

For the Three Months

ended June 30,

2017   2018
E-commerce $ $
 
Sales and marketing expenses   55,906     138,042  
GMV   821,175     2,221,789  
Sales and marketing expenses as a percentage of GMV   6.8 %   6.2 %
 

Sales and marketing expenses as a percentage of GMV was 6.2% in the
second quarter of 2018 and improved from 6.8% in the second quarter of
2017.

General and Administrative Expenses

Our general and administrative expenses increased by 87.6% to US$51.8
million in the second quarter of 2018 from US$27.6 million in the second
quarter of 2017. This increase was primarily due to the expansion of our
staff force, the increase in office facilities and related expenses, as
well as the increase in professional fees and other expenses.

Research and Development Expenses

Our research and development expenses increased by 91.2% to US$12.9
million in the second quarter of 2018 from US$6.7 million in the second
quarter of 2017, primarily due to the increase in our research and
development staff force as we expanded and enriched our product
offerings.

Non-operating Income or Losses, Net

Non-operating income or losses consists of interest income, interest
expense, investment gain (loss), fair value change for convertible debts
and foreign exchange gain (loss). The amount was a net non-operating
loss of US$30.8 million in the second quarter of 2018, compared to a net
non-operating loss of US$7.2 million in the second quarter of 2017. This
was primarily due to a fair value loss of US$37.2 million recognized in
the quarter arising from the fair value accounting treatment for the
convertible debts raised before our initial public offering.

Income Tax Expense

We had a net income tax benefit of US$0.2 million in the second quarter
of 2018, which was primarily due to the deferred tax assets we
recognized in our digital entertainment segment in the second quarter of
2018.

Share of Results of Equity Investees

We had share of losses of equity investees of US$0.7 million in the
second quarter of 2018, compared with US$0.2 million in the second
quarter of 2017.

Net Loss

As a result of the foregoing, we had net losses of US$250.8 million and
US$92.1 million in the second quarter of 2018 and 2017, respectively.

Adjusted Net Loss

Adjusted net loss, which is net loss adjusted to remove share-based
compensation expenses and fair value change for convertible debts, was
US$198.7 million and US$86.9 million in the second quarter of 2018 and
2017, respectively.

Webcast and Conference Call Information

Mr. Forrest Li, Founder, Chairman and Group Chief Executive Officer; 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:   8:00 PM U.S. Eastern Time on 21 August 2018
8:00 AM Singapore / Hong Kong Time on 22 August 2018
 
Webcast link:

https://services.choruscall.com/links/se180821.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: 1518348
 

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's mission is to better the lives of the consumers and small
businesses of our region with technology. Our region includes the key
markets of Indonesia, Taiwan, Vietnam, Thailand, the Philippines,
Malaysia and Singapore. Sea operates three platforms across digital
entertainment, e-commerce, and digital financial services, known as
Garena, Shopee, and AirPay, respectively.

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 region, 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 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; and general economic and
business conditions in the region. 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 commission income that were net-off against
    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
    service revenue that were net-off against sales incentives.
  • "Total adjusted revenue" represents the sum of the adjusted revenue of
    our digital entertainment segment, the adjusted revenue of our
    e-commerce segment, the adjusted revenue of our digital financial
    services segment, and the revenue of our other services. This
    financial measure enables our investors to follow trends in our
    overall group monetization capability over time and is a useful
    performance measure.
  • "Adjusted net loss" represents net loss before share-based
    compensation and changes in fair value of convertible debts. 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 and changes in fair value of convertible debts are
    significant expenses.
  • "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 depreciation and
    amortization expenses. 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 ("$").

  For the Three Months ended June 30, 2018

Digital

 

E-

 

Digital

 

Other

 

Unallocated

 

Consolidated

Entertainment

commerce

Financial

Services(3)

expenses(4)

 

       

Services

           
$ $ $ $ $ $
 
Revenue 108,029 54,655(1) 2,866 18,229 - 183,779
Changes in deferred revenue 31,073 - - - - 31,073
Sales incentives net-off -   4,160   547   -   -   4,707
Adjusted revenue 139,102   58,815(2)   3,413   18,229   -   219,559
 
Operating income (loss) 15,137 (195,034) (7,297) (14,900) (17,423) (219,517)

Net effect of changes in deferred revenue and its related cost

24,872

-

-

-

-

24,872

Depreciation and amortization 8,603 6,719 517 1,963 - 17,802
Share-based compensation -   -   -   -   14,913   14,913
Adjusted EBITDA 48,612   (188,315)   (6,780)   (12,937)   (2,510)   (161,930)
 
 
For the Three Months ended June 30, 2017

Digital

E-

Digital

Other

Unallocated

Consolidated

Entertainment

commerce

Financial

Services(3)

expenses(4)

 

       

Services

           
$ $ $ $ $ $
 
Revenue 91,459 1,150(1) 5,342 3,596 - 101,547
Changes in deferred revenue 25,433 - - - - 25,433
Sales incentives net-off -   1,447   -   -   -   1,447
Adjusted revenue 116,892   2,597(2)   5,342   3,596   -   128,427
 
Operating income (loss) 16,020 (77,438) (11,309) (3,326) (6,413) (82,466)

Net effect of changes in deferred revenue and its related cost

17,336

-

-

-

-

17,336

Depreciation and amortization 6,887 1,205 265 662 - 9,019
Share-based compensation -   -   -   -   5,248   5,248
Adjusted EBITDA 40,243   (76,233)   (11,044)   (2,664)   (1,165)   (50,863)

(1) For the second quarter of 2018, revenue of $54,655
included marketplace revenue of $33,160 and product revenue of $21,495,
net of sales incentives. For the second quarter of 2017, revenue of
$1,150 was entirely marketplace revenue.
(2) For the
second quarter of 2018, adjusted revenue of $58,815 included marketplace
revenue of $37,320 and product revenue of $21,495. For the second
quarter of 2017, revenue of $2,597 was entirely marketplace revenue.
(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. The expenses are
excluded from segment results as they are not reviewed by the CODM as
part of segment performance.

 

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

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

 
 

For the Six Months

ended June 30,

2017   2018
$   $
Revenue
Digital Entertainment 179,045 218,687
Others 16,447 120,136
     
 
Total revenue 195,492 338,823
 
Cost of revenue
Digital Entertainment (102,169 ) (125,553 )
Others (40,375 ) (196,163 )
     
 
Total cost of revenue (142,544 ) (321,716 )
     
 
Gross profit 52,948 17,107
     
Operating income (expenses):
Other operating income 381 2,436
Sales and marketing expenses (137,985 ) (317,224 )
General and administrative expenses (52,852 ) (96,336 )
Research and development expenses (12,991 ) (23,594 )
     
 
Total operating expenses (203,447 ) (434,718 )
     
 
Operating loss (150,499 ) (417,611 )
Interest income 473 5,350
Interest expense (8,997 ) (11,555 )
Investment (loss) gain (359 ) 8,478
Changes in fair value of convertible debts - (55,956 )
Foreign exchange (loss) gain (789 ) 4,684
     
 
Loss before income tax and share of results of equity investees (160,171 ) (466,610 )
Income tax (expense) credit (4,162 ) 925
Share of results of equity investees (862 ) (1,272 )
     
 
Net loss (165,195 ) (466,957 )
 
Net loss attributable to non-controlling interests 51 641
     
 
Net loss attributable to Sea Limited's ordinary shareholders (165,144 ) (466,316 )
     
 
Adjusted net loss (1) (153,834 ) (385,417 )
 
Loss per share:
Basic and diluted (0.94 ) (1.39 )
     
Shares used in loss per share computation:
Basic and diluted 174,988,779 336,531,721

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

 

UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS

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

 
 

As of

 

As of

December 31,

June 30,

2017

 

2018

$ $
 
ASSETS
Current assets
Cash and cash equivalents   1,347,361   1,477,140
Restricted cash 95,300 154,207
Accounts receivable, net 61,846 55,114
Prepaid expenses and other assets 186,181 270,026
Inventories, net 9,790 16,906
Short-term investment 18,000
Amounts due from related parties 2,235 5,904
     
 
Total current assets 1,720,713 1,979,297
 
Non-current assets
Property and equipment, net 74,348 121,920
Intangible assets, net 37,333 29,591
Long-term investments 28,216 71,006
Prepaid expenses and other assets 46,297 63,801
Restricted cash 2,317 2,369
Deferred tax assets 48,104 56,428
Goodwill 30,952 30,952
     
 
Total non-current assets 267,567 376,067
     
 
Total assets 1,988,280 2,355,364
 

UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS

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

 
 

As of

 

As of

 

December 31,

June 30,

2017

 

2018

$ $
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable   8,644   33,920
Accrued expenses and other payables 285,248 404,900
Advances from customers 27,155 24,716
Amount due to related parties 36,790 32,668
Short-term bank borrowings 2,013
Deferred revenue 268,241 273,688
Income taxes payable 9,614 8,031
     
 
Total current liabilities 637,705 777,923
     
Non-current liabilities
 
Accrued expenses and other payables 7,547 8,429
Deferred revenue 133,481 184,841
Convertible debts 726,950 1,145,836
Deferred tax liabilities 4,378 3,954
Unrecognized tax benefits 3,088 2,938
     
 
Total non-current liabilities 875,444 1,345,998
     
 
Total liabilities 1,513,149 2,123,921
     
 
Shareholders' equity
Class A ordinary shares 91 94
Class B ordinary shares 76 76
Additional paid-in capital 1,564,656 1,776,246
Accumulated other comprehensive income 10,701 24,984
Statutory reserves 46 46
Accumulated deficit (1,106,545 ) (1,572,861 )
     
 
Total Sea Limited shareholders' equity 469,025 228,585
Non-controlling interests 6,106 2,858
     
 
Total shareholders' equity 475,131 231,443
     
 
Total liabilities and shareholders' equity 1,988,280 2,355,364
 

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS

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

 
 

For the Six Months

ended June 30,

2017

 

2018

$   $
 
Net cash used in operating activities   (115,731 )   (283,113 )
Net cash used in investing activities (17,393 ) (61,851 )
Net cash generated from financing activities 626,976 544,791
Effect of foreign exchange rate changes on cash, cash equivalents
and restricted cash
3,486 (11,089 )
Net increase in cash, cash equivalents and restricted cash 497,338 188,738
Cash, cash equivalents and restricted cash at beginning of the period 190,824 1,444,978
     
 
Cash, cash equivalents and restricted cash at end of the period 688,162 1,633,716
     
 

1     UNAUDITED SEGMENT INFORMATION

The Company has three reportable segments, namely digital entertainment,
e-commerce and digital financial services. The Chief Operation 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 June 30, 2018

Digital

 

E-

 

Digital

 

Other

 

Unallocated

 

Consolidated

Entertainment

commerce

Financial

Services(1)

expenses(2)

 

       

Services

           
$ $ $ $ $ $
 
Revenue

108,029

 

54,655 2,866 18,229 - 183,779
                     
Operating income (loss) 15,137     (195,034 )   (7,297 )   (14,900 )   (17,423 )   (219,517 )
Non-operating loss, net (30,752 )
Income tax credit 170
Share of results of equity investees (689 )
Net loss (250,788 )
 
 
For the Three Months ended June 30, 2017

Digital

E-

Digital

Other

Unallocated

Consolidated

Entertainment

commerce

Financial

Services(1)

expenses(2)

 

       

Services

           
$ $ $ $ $ $
 
Revenue 91,459 1,150 5,342 3,596 - 101,547
                     
Operating income (loss) 16,020     (77,438 )   (11,309 )   (3,326 )   (6,413 )   (82,466 )
Non-operating loss, net (7,193 )
Income tax expense (2,230 )
Share of results of equity investees (230 )
Net loss (92,119 )

(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. The
expenses are excluded from segment results as they are not reviewed by
the CODM as part of segment performance.

 

SUPPLEMENTAL OPERATIONAL METRICS

 
   

For the Three Months

 

For the Three Months

ended March 31,

ended June 30,

2018

2018

 
Digital Entertainment Unit
 
Quarterly active users millions

126.7

 

160.6

 

Monthly active users (last month) millions 77.4 90.6
Quarterly paying users millions 7.2 6.6
Average revenue per user US$ 1.2 0.9
Average revenue per paying user US$ 20.3 21.1
 
E-commerce
 
Gross GMV US$ millions 1,941.4 2,221.8
Gross orders millions 111.4 127.8
 
Digital Financial Services
 
GTV US$ millions 1,702.2 2,463.9

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