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
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 Shopees 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 countrys 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.
1 | Rankings data for App Annie is based on combined data from the Google Play and iOS App Stores, unless otherwise stated. Southeast Asia rankings are based on Indonesia, Malaysia, Philippines, Singapore, Thailand, and Vietnam. Latin America rankings are based on Argentina, Brazil, Chile, Colombia, Mexico, and Uruguay. | |
2 | Adjusted marketplace revenue mainly consists of transaction-based fees and advertising income and revenue generated from other value-added services. | |
3 | Adjusted product revenue mainly consists of revenue generated from direct sales. |
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)
|
For the Three Months |
| ||||
| 2019 | 2020 |
| |||
| $ | $ | YOY% | |||
Revenue |
|
|
| |||
Service revenue |
|
|
| |||
Digital Entertainment | 229,478 |
| 383,946 |
| 67.3 | % |
E-commerce and other services | 165,741 |
| 364,719 |
| 120.1 | % |
Sales of goods | 40,932 |
| 133,369 |
| 225.8 | % |
| 436,151 |
| 882,034 |
| 102.2 | % |
Cost of revenue |
|
|
| |||
Cost of service |
|
|
| |||
Digital Entertainment | (94,952 | ) | (156,539 | ) | 64.9 | % |
E-commerce and other services | (198,431 | ) | (388,291 | ) | 95.7 | % |
Cost of goods sold | (45,324 | ) | (136,378 | ) | 200.9 | % |
| (338,707 | ) | (681,208 | ) | 101.1 | % |
Gross profit | 97,444 |
| 200,826 |
| 106.1 | % |
Other operating income | 2,437 |
| 32,609 |
| 1,238.1 | % |
Sales and marketing expenses | (198,074 | ) | (386,349 | ) | 95.1 | % |
General and administrative expenses | (101,267 | ) | (144,547 | ) | 42.7 | % |
Research and development expenses | (35,059 | ) | (75,347 | ) | 114.9 | % |
Total operating expenses | (331,963 | ) | (573,634 | ) | 72.8 | % |
Operating loss | (234,519 | ) | (372,808 | ) | 59.0 | % |
Non-operating (loss) income, net | (29,210 | ) | 7,612 |
| (126.1 | )% |
Income tax expense | (15,278 | ) | (27,821 | ) | 82.1 | % |
Share of results of equity investees | (1,089 | ) | (518 | ) | (52.4 | )% |
Net loss | (280,096 | ) | (393,535 | ) | 40.5 | % |
Net loss excluding share-based compensation and | (215,114 | ) | (317,665 | ) | 47.7 | % |
Basic and diluted loss per share based on |
|
|
| |||
net loss excluding share-based compensation and | (0.48 | ) | (0.68 | ) | 41.7 | % |
|
|
|
| |||
Adjusted revenue of Digital Entertainment (1) | 443,185 |
| 716,210 |
| 61.6 | % |
Adjusted revenue of E-commerce (1) | 177,449 |
| 510,597 |
| 187.7 | % |
Adjusted revenue of Digital Financial Services (1) | 2,791 |
| 11,936 |
| 327.7 | % |
Adjusted revenue of Other Services (1) | 41,991 |
| 48,471 |
| 15.4 | % |
Total adjusted revenue (1) | 665,416 |
| 1,287,214 |
| 93.4 | % |
Adjusted EBITDA for Digital Entertainment (1) | 263,760 |
| 436,235 |
| 65.4 | % |
Adjusted EBITDA for E-commerce (1) | (248,251 | ) | (305,477 | ) | 23.1 | % |
Adjusted EBITDA for Digital Financial Services (1) | (18,144 | ) | (110,105 | ) | 506.8 | % |
Adjusted EBITDA for Other Services (1) | (4,996 | ) | (6,412 | ) | 28.3 | % |
Unallocated expenses (2) | (3,339 | ) | (6,503 | ) | 94.8 | % |
Total adjusted EBITDA (1) | (10,970 | ) | 7,738 |
| (170.5 | )% |
(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 Operating Decision Maker (CODM) as part of segment performance. |
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 ($).
| For the Three Months ended June 30, |
| ||||||
| 2019 |
| 2020 |
| ||||
| $ |
% of |
| $ |
% of | YOY% | ||
|
|
|
|
| ||||
Revenue |
|
|
|
|
|
| ||
Service revenue |
|
|
|
|
|
| ||
Digital Entertainment | 229,478 | 52.6 |
| 383,946 | 43.5 | 67.3 | % | |
E-commerce and other services | 165,741 | 38.0 |
| 364,719 | 41.4 | 120.1 | % | |
Sales of goods | 40,932 | 9.4 |
| 133,369 | 15.1 | 225.8 | % | |
Total revenue | 436,151 | 100.0 |
| 882,034 | 100.0 | 102.2 | % | |
|
|
|
|
|
|
| ||
| 2019 |
| 2020 |
| ||||
| $ |
% of total |
| $ |
% of total | YOY% | ||
|
|
| ||||||
Adjusted revenue |
|
|
|
|
|
| ||
Service revenue |
|
|
|
|
|
| ||
Digital Entertainment | 443,185 | 66.6 |
| 716,210 | 55.6 | 61.6 | % | |
E-commerce and other services | 181,299 | 27.2 |
| 437,635 | 34.0 | 141.4 | % | |
Sales of goods | 40,932 | 6.2 |
| 133,369 | 10.4 | 225.8 | % | |
Total adjusted revenue | 665,416 | 100.0 |
| 1,287,214 | 100.0 | 93.4 | % |
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:
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.
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$198.1 million in the second quarter of 2019. The table below sets forth the breakdown of the sales and marketing expenses of our two major reporting segments. Amounts are expressed in thousands of US dollars ($).
|
For the Three Months |
| ||||
| 2019 |
| 2020 | YOY% | ||
Sales and Marketing Expenses | $ |
| $ |
| ||
Digital Entertainment | 19,219 |
| 31,516 | 64.0 | % | |
E-commerce | 163,707 |
| 268,408 | 64.0 | % |
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 segments 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 Limiteds 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 Companys management will host a conference call today to review Seas 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 August 18, 2020 |
| 7:30 PM Singapore / Hong Kong Time on August 18, 2020 |
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Webcast link: | |
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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: 6052085
A replay of the conference call will be available at the Companys 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 Seas beliefs and expectations, the business, financial and market outlook, and projections from its management in this announcement, as well as Seas 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: ir@seagroup.com
Media: media@seagroup.com
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