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Sea Limited Reports Third Quarter 2019 Results

November 12, 2019 6:30 AM

SINGAPORE--(BUSINESS WIRE)-- Sea Limited (NYSE: SE) (“Sea” or the “Company”) today announced its financial results for the quarter ended September 30, 2019.

Third Quarter 2019 Highlights

1 Latin America rankings data for App Annie is based on Argentina, Brazil, Chile, Colombia, Mexico, and Uruguay.

2 Marketplace revenue mainly consists of transaction-based fees and advertising income and revenue generated from other value-added services.

3 Product revenue mainly consists of revenue generated from direct sales.

Guidance

We are raising the guidance for both digital entertainment and e-commerce for the full year of 2019.

We now expect adjusted revenue for digital entertainment to be between US$1.7 billion and US$1.8 billion, representing 157.2% to 172.3% growth from 2018. This compares to the previously disclosed guidance of between US$1.6 billion and US$1.7 billion, representing 142.0% to 157.2% growth.

We also expect adjusted revenue for e-commerce to be between US$880 million and US$920 million, representing 202.7% to 216.5% growth from 2018. This compares to the previously disclosed guidance of between US$780 million and US$820 million, representing 168.3% to 182.1% growth.

Unaudited Summary of Financial Results

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

For the Three Months

ended September 30,

2018

2019

$

$

YOY%

Revenue

Service revenue

Digital Entertainment

112,520

329,058

192.4%

E-commerce and other services

71,319

229,740

222.1%

Sales of goods

21,082

51,339

143.5%

204,921

610,137

197.7%

Cost of revenue

Cost of service

Digital Entertainment

(63,960)

(117,194)

83.2%

E-commerce and other services

(113,223)

(240,037)

112.0%

Cost of goods sold

(22,128)

(49,738)

124.8%

(199,311)

(406,969)

104.2%

Gross profit

5,610

203,168

3,521.5%

Other operating income

3,072

3,985

29.7%

Sales and marketing expenses

(180,304)

(251,751)

39.6%

General and administrative expenses

(57,285)

(99,265)

73.3%

Research and development expenses

(17,293)

(43,599)

152.1%

Total operating expenses

(251,810)

(390,630)

55.1%

Operating loss

(246,200)

(187,462)

(23.9)%

Non-operating income, net

30,903

9,786

(68.3)%

Income tax expense

(2,020)

(27,370)

1,255.0%

Share of results of equity investees

(702)

(1,051)

49.7%

Net loss

(218,019)

(206,097)

(5.5)%

Net loss excluding share-based compensation and
changes in fair value of the 2017 convertible notes (1)

(237,568)

(175,162)

(26.3)%

Adjusted revenue of Digital Entertainment (1)

144,558

451,004

212.0%

Adjusted revenue of E-commerce (1)

71,233

257,213

261.1%

Adjusted revenue of Digital Financial Services (1)

3,113

2,019

(35.1)%

Revenue of Other Services

23,934

53,021

121.5%

Total adjusted revenue (1)

242,838

763,257

214.3%

Adjusted EBITDA for Digital Entertainment (1)

53,724

265,958

395.0%

Adjusted EBITDA for E-commerce (1)

(214,861)

(253,712)

18.1%

Adjusted EBITDA for Digital Financial Services (1)

(7,001)

(33,628)

380.3%

Adjusted EBITDA for Other Services (1)

(13,850)

(6,494)

(53.1)%

Unallocated expenses (2)

(1,764)

(2,921)

65.6%

Total adjusted EBITDA (1)

(183,752)

(30,797)

(83.2)%

(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 September 30, 2019 Compared to Three Months Ended September 30, 2018

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 September 30,

2018

2019

$

% of

revenue

$

% of

revenue

YOY%

Revenue

Service revenue

Digital Entertainment

112,520

54.9

329,058

53.9

192.4%

E-commerce and other services

71,319

34.8

229,740

37.7

222.1%

Sales of goods

21,082

10.3

51,339

8.4

143.5%

Total revenue

204,921

100.0

610,137

100.0

197.7%

2018

2019

$

% of total
adjusted
revenue

$

% of total
adjusted
revenue

YOY%

Adjusted revenue

Service revenue

Digital Entertainment

144,558

59.5

451,004

59.1

212.0%

E-commerce and other services

77,040

31.7

260,914

34.2

238.7%

Sales of goods

21,240

8.8

51,339

6.7

141.7%

Total adjusted revenue

242,838

100.0

763,257

100.0

214.3%

Our total revenue increased by 197.7% to US$610.1 million in the third quarter of 2019 from US$204.9 million in the third quarter of 2018. Our total adjusted revenue increased by 214.3% to US$763.3 million in the third quarter of 2019 from US$242.8 million in the third quarter of 2018. These increases were mainly driven by the growth in each of the segments detailed as follows:

Cost of Revenue

Our total cost of revenue increased by 104.2% to US$407.0 million in the third quarter of 2019 from US$199.3 million in the third quarter of 2018.

Sales and Marketing Expenses

Our total sales and marketing expenses increased by 39.6% to US$251.8 million in the third quarter of 2019 from US$180.3 million in the third quarter of 2018. The table below sets forth the breakdown of the sales and marketing expenses of our two major reporting segments. Amounts are expressed in thousands of US dollars (“$”).

For the Three Months

ended September 30,

2018

2019

YOY%

Sales and Marketing Expenses

$

$

Digital Entertainment

19,046

24,750

29.9%

E-commerce

152,934

199,167

30.2%

General and Administrative Expenses

Our general and administrative expenses increased by 73.3% to US$99.3 million in the third quarter of 2019 from US$57.3 million in the third quarter of 2018. This increase was primarily due to the expansion of our staff force and the increase in office facilities and related expenses.

Research and Development Expenses

Our research and development expenses increased by 152.1% to US$43.6 million in the third quarter of 2019 from US$17.3 million in the third quarter of 2018, primarily due to the increase in research and development staff force.

Non-operating Income or Losses, Net

Non-operating income or losses consist of interest income, interest expense, investment gain (loss), fair value change for the 2017 convertible notes and foreign exchange gain (loss). We recorded a net non-operating income of US$9.8 million in the third quarter of 2019, compared to a net non-operating income of US$30.9 million in the third quarter of 2018.

Income Tax Expense

We had a net income tax expense of US$27.4 million in the third quarter of 2019 and net income tax expense of US$2.0 million in the third quarter of 2018. The income tax expense in the third quarter of 2019 was primarily due to withholding tax and corporate income tax expenses incurred by our digital entertainment segment, partially offset by deferred tax assets recognized during the period.

Net Loss

As a result of the foregoing, we had net losses of US$206.1 million and US$218.0 million in the third quarter of 2019 and 2018, respectively.

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

Net loss excluding share-based compensation and changes in fair value of the 2017 convertible notes, was US$175.2 million and US$237.6 million in the third quarter of 2019 and 2018, respectively.

Webcast and Conference Call Information

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

Details of the conference call and webcast are as follows:

Date and time:

7:30 AM U.S. Eastern Time on November 12, 2019

8:30 PM Singapore / Hong Kong Time on November 12, 2019

Webcast link:

https://services.choruscall.com/links/se191112.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: 7282425

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 businesses 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 businesses and platforms; the growth in its user base, level of user engagement, and monetization; its ability to continue to develop new technologies and/or upgrade its existing technologies; growth and trends of its markets and competition in its industries; government policies and regulations relating to its industries; 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:

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 unaudited 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 September 30, 2019

Digital
Entertainment

E-
commerce

Digital
Financial
Services

Other
Services(3)

Unallocated

expenses(4)

Consolidated

$

$

$

$

$

$

Revenue

329,058

226,396(1)

1,662

53,021

-

610,137

Changes in deferred revenue

121,946

-

-

-

-

121,946

Sales incentives net-off

-

30,817

357

-

-

31,174

Adjusted revenue

451,004

257,213(2)

2,019

53,021

-

763,257

Operating income (loss)

169,369

(277,219)

(34,553)

(9,429)

(35,630)

(187,462)

Net effect of changes in deferred revenue and its related cost

91,654

-

-

-

-

91,654

Depreciation and Amortization

4,935

23,507

925

2,935

-

32,302

Share-based compensation

-

-

-

-

32,709

32,709

Adjusted EBITDA

265,958

(253,712)

(33,628)

(6,494)

(2,921)

(30,797)

For the Three Months ended September 30, 2018

Digital
Entertainment

E-
commerce

Digital
Financial
Services

Other
Services(3)

Unallocated
expenses(4)

Consolidated

$

$

$

$

$

$

Revenue

112,520

65,919(1)

2,548

23,934

-

204,921

Changes in deferred revenue

32,038

-

-

-

-

32,038

Sales incentives net-off

-

5,314

565

-

-

5,879

Adjusted revenue

144,558

71,233(2)

3,113

23,934

-

242,838

Operating income (loss)

19,403

(223,787)

(7,387)

(16,186)

(18,243)

(246,200)

Net effect of changes in deferred revenue and its related cost

26,192

-

-

-

-

26,192

Depreciation and Amortization

8,129

8,926

386

2,336

-

19,777

Share-based compensation

-

-

-

-

16,479

16,479

Adjusted EBITDA

53,724

(214,861)

(7,001)

(13,850)

(1,764)

(183,752)

(1) For the third quarter of 2019, revenue of $226,396 included marketplace revenue of $177,235 and product revenue of $49,161 net of sales incentives. For the third quarter of 2018, revenue of $65,919 included marketplace revenue of $45,147 and product revenue of $20,772 net of sales incentives.

(2) For the third quarter of 2019, adjusted revenue of $257,213 included marketplace revenue of $208,052 and product revenue of $49,161. For the third quarter of 2018, adjusted revenue of $71,233 included marketplace revenue of $50,303 and product revenue of $20,930.

(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 Nine Months

ended September 30,

2018

2019

$

$

Revenue

Service revenue

Digital Entertainment

331,207

731,935

E-commerce and other services

157,693

526,144

Sales of goods

54,844

140,075

Total revenue

543,744

1,398,154

Cost of revenue

Cost of service

Digital Entertainment

(189,513)

(296,788)

E-commerce and other services

(275,052)

(612,833)

Cost of goods sold

(56,462)

(148,465)

Total cost of revenue

(521,027)

(1,058,086)

Gross profit

22,717

340,068

Operating income (expenses):

Other operating income

5,508

9,875

Sales and marketing expenses

(497,528)

(627,803)

General and administrative expenses

(153,621)

(276,160)

Research and development expenses

(40,887)

(107,167)

Total operating expenses

(686,528)

(1,001,255)

Operating loss

(663,811)

(661,187)

Interest income

8,567

24,539

Interest expense

(21,413)

(31,041)

Investment gain, net

9,374

4,817

Changes in fair value of the 2017 convertible notes

(19,928)

(466,102)(1)

Foreign exchange gain

5,304

5,583

Loss before income tax and share of results of equity investees

(681,907)

(1,123,391)

Income tax expense

(1,095)

(49,853)

Share of results of equity investees

(1,974)

(2,558)

Net loss

(684,976)

(1,175,802)

Net loss (profit) attributable to non-controlling interests

358

(3,208)

Net loss attributable to Sea Limited’s ordinary shareholders

(684,618)

(1,179,010)

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

(622,985)

(627,566)

Loss per share:

Basic and diluted

(2.03)

(2.75)

Shares used in loss per share computation:

Basic and diluted

337,804,410

428,606,948

(1) Fair value loss of $466.1 million on the 2017 convertible notes was recorded as our share prices significantly exceeded the conversion prices of the 2017 convertible notes.

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

UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS

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

As of

December 31,

As of

September 30,

2018

2019

$

$

ASSETS

Current assets

Cash and cash equivalents

1,002,841

2,297,187

Restricted cash

254,100

360,065

Accounts receivable, net

97,782

138,198

Prepaid expenses and other assets

312,387

489,272

Inventories, net

37,689

21,372

Short-term investments

690

9,416

Amounts due from related parties

5,224

2,277

Total current assets

1,710,713

3,317,787

Non-current assets

Property and equipment, net

192,357

294,783

Operating lease right-of-use assets, net

-

168,366

Intangible assets, net

12,887

14,914

Long-term investments

111,022

99,086

Prepaid expenses and other assets

69,065

66,330

Restricted cash

2,371

16,583

Deferred tax assets

63,302

73,100

Goodwill

30,952

30,952

Total non-current assets

481,956

764,114

Total assets

2,192,669

4,081,901

UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS

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

As of

December 31,

As of

September 30,

2018

2019

$

$

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities

Accounts payable

37,163

48,124

Accrued expenses and other payables

636,880

826,887

Advances from customers

29,355

50,203

Amount due to related parties

46,025

45,959

Short-term borrowings

856

1,307

Operating lease liabilities

-

49,729

Deferred revenue

426,675

990,677

Convertible notes

-

22,706

Income tax payable

9,539

16,138

Total current liabilities

1,186,493

2,051,730

Non-current liabilities

Accrued expenses and other payables

7,894

22,633

Long-term borrowings

1,026

633

Operating lease liabilities

-

134,293

Deferred revenue

171,262

164,976

Convertible notes

1,061,796

445,936

Deferred tax liabilities

679

791

Unrecognized tax benefits

2,974

1,409

Total non-current liabilities

1,245,631

770,671

Total liabilities

2,432,124

2,822,401

UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS

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

As of

December 31,

As of

September 30,

2018

2019

$

$

Shareholders’ equity

Class A Ordinary shares

94

154

Class B Ordinary shares

76

76

Additional paid-in capital

1,809,232

4,505,967

Accumulated other comprehensive income

15,199

(6,979)

Statutory reserves

46

46

Accumulated deficit

(2,067,786)

(3,246,796)

Total Sea Limited shareholders’ (deficit) equity

(243,139)

1,252,468

Non-controlling interests

3,684

7,032

Total shareholders’ (deficit) equity

(239,455)

1,259,500

Total liabilities and shareholders’ (deficit) equity

2,192,669

4,081,901

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

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

For the Nine Months ended

September 30,

2018

2019

$

$

Net cash (used in) generated from operating activities

(357,029)

97,663

Net cash used in investing activities

(158,938)

(219,538)

Net cash generated from financing activities

545,106

1,534,550

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

(14,739)

1,848

Net increase in cash, cash equivalents and restricted cash

14,400

1,414,523

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

1,444,978

1,259,312

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

1,459,378

2,673,835

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 September 30, 2019

Digital
Entertainment

E-
commerce

Digital
Financial
Services

Other
Services(1)

Unallocated
expenses(2)

Consolidated

$

$

$

$

$

$

Revenue

329,058

226,396

1,662

53,021

-

610,137

Operating income (loss)

169,369

(277,219)

(34,553)

(9,429)

(35,630)

(187,462)

Non-operating income, net

9,786

Income tax expense

(27,370)

Share of results of equity investees

(1,051)

Net loss

(206,097)

For the Three Months ended September 30, 2018

Digital
Entertainment

E-
commerce

Digital
Financial
Services

Other
Services(1)

Unallocated
expenses(2)

Consolidated

$

$

$

$

$

$

Revenue

112,520

65,919

2,548

23,934

-

204,921

Operating income (loss)

19,403

(223,787)

(7,387)

(16,186)

(18,243)

(246,200)

Non-operating income, net

30,903

Income tax expense

(2,020)

Share of results of equity investees

(702)

Net loss

(218,019)

(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

Martin Reidy

Investors / analysts: [email protected]

Media: [email protected]

Source: Sea Limited

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