EX-99.1 2 d527106dex991.htm EX-99.1 EX-99.1

Exhibit 99.1

 

LOGO

Sea Limited Reports First Quarter 2018 Results

Singapore, 16 May 2018 – Sea Limited (NYSE: SE) (“Sea” or the “Company”) today announced its financial results for the quarter ended March 31, 2018.

“We again saw healthy growth in our digital entertainment revenue in the first quarter of 2018, and have several new games in the pipeline for launch this year. Meanwhile, Shopee continues to grow ahead of expectations as we capture a larger share of our region’s e-commerce market, and the virtuous cycle created by that accelerated scaling is driving ever-improving economics on our platform,” said Forrest Li, Chairman and Group Chief Executive Officer of Sea. “We will continue to invest in growth, and to focus on improving our services to our platform users, as well as the infrastructure supporting our core businesses.”

First Quarter 2018 Key Metrics

 

  •   Group

 

  •   Total adjusted revenue was US$197.0 million, up 81.2% year-on-year from US$108.8 million for the first quarter of 2017 and up 19.8% quarter-on-quarter from US$164.5 million for the fourth quarter of 2017.

 

  •   Total adjusted EBITDA was US$(144.7) million, compared to US$(41.4) million for the first quarter of 2017 and US$(140.2) million for the fourth quarter of 2017.

 

  •   Digital Entertainment

 

  •   Adjusted revenue was US$146.0 million, up 42.6% year-on-year from US$102.4 million for the first quarter of 2017 and up 2.9% quarter-on-quarter from US$141.9 million for the fourth quarter of 2017.

 

  •   Adjusted EBITDA was US$55.0 million, an increase of 48.6% year-on-year from US$37.0 million for the first quarter of 2017 and up 4.6% quarter-on-quarter from $52.6 million for the fourth quarter of 2017.

 

  •   Quarterly active users (“QAUs”) reached 126.7 million, an increase of 124.6% year-on-year from 56.4 million for the first quarter of 2017 and up 44.3% quarter-on-quarter from 87.8 million for the fourth quarter of 2017.

 

  •   Average revenue per user (“ARPU”) was US$1.2 compared to US$1.8 for the first quarter of 2017 and US$1.6 for the fourth quarter of 2017.

 

1

  •   E-commerce

 

  •   Gross merchandise value (“GMV”) was US$1.9 billion, an increase of 199.5% year-on-year from US$648.3 million for the first quarter of 2017 and up 23.0% quarter-on-quarter from US$1.6 billion for the fourth quarter of 2017.

 

  •   Gross orders for the quarter totaled 111.4 million, an increase of 217.4% year-on-year from 35.1 million for the first quarter of 2017 and up 13.3% quarter-on-quarter from 98.3 million for the fourth quarter of 2017.

 

  •   Adjusted revenue was US$33.7 million, up 262.1% quarter-on-quarter from US$9.3 million for the fourth quarter of 2017. Adjusted revenue included US$22.0 million of marketplace revenue1 and US$11.7 million of product revenue2. There was negligible e-commerce adjusted revenue for the first quarter of 2017.

 

  •   Adjusted EBITDA was US$(179.6) million, compared to US$(62.7) million for the first quarter of 2017 and US$(175.4) million for the fourth quarter of 2017.

 

  •   Sales and marketing as a percentage of GMV stood at 6.6%, and improved from 7.1% for the first quarter of 2017 and 8.5% for the fourth quarter of 2017.

 

  •   Digital Financial Services

 

  •   Gross transaction value of our digital financial services as a whole (“GTV”) was US$1.7 billion, an increase of 428.6% year-on-year from US$322.0 million for the first quarter of 2017 and up 65.7% quarter-on-quarter from US$1.0 billion for the fourth quarter of 2017. 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.

 

2

Strategic Business Updates

Digital Entertainment

Garena enjoyed healthy growth this quarter, buoyed by factors including the continued expansion of our leading mobile games in the region, Arena of Valor and Free Fire. Free Fire recently achieved 13 million daily active users, placing it amongst the world’s most popular mobile battle royale titles. We continue to complement our leading franchises through growing e-sports leagues, video streaming options, and other ancillary services.

We held Garena World 2018, our region’s largest eSports event, from March 31 to April 1, 2018 in Bangkok, Thailand. We had an attendance of approximately 240 thousand and attracted over 10.6 million views online for the various tournaments at Garena World. In total, over 11,000 teams participated in the tournaments leading up to the event in Bangkok. Garena is well-positioned to ride on the wave of eSports growth as one of the region’s leading game platforms. We continue to invest in our eSports operations to generate user engagement for our games and to promote user acquisition and retention.

Our pipeline of games for release in 2018 features a series of highly anticipated PC and mobile titles. These include both classic and new franchises in different genres.

E-commerce

Shopee achieved robust growth in both GMV and gross orders in each of our markets in the first quarter of 2018 and saw a decrease in sales and marketing expenses from US$135.0 million in the fourth quarter of 2017 to US$127.2 million in the first quarter of 2018. This was driven primarily by our continuous efforts to attract new buyers and sellers in our focus categories while improving our cost efficiency.

Shopee has focused much of its innovation on launching value-added services to our ever-expanding seller base. We continue to broaden our ‘Service by Shopee’ offering in select markets, where we offer sellers a number of value-added services, such as inventory management, online store operations, and fulfilment services. We also provide ‘Shopee Logistics Service’ to create a seamless logistics experience for sellers and buyers. In addition, we conduct direct sales of certain products. With this diverse portfolio of services and offerings, depending on the needs and preferences of our sellers, we can help them manage inventory and fulfil orders from warehouses leased and operated by us, operate their stores on our platform, or purchase products from them for resale on our platform.

 

3

Other Development

Appointment of Group Chief Economist

The Company also announced that Santitarn Sathirathai is expected to join the Company as Group Chief Economist in June 2018. Mr. Sathirathai will focus on establishing Sea as a key thought leader in the digital economy and work with policy makers to promote digital transformation in the region. He will report to Forrest Li, Chairman and Group Chief Executive Officer.

Mr. Sathirathai will be joining the Company from Credit Suisse, where he is the head of Emerging Asia Economics Research. He won the award for best economic forecaster for Indonesia by Consensus Economics for each of 2013, 2014 and 2015, the very first economist in Asia to receive such award for three consecutive years, and was selected as one of Asia’s 21 young leaders in 2017 by Asia Society. He is a highly ranked economist for ASEAN and was also rated the best economist for Thailand by Asia Money. Prior to joining Credit Suisse, Mr. Sathirathai worked at the Ministry of Finance of Thailand and Government of Singapore Investment Corporation, and taught macroeconomic courses at Chulalongkorn University in Thailand. Mr. Sathirathai holds a doctorate degree in Public Policy and a master’s degree in Public Administration from Harvard University, as well as a bachelor’s degree in Economics and a master’s degree in Public Policy from the London School of Economics and Political Science.

 

4

Summary of Financial Results

(Amounts are expressed in thousands of US dollars “$”)

 

    

For the Three Months

ended March 31,

        
     2017     2018        
     $     $     YOY%  
     (unaudited)     (unaudited)        

Revenue

       

Digital Entertainment

      87,586       110,658       26.3 % 

Others

      6,359       44,386       598.0 % 
  

 

 

    

 

 

    
     93,945       155,044       65.0 % 

Cost of revenue

       

Digital Entertainment

      (49,277 )      (63,572 )      29.0 % 

Others

      (17,561 )      (82,947 )      372.3 % 
  

 

 

    

 

 

    
     (66,838 )      (146,519 )      119.2 % 
  

 

 

    

 

 

    

Gross profit

      27,107       8,525       (68.6 )% 
  

 

 

    

 

 

    

Other operating income

      218       729       234.4 % 

Sales and marketing expenses

      (63,898 )      (152,149 )      138.1 % 

General and administrative expenses

      (25,208 )      (44,487 )      76.5 % 

Research and development expenses

      (6,252 )      (10,712 )      71.3 % 
  

 

 

    

 

 

    

Total operating expenses

      (95,140 )      (206,619 )      117.2 % 
  

 

 

    

 

 

    

Operating loss

      (68,033 )      (198,094 )      191.2 % 

Non-operating loss, net

      (2,479 )      (18,247 )      636.1 % 

Income tax (expense) credit

      (1,932 )      755       (139.1 )% 

Share of results of equity investees

      (632 )      (583 )      (7.8 )% 
  

 

 

    

 

 

    

Net loss

      (73,076 )      (216,169 )      195.8 % 
  

 

 

    

 

 

    

Adjusted net loss (1)

      (66,963 )      (205,498 )      206.9 % 
  

 

 

    

 

 

    

Adjusted revenue of Digital Entertainment (1)

      102,396       146,030       42.6 % 

Adjusted revenue of E-commerce (1)

      34       33,744       99,147.1 % 

Adjusted revenue of Digital Financial Services (1)

      2,034       3,923       92.9 % 

Revenue of Other Services

      4,291       13,342       210.9 % 
  

 

 

    

 

 

    

Total adjusted revenue (1)

      108,755       197,039       81.2 % 
  

 

 

    

 

 

    

Adjusted EBITDA for Digital Entertainment (1)

      37,006       55,004       48.6 % 

Adjusted EBITDA for E-commerce (1)

      (62,669 )      (179,649 )      (186.7 )% 

Adjusted EBITDA for Digital Financial Services (1)

      (9,904 )      (8,570 )      13.5 % 

Adjusted EBITDA for Other Services (1)

      (2,923 )      (9,868 )      (237.6 )% 

Unallocated expenses (2)

      (2,867 )      (1,591 )      44.5 % 
  

 

 

    

 

 

    

Total adjusted EBITDA (1)

      (41,357 )      (144,674 )      (249.8 )% 
  

 

 

    

 

 

    

 

(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.

 

5

Three Months Ended March 31, 2018 Compared to Three Months Ended March 31, 2017

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,         
     2017      2018         
     $     

% of

revenue

      $     

% of

revenue

      YOY%  
     (unaudited)         (unaudited)            

Revenue

               

Digital Entertainment

      87,586        93.2        110,658        71.4        26.3 % 

E-commerce

      34        —          27,344        17.6        80,323.5 % 

Digital Financial Services

      2,034        2.2        3,700        2.4        81.9 % 

Other Services

      4,291        4.6        13,342        8.6        210.9 % 
  

 

 

        

 

 

        
     93,945        100.0        155,044        100.0        65.0 % 
  

 

 

        

 

 

        
     2017      2018         
     $      % of total
adjusted
revenue		      $     

% of total
adjusted

revenue

      YOY%  
     (unaudited)         (unaudited)            

Adjusted revenue of Digital Entertainment

      102,396        94.2        146,030        74.1        42.6 % 

Adjusted revenue of E-commerce

      34        —          33,744        17.1        99,147.1 % 

Adjusted revenue of Digital Financial Services

      2,034        1.9        3,923        2.0        92.9 % 

Revenue of Other Services

      4,291        3.9        13,342        6.8        210.9 % 
  

 

 

        

 

 

        

Total adjusted revenue

      108,755        100.0        197,039        100.0        81.2 % 
  

 

 

        

 

 

        

Our total revenue increased by 65.0% to US$155.0 million in the first quarter of 2018 from US$93.9 million in the first quarter of 2017. Our total adjusted revenue increased by 81.2% to US$197.0 million in the first quarter of 2018 from US$108.8 million in the first quarter of 2017. These increases were mainly driven by the growth in each of the segments detailed as follows:

 

  •   Digital Entertainment: Revenue increased by 26.3% to US$110.7 million in the first quarter of 2018 from US$87.6 million in the first quarter of 2017. Adjusted revenue increased by 42.6% to US$146.0 million in the first quarter of 2018 from US$102.4 million in the first quarter of 2017. This increase was primarily due to the growth of our QAUs to 126.7 million in the first quarter of 2018 from 56.4 million in the first quarter of 2017, as we launched new games and expanded our existing games into new markets, which in turn increased the number of our paying users.

 

  •   E-commerce: We began monetizing our e-commerce business in 2017. In the first quarter of 2018, our e-commerce revenue was US$27.3 million, including US$15.6 million of marketplace revenue and US$11.7 million of product revenue. Our e-commerce adjusted revenue was US$33.7 million in the same period. There was negligible e-commerce revenue for the first quarter of 2017. 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 we recently started to offer created additional income streams for our e-commerce business.

 

6

  •   Digital Financial Services: Revenue increased by 81.9% to US$3.7 million in the first quarter of 2018 from US$2.0 million in the first quarter of 2017. Adjusted revenue increased by 92.9% to US$3.9 million in the first quarter of 2018 from US$2.0 million in the first quarter of 2017. The increase was primarily attributable to the addition of use cases to our AirPay platform and a further deepening of our market penetration.

 

  •   Other Services: Revenue increased by 210.9% to US$13.3 million in the first quarter of 2018 from US$4.3 million in the first 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 119.2% to US$146.5 million in the first quarter of 2018 from US$66.8 million in the first quarter of 2017.

 

  •   Digital Entertainment: Cost of revenue increased by 29.0% to US$63.6 million in the first quarter of 2018 from US$49.3 million in the first quarter of 2017. The increase was primarily due to the increase in royalty payments to game developers as well as 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 372.3% to US$82.9 million in the first quarter of 2018 from US$17.6 million in the first 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 138.1% to US$152.1 million in the first quarter of 2018 from US$63.9 million in the first quarter of 2017. The table below sets forth the breakdown of the sales and marketing expenses of our two major reporting segments. Amounts are expressed in thousands of US dollars (“$”).

 

     For the Three Months
ended March 31,		         
     2017      2018      YOY%  
    

$

(unaudited)

     

$

(unaudited)

         

Sales and Marketing Expenses

         

Digital Entertainment

      11,036        16,243        47.2 % 

E-commerce

      45,905        127,198        177.1 % 

 

  •   Digital Entertainment: Sales and marketing expenses increased by 47.2% to US$16.2 million in the first quarter of 2018 from US$11.0 million in the first quarter of 2017. The increase was primarily due to the launch of new games and our continued efforts to expand our existing games into new markets, which in turn enlarged our user base and increased the number of our paying users.

 

7

     For the Three Months
ended March 31,		  
     2017     2018  
    

$

(unaudited)

    

$

(unaudited)

  

Digital Entertainment

     

Sales and marketing expenses

      11,036       16,243  
  

 

 

    

 

 

  

Adjusted revenue

      102,396       146,030  
  

 

 

    

 

 

  

Sales and marketing expenses as a percentage of adjusted revenue

      10.8 %      11.1 % 

Sales and marketing expenses as a percentage of adjusted revenue of 11.1% in the first quarter of 2018 was comparable to the first quarter of 2017.

 

  •   E-commerce: Sales and marketing expenses increased by 177.1% to US$127.2 million in the first quarter of 2018 from US$45.9 million in the first quarter of 2017. The increase in marketing efforts was aligned with our strategy to fully capture the market growth opportunity and was primarily in connection with shipping and other promotions on our platform in order to increase our user base and enhance user engagement.

 

     For the Three Months
ended March 31,		  
     2017     2018  
    

$

(unaudited)

    

$

(unaudited)

  

E-commerce

     

Sales and marketing expenses

      45,905       127,198  
  

 

 

    

 

 

  

GMV

      648,285       1,941,403  
  

 

 

    

 

 

  

Sales and marketing expenses as a percentage of GMV

      7.1 %      6.6 % 

Sales and marketing expenses as a percentage of GMV was 6.6% in the first quarter of 2018 and improved from 7.1% in the first quarter of 2017.

General and Administrative Expenses

Our general and administrative expenses increased by 76.5% to US$44.5 million in the first quarter of 2018 from US$25.2 million in the first 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 other expenses.

Research and Development Expenses

Our research and development expenses increased by 71.3% to US$10.7 million in the first quarter of 2018 from US$6.3 million in the first quarter of 2017, primarily due to the increase in research and development staff force as we expanded and enriched our product offerings.

 

8

Non-operating Income or Losses, Net

Non-operating income or losses consist of interest income, interest expense, investment gain (loss), fair value change for convertible promissory notes and foreign exchange gain (loss). We recorded a net non-operating loss of US$18.2 million in the first quarter of 2018, compared to a net non-operating loss of US$2.5 million in the first quarter of 2017. This was primarily due to fair value loss of US$18.8 million recognized in the quarter arising from the fair value accounting treatment for convertible promissory notes and interest expenses on those promissory notes, partially offset by an investment gain arising from the disposal of an equity security investment.

Income Tax Expense

We had a net income tax benefit of US$0.8 million in the first quarter of 2018 which was primarily due to the higher deferred tax assets we recognized as a result of change in statutory tax rate in one of the markets we operate in and the increase in deferred revenue in our digital entertainment segment in the first quarter of 2018.

Share of Results of Equity Investees

We had share of losses of equity investees of US$0.6 million in the first quarter of 2018, compared with US$0.6 million in the first quarter of 2017.

Net Loss

As a result of the foregoing, we had net losses of US$216.2 million and US$73.1 million in the first quarter of 2018 and 2017, respectively.

Adjusted Net Loss

Adjusted net loss, which is net loss adjusted to remove share-based compensation expenses, was US$205.5 million and US$67.0 million in the first quarter of 2018 and 2017, respectively.

 

9

Updated Guidance

For the full year of 2018, we now expect total adjusted revenue to be between US$780 million and US$820 million, representing 40.9% to 48.1% growth from 2017. This compares to the previously disclosed guidance of between US$730 million and US$770 million, representing 31.9% to 39.1% growth.

We are also revising our e-commerce GMV guidance for the full year of 2018. We now expect e-commerce GMV for the full year of 2018 to be between US$8.2 billion and US$8.7 billion, representing 99.4% to 111.5% growth from 2017. This compares to the previously disclosed guidance of between US$7.5 billion and US$8.0 billion, representing 82.4% to 94.5% growth.

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 15 May 2018

8:00 AM Singapore / Hong Kong Time on 16 May 2018

Webcast link:   http://mms.prnasia.com/se/20180515/default.aspx
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: 7961550

A replay of the conference call will be available at the Company’s investor relations website (http://www.seagroup.com/investor/financials). An 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 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.

 

10

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.

 

11

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 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.

 

  •   “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.

 

12

  •   “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.

 

13

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 March 31, 2018  
     Digital
Entertainment		      E-commerce     Digital
Financial
Services		     Other
Services(3)		     Unallocated
expenses(4)		     Consolidated  
     $      $     $     $     $     $  
     (unaudited)      (unaudited)     (unaudited)     (unaudited)     (unaudited)     (unaudited)  

Revenue

      110,658        27,344 (1)      3,700       13,342       —         155,044  

Changes in deferred revenue

      35,372        —         —         —         —         35,372  

Sales incentives net-off

      —          6,400       223       —         —         6,623  
  

 

 

     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Adjusted revenue

      146,030        33,744 (2)      3,923       13,342       —         197,039  
  

 

 

     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Operating income (loss)

      18,788        (184,052 )      (9,058 )      (11,510 )      (12,262 )      (198,094 ) 

Net effect of changes in deferred revenue and its related cost

      28,195        —         —         —         —         28,195  

Depreciation and Amortization

      8,021        4,403       488       1,642       —         14,554  

Share-based compensation

      —          —         —         —         10,671       10,671  
  

 

 

     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Adjusted EBITDA

      55,004        (179,649 )      (8,570 )      (9,868 )      (1,591 )      (144,674 ) 
  

 

 

     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
     For the Three Months ended March 31, 2017  
     Digital
Entertainment		      E-commerce     Digital
Financial
Services		     Other
Services(3)		     Unallocated
expenses(4)		     Consolidated  
     $      $     $     $     $     $  
     (unaudited)      (unaudited)     (unaudited)     (unaudited)     (unaudited)     (unaudited)  

Revenue

      87,586        34       2,034       4,291       —         93,945  

Changes in deferred revenue

      14,810        —         —         —         —         14,810  

Sales incentives net-off

      —          —         —         —         —         —    
  

 

 

     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Adjusted revenue

      102,396        34       2,034       4,291       —         108,755  
  

 

 

     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Operating income (loss)

      18,389        (63,723 )      (10,130 )      (3,589 )      (8,980 )      (68,033 ) 

Net effect of changes in deferred revenue and its related cost

      11,745        —         —         —         —         11,745  

Depreciation and Amortization

      6,872        1,054       226       666       —         8,818  

Share-based compensation

      —          —         —         —         6,113       6,113  
  

 

 

     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Adjusted EBITDA

      37,006        (62,669 )      (9,904 )      (2,923 )      (2,867 )      (41,357 ) 
  

 

 

     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

(1)  Revenue of $27,344 includes marketplace revenue of $15,644 and product revenue of $11,700, net of sales incentives.
(2)  Adjusted revenue of $33,744 includes marketplace revenue of $22,044 and product revenue of $11,700.
(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.

 

14

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,		  
     2017     2018  
     $     $  
     (unaudited)     (unaudited)  

Revenue

     

Digital entertainment

      87,586       110,658  

Others

      6,359       44,386  
  

 

 

    

 

 

  

Total revenue

      93,945       155,044  

Cost of revenue

     

Digital entertainment

      (49,277 )      (63,572 ) 

Others

      (17,561 )      (82,947 ) 
  

 

 

    

 

 

  

Total cost of revenue

      (66,838 )      (146,519 ) 
  

 

 

    

 

 

  

Gross profit

      27,107       8,525  
  

 

 

    

 

 

  

Operating income (expenses):

     

Other operating income

      218       729  

Sales and marketing expenses

      (63,898 )      (152,149 ) 

General and administrative expenses

      (25,208 )      (44,487 ) 

Research and development expenses

      (6,252 )      (10,712 ) 
  

 

 

    

 

 

  

Total operating expenses

      (95,140 )      (206,619 ) 
  

 

 

    

 

 

  

Operating loss

      (68,033 )      (198,094 ) 

Interest income

      144       3,091  

Interest expense

      (2,250 )      (8,582 ) 

Investment (loss) gain

      (225 )      7,515  

Changes in fair value of convertible promissory notes

      —         (18,796 ) 

Foreign exchange loss

      (148 )      (1,475 ) 
  

 

 

    

 

 

  

Loss before income tax and share of results of equity investees

      (70,512 )      (216,341 ) 

Income tax (expense) credit

      (1,932 )      755  

Share of results of equity investees

      (632 )      (583 ) 
  

 

 

    

 

 

  

Net loss

      (73,076 )      (216,169 ) 

Net (gain) loss attributable to non-controlling interests

      (10 )      556  
  

 

 

    

 

 

  

Net loss attributable to Sea Limited’s ordinary shareholders

      (73,086 )      (215,613 ) 
  

 

 

    

 

 

  

Adjusted net loss (1)

      (66,963 )      (205,498 ) 
  

 

 

    

 

 

  

Loss per share:

     

Basic and diluted

      (0.42 )      (0.64 ) 
  

 

 

    

 

 

  

Shares used in loss per share computation:

     

Basic and diluted

      172,896,906       335,147,405  

 

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

 

15

UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS

Amounts expressed in thousands of US dollars (“$”)

 

 

     As of
December 31,
2017		      As of
March 31,
2018		  
     $      $  
            (unaudited)  

ASSETS

      

Current assets

      

Cash and cash equivalents

      1,347,361        1,172,426  

Restricted cash

      95,300        159,521  

Accounts receivable, net

      61,846        70,899  

Prepaid expenses and other assets

      186,181        223,849  

Inventories, net

      9,790        13,382  

Short-term investment

      18,000        —    

Amounts due from related parties

      2,235        2,244  
  

 

 

     

 

 

  

Total current assets

      1,720,713        1,642,321  

Non-current assets

      

Property and equipment, net

      74,348        93,939  

Intangible assets, net

      37,333        33,614  

Long-term investments

      28,216        58,514  

Prepaid expenses and other assets

      46,297        53,587  

Restricted cash

      2,317        2,455  

Deferred tax assets

      48,104        55,070  

Goodwill

      30,952        30,952  
  

 

 

     

 

 

  

Total non-current assets

      267,567        328,131  
  

 

 

     

 

 

  

Total assets

      1,988,280        1,970,452  
  

 

 

     

 

 

  

 

16

UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS

Amounts expressed in thousands of US dollars (“$”)

 

 

    

As of

December 31,

     

As of

March 31,

  
     2017      2018  
     $      $  
            (unaudited)  

LIABILITIES AND SHAREHOLDERS’ EQUITY

      

Current liabilities

      

Accounts payable

      8,644        13,937  

Accrued expenses and other payables

      285,248        375,466  

Advances from customers

      27,155        30,450  

Amount due to related parties

      36,790        39,381  

Short-term bank borrowings

      2,013        —    

Deferred revenue

      268,241        283,538  

Income tax payable

      9,614        9,523  
  

 

 

     

 

 

  

Total current liabilities

      637,705        752,295  
  

 

 

     

 

 

  

Non-current liabilities

      

Accrued expenses and other payables

      7,547        7,860  

Deferred revenue

      133,481        162,909  

Convertible promissory notes

      726,950        745,746  

Deferred tax liabilities

      4,378        4,104  

Unrecognized tax benefits

      3,088        2,985  
  

 

 

     

 

 

  

Total non-current liabilities

      875,444        923,604  
  

 

 

     

 

 

  

Total liabilities

      1,513,149        1,675,899  
  

 

 

     

 

 

  

 

17

UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS

Amounts expressed in thousands of US dollars (“$”)

 

 

     As of
December 31,
2017		     As of
March 31,
2018		  
     $     $  
           (unaudited)  

Shareholders’ equity

     

Class A Ordinary shares

      91       91  

Class B Ordinary shares

      76       76  

Additional paid-in capital

      1,564,656       1,575,078  

Accumulated other comprehensive income

      10,701       35,919  

Statutory reserves

      46       46  

Accumulated deficit

      (1,106,545 )      (1,322,158 ) 
  

 

 

    

 

 

  

Total Sea Limited shareholders’ equity

      469,025       289,052  

Non-controlling interests

      6,106       5,501  
  

 

 

    

 

 

  

Total shareholders’ equity

      475,131       294,553  
  

 

 

    

 

 

  

Total liabilities and shareholders’ equity

      1,988,280       1,970,452  
  

 

 

    

 

 

  

 

18

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Amounts expressed in thousands of US dollars (“$”)

 

 

    

For the Three Months ended

March 31,

  
     2017     2018  
     $     $  
           (unaudited)  

Net cash used in operating activities

      (59,271 )      (94,360 ) 

Net cash used in investing activities

      (6,697 )      (21,837 ) 

Net cash generated from (used in) financing activities

      356,953       (545 ) 

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

      3,052       6,166  

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

      294,037       (110,576 ) 

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

      484,861       1,334,402  
  

 

 

    

 

 

  

 

19

1 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 March 31, 2018  
     Digital
Entertainment		      E-commerce     Digital
Financial
Services		     Other
Services(1)		     Unallocated
expenses(2)		     Consolidated  
    

$

(unaudited)

     

$

(unaudited)

    

$

(unaudited)

     $
(unaudited)		     $
(unaudited)		     $
(unaudited)		  

Revenue

      110,658        27,344       3,700       13,342       —         155,044  
  

 

 

     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Operating income (loss)

      18,788        (184,052 )      (9,058 )      (11,510 )      (12,262 )      (198,094 ) 
  

 

 

     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Non-operating loss, net

                 (18,247 ) 

Income tax expense

                 755  

Share of results of equity investees

                 (583 ) 
             

 

 

  

Net loss

                 (216,169 ) 
             

 

 

  
     For the Three Months ended March 31, 2017  
     Digital
Entertainment		      E-commerce     Digital
Financial
Services		     Other
Services(1)		     Unallocated
expenses(2)		     Consolidated  
    

$

(unaudited)

      $
(unaudited)		     $
(unaudited)		     $
(unaudited)		     $
(unaudited)		     $
(unaudited)		  

Revenue

      87,586        34       2,034       4,291       —         93,945  
  

 

 

     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Operating income (loss)

      18,389        (63,723 )      (10,130 )      (3,589 )      (8,980 )      (68,033 ) 
  

 

 

     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Non-operating loss, net

                 (2,479 ) 

Income tax expense

                 (1,932 ) 

Share of results of equity investees

                 (632 ) 
             

 

 

  

Net loss

                 (73,076 ) 
             

 

 

  

 

(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.

 

20

SUPPLEMENTAL OPERATIONAL METRICS

 

            For the Three Months
ended December 31,
2017		      For the Three Months
ended March 31,
2018		  

Digital Entertainment

      Unit        

Quarterly active users

      millions        87.8        126.7  

Monthly active users (last month)

      millions        59.5        77.4  

Quarterly paying users

      millions        7.2        7.2  

Average revenue per user

      US$        1.6        1.2  

Average revenue per paying user

      US$        19.7        20.3  

E-commerce

         

Gross GMV

      US$ millions        1,578.6        1,941.4  

Gross orders

      millions        98.3        111.4  

Digital Financial Services

         

GTV

      US$ millions        1,027.5        1,702.2  

 

21