SINGAPORE--(BUSINESS WIRE)--Sea Limited (NYSE: SE) (�Sea� or the �Company�) today announced its financial results for the second quarter ended June 30, 2020.

Second Quarter 2020 Highlights

• Group
  • Total adjusted revenue was US$1,287.2 million, up 93.4% year-on-year from US$665.4 million for the second quarter of 2019.
  • Total gross profit was US$200.8 million, up 106.1% year-on-year from US$97.4 million for the second quarter of 2019.
  • Total adjusted EBITDA was US$7.7 million compared to US$(11.0) million for the second quarter of 2019.

• Digital Entertainment
  • Adjusted revenue was US$716.2 million, up 61.6% year-on-year from US$443.2 million for the second quarter of 2019.
  • Adjusted EBITDA was US$436.2 million, up 65.4% year-on-year.
  • Adjusted EBITDA margin increased to 60.9% for the second quarter of 2020 from 59.5% for the second quarter of 2019.
  • Quarterly active users (�QAUs�) reached 499.8 million, an increase of 61.0% year-on-year from 310.5 million for the second quarter of 2019.
  • Quarterly paying users grew by 91.2% year-on-year to 49.9 million, which represented 10.0% of QAUs for the second quarter compared to 8.4% for the same period in 2019.
  • Average adjusted revenue per user was US$1.4, in line with that for the second quarter of 2019.
  • Our self-developed global hit game, Free Fire, achieved a new record high of over 100 million peak daily active users and, according to App Annie¹, was the highest grossing mobile game in Latin America and in Southeast Asia in the second quarter. Free Fire also ranked third globally by downloads in the mobile games category in the second quarter, according to App Annie¹.
  • In July 2020, Garena hit a new record high in monthly adjusted revenue. Free Fire also achieved a new record in monthly paying users in July, which more than doubled year-on-year.
  • Our esports and community building efforts continued to attract significant followings in the second quarter. Free Fire esports tournaments accumulated over 120 million online views for the quarter. In June, we hosted Free Fire Asia All-Stars 2020, a pan-regional two-day event for both professional teams and influencers, which recorded over 20 million online views to date.
  • We have also engaged global partners to create new in-game content for our users. For example, in July, Free Fire announced its partnership with Netflix for a special in-game crossover with the global hit Netflix show, Money Heist, which is expected to launch in September.

• E-commerce
  • Adjusted revenue was US$510.6 million, up 187.7% year-on-year.
  • Adjusted revenue included US$378.7 million of adjusted marketplace revenue², up 174.8% year-on-year, and US$131.9 million of adjusted product revenue³, up 232.5% year-on-year.
  • Gross orders totaled 615.9 million with accelerated growth of 150.1% year-on-year, compared to a growth rate of 111.2% year-on-year in the first quarter of 2020. Gross orders from Shopee Mall grew at an even faster pace with a year-on-year increase of over 210%.
  • Gross merchandise value (�GMV�) growth further accelerated to 109.9% year-on-year to reach US$8.0 billion for the second quarter, compared to 74.3% year-on-year in the first quarter of 2020.
  • Adjusted revenue as a percentage of total GMV increased to 6.4% in the second quarter. Adjusted marketplace revenue as a percentage of total GMV increased to 4.7%.
  • Adjusted EBITDA was US$(305.5) million, compared to US$(248.3) million for the second quarter of 2019. Adjusted EBITDA loss per order decreased by 50.5% year-on-year to US$0.50, compared to US$1.01 for the second quarter of 2019.
  • In Indonesia, where Shopee is the largest e-commerce platform, it registered over 260 million orders for the market in the second quarter, or a daily average of over 2.8 million orders, an increase of over 130% year-on-year. Shopee also ranked first in Indonesia by average monthly active users, downloads, and total time spent in app on Android, in the Shopping category in the second quarter, according to App Annie¹.
  • Shopee continued to rank number one in the Shopping category by downloads in Southeast Asia, and was among the top three worldwide in the same category, for the second quarter, according to App Annie¹.
  • Both in Southeast Asia and in Taiwan, Shopee continued to rank number one in the Shopping category by average monthly active users, and total time spent in app on Android, for the second quarter, according to App Annie¹.
  • We consistently focus on enhancing user engagement on Shopee by expanding the depth and breadth of social content on our app. Shopee Live, our in-app live-streaming offering, has recorded over 30 million hours watched in the second quarter. We further broadened the types of content that we offer to Shopee Live viewers. For example, in June, we partnered with the organizers of KCON, one of the most popular K-pop music festivals, to stream their annual concert series on Shopee.

Digital Financial Services Update

In the second quarter, we saw accelerated growth in adoption of SeaMoney offerings. Our mobile wallet total payment volume for the quarter exceeded US$1.6 billion. Moreover, quarterly paying users for our mobile wallet services surpassed 15 million.

Integration of mobile wallet services with Shopee deepened further. In July, more than 45% of Shopee�s gross orders in Indonesia, our largest market for SeaMoney, were paid using our mobile wallet. We also continued to expand our suite of online and offline third-party use cases and partnerships.

Other Updates

As the coronavirus continues to disrupt communities and economic activities in our region, we have been part of many government-led efforts on national economic recovery from the pandemic. For instance, in Singapore in May, our Group Chief Operating Officer, Gang Ye, was appointed to the government-led Emerging Stronger Taskforce set up to guide the country�s economic growth beyond the pandemic. In the same month in Thailand, our Group Chief Economist, Santitarn Sathirathai, was appointed by the Prime Minister of Thailand to the Special National Committee for Re-Opening the Economy as the only member from the business sector. The committee advises the Prime Minister on post-pandemic recovery for the country.

Moreover, our Chairman and Group Chief Executive Officer, Forrest Li, has been serving on the board of directors of the Economic Development Board of the Government of Singapore since February this year.

During this challenging time for our communities, we will continue to focus on serving them well with our offerings, as well as contributing to local communities� efforts in navigating the challenges and getting back on the road of recovery.

Exchanges and Conversions of 2023 Convertible Notes

As previously announced, in May 2020, concurrently with our offering of 2.375% convertible senior notes due 2025, we entered into separate privately negotiated agreements with certain holders of our 2.25% convertible senior notes due 2023 (the �2023 notes�) to exchange approximately US$150.0 million principal amount of our outstanding 2023 notes for a combination of cash and approximately 6.9 million American Depositary Shares (�ADSs�) (each representing one Class A ordinary share).

In June 2020, we entered into additional separate privately negotiated agreements with certain holders of our 2023 notes to exchange approximately US$144.4 million additional principal amount of our outstanding 2023 notes for approximately 7.3 million ADSs.

In addition, in July 2020, holders of approximately US$107.8 million principal amount of our 2023 notes elected to convert their notes. We issued approximately 5.4 million ADSs to settle such conversion.

In aggregate, such exchanges and conversions are estimated to result in more than US$21 million of saving to us (after netting off the premium we paid for the exchanges) in future interest payments.

As of July 31, 2020, we had 487,738,066 ordinary shares issued and outstanding, comprising 335,562,363 Class A ordinary shares and 152,175,703 Class B ordinary shares, and approximately US$172.8 million principal amount of the 2023 notes remaining outstanding.

Upcoming Changes to Adjusted Revenue Reporting

We have been reporting adjusted revenue of each business segment as a supplemental non-GAAP financial measure to help our investors evaluate our operating performance. Going forward, beginning with our earnings release for the third quarter of 2020, we will discontinue the use of adjusted revenue.

For our digital entertainment segment, in place of adjusted revenue, we will begin disclosing the operating metric �bookings,� which will similarly represent our digital entertainment segment revenue plus change in our digital entertainment deferred revenue. This operating metric is used as an approximation of cash spent by our users in the applicable period that is attributable to our digital entertainment segment. We intend to continue to separately disclose the change in our digital entertainment deferred revenue to reconcile to our GAAP digital entertainment revenue.

For our e-commerce, digital financial services and other services segments, we will discontinue reporting adjusted revenue and any related measures and not provide a corresponding metric. Accordingly, this quarter will be the last quarter in which we report total adjusted revenue of our company.

Other than as described above, this reporting change will not affect our presentation of operating and financial results or any underlying business performance.

Unaudited Summary of Financial Results

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

Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019

Revenue

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

Our total revenue increased by 102.2% to US$882.0 million in the second quarter of 2020 from US$436.2 million in the second quarter of 2019. Our total adjusted revenue increased by 93.4% to US$1,287.2 million in the second quarter of 2020 from US$665.4 million in the second quarter of 2019. These increases were mainly driven by the growth in each of the segments detailed as follows:

• Digital Entertainment: Revenue increased by 67.3% to US$383.9 million in the second quarter of 2020 from US$229.5 million in the second quarter of 2019. Adjusted revenue increased by 61.6% to US$716.2 million in the second quarter of 2020 from US$443.2 million in the second quarter of 2019. This increase was primarily due to the increase in our active user base as well as the deepened paying user penetration, and in particular, the continued success of our self-developed game Free Fire.

• E-commerce and other services: Revenue increased by 120.1% to US$364.7 million in the second quarter of 2020 from US$165.7 million in the second quarter of 2019. Adjusted revenue increased by 141.4% to US$437.6 million in the second quarter of 2020 from US$181.3 million in the second quarter of 2019. This increase was primarily driven by the growth of our e-commerce marketplace, and positive developments in each of our marketplace revenue streams � transaction-based fees, value-added services, and advertising. It is a result of our commitment to continuously enhance our service offerings as we seek to create greater value for our platform users.

• Sales of goods: Revenue and adjusted revenue increased by 225.8% to US$133.4 million in the second quarter of 2020 from US$40.9 million in the second quarter of 2019, primarily due to the increase in our product offerings.

Cost of Revenue

Our total cost of revenue increased by 101.1% to US$681.2 million in the second quarter of 2020 from US$338.7 million in the second quarter of 2019.

• Digital Entertainment: Cost of revenue increased by 64.9% to US$156.5 million in the second quarter of 2020 from US$95.0 million in the second quarter of 2019. The increase was largely in line with revenue growth in our digital entertainment business. Improvement in gross profit margins was largely due to higher revenue contribution from our self-developed game.

• E-commerce and other services: Cost of revenue for our e-commerce and other services segment combined increased by 95.7% to US$388.3 million in the second quarter of 2020 from US$198.4 million in the second quarter of 2019. The increase was primarily due to higher costs of logistics, including expenses for warehousing associated with value-added fulfilment services we provided to sellers, and other costs incurred in line with growth of our e-commerce marketplace, including, among other costs, higher bank transaction fees driven by GMV growth, as well as higher staff compensation and benefit costs.

• Cost of goods sold: Cost of goods sold increased by 200.9% to US$136.4 million in the second quarter of 2020 from US$45.3 million in the second quarter of 2019. The increase was largely in line with the increase in our product offerings.

Other Operating Income

Our other operating income increased by 1,238.1% to US$32.6 million in the second quarter of 2020 from US$2.4 million in the second quarter of 2019. The increase in our other operating income was mainly due to the rebates from e-commerce related logistic services provided by third parties.

Sales and Marketing Expenses

Our total sales and marketing expenses increased by 95.1% to US$386.3 million in the second quarter of 2020 from US$198.1 million in the second quarter of 2019. The table below sets forth the breakdown of the sales and marketing expenses of our two major reporting segments. Amounts are expressed in thousands of US dollars (�$�).

• Digital Entertainment: Sales and marketing expenses increased by 64.0% to US$31.5 million in the second quarter of 2020 from US$19.2 million in the second quarter of 2019. The increase was primarily due to higher online marketing and influencer costs.
• E-commerce: Sales and marketing expenses increased by 64.0% to US$268.4 million in the second quarter of 2020 from US$163.7 million in the second quarter of 2019. The increase in marketing efforts was aligned with our strategy to fully capture the market growth opportunity and was primarily attributable to the ramping up of brand marketing and other marketing incentives as well as higher staff compensation and benefit costs.

General and Administrative Expenses

Our general and administrative expenses increased by 42.7% to US$144.5 million in the second quarter of 2020 from US$101.3 million in the second quarter of 2019. This increase was primarily due to higher staff compensation and benefit costs.

Research and Development Expenses

Our research and development expenses increased by 114.9% to US$75.3 million in the second quarter of 2020 from US$35.1 million in the second quarter of 2019, primarily due to the increase in research and development staff force.

Non-operating Income or Losses, Net

Non-operating income or losses consist of interest income, interest expense, investment gain (loss), fair value change for the 2017 convertible notes and foreign exchange gain (loss). We recorded a net non-operating income of US$7.6 million in the second quarter of 2020, compared to a net non-operating loss of US$29.2 million in the second quarter of 2019. This increase was primarily due to a gain from the sale of a controlling equity stake and remeasurement of our remaining stake in an operating entity in our other services segment, partially offset by higher interest expense. As a result of the partial disposition, which occurred in May 2020, the entity, which historically contributed a large portion of our other services segment�s revenue, is no longer consolidated following such disposal. Our net-operating loss in the second quarter of 2019 was primarily due to a fair value loss of US$31.8 million arising from the fair value accounting treatment for the 2017 convertible notes.

Income Tax Expense

We had a net income tax expense of US$27.8 million and US$15.3 million in the second quarter of 2020 and 2019, respectively. The income tax expense in the second quarter of 2020 was primarily due to withholding tax and corporate income tax expenses incurred by our digital entertainment segment.

Net Loss

As a result of the foregoing, we had net losses of US$393.5 million and US$280.1 million in the second quarter of 2020 and 2019, respectively.

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

Net loss excluding share-based compensation and changes in fair value of the 2017 convertible notes, was US$317.7 million and US$215.1 million in the second quarter of 2020 and 2019, respectively.

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

Basic and diluted loss per share based on net loss excluding share-based compensation and changes in fair value of the 2017 convertible notes, was US$0.68 and US$0.48 in the second quarter of 2020 and 2019, respectively.

Webcast and Conference Call Information

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

Details of the conference call and webcast are as follows:

Passcode for Participants: 6052085

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

About Sea Limited

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

Forward-Looking Statements

This announcement contains forward-looking statements. These statements are made under the �safe harbor� provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as �will,� �expects,� �anticipates,� �future,� �intends,� �plans,� �believes,� �estimates,� �confident,� �guidance,� and similar statements. Among other things, statements that are not historical facts, including statements about Sea�s beliefs and expectations, the business, financial and market outlook, and projections from its management in this announcement, as well as Sea�s strategic and operational plans, contain forward-looking statements. Sea may also make written or oral forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission (the �SEC�), in its annual report to shareholders, in press releases, and other written materials, and in oral statements made by its officers, directors, or employees to third parties.

Contacts

For enquiries, please contact:
Investors / analysts: [email protected]
Media: [email protected]

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