Sea Limited Reports Third Quarter 2022 Results
Sea Limited (NYSE: SE) (“Sea” or the “Company”) today announced its financial results for the third quarter ended September 30, 2022
SINGAPORE--(BUSINESS WIRE)--Nov 15, 2022--
Sea Limited (NYSE: SE) (“Sea” or the “Company”) today announced its financial results for the third quarter ended September 30, 2022.
“Given the significant uncertainties in the macro environment, we have entirely shifted our mindset and focus from growth to achieving self-sufficiency and profitability as soon as possible, without relying on any external funding,” said Forrest Li, Sea’s Chairman and Group Chief Executive Officer.
“We are adapting quickly to the changing climate. All our efforts are directed to ensure that Sea not only survives the macro storms but emerges stronger, more efficient, and more resilient – and as a long-term winner in our markets. This positions us to continue capturing the long-term potential of our businesses and markets, and to deliver strong and sustained shareholder returns over time. Over the last quarter, we took decisive actions to improve margins, and set clear goals and priorities for the quarters to come. We remain highly confident about the compelling long-term growth prospects of our businesses and markets.”
Third Quarter 2022 Highlights
Outlook
Given rising macro uncertainties, and with reopening trends having an ongoing effect on the business, we are revising the guidance for digital entertainment. We now expect bookings for the full year of 2022 to be between US$2.6 billion and US$2.8 billion, as compared to the previous guidance of between US$2.9 billion to US$3.1 billion.
In addition, given the ongoing macro uncertainties, we currently do not intend to provide any guidance for 2023 for our businesses.
1
Compared with total net loss excluding share-based compensation and impairment of goodwill for the second quarter of 2022.
2
For definitions of total adjusted EBITDA and adjusted EBITDA for digital entertainment, e-commerce and digital financial services segments, please refer to the “Non-GAAP Financial Measures” section.
3
Current and comparative prior period local currency amounts are converted into United States dollars using the same exchange rates, rather than the actual exchange rates during the respective periods.
4
GAAP revenue for the digital entertainment segment plus change in digital entertainment deferred revenue. This operating metric is used as an approximation of cash spent by our users in the applicable period that is attributable to our digital entertainment segment.
Unaudited Summary of Financial Results
(Amounts are expressed in thousands of US dollars “$” except for per share data)
For the Three Months
ended September 30,
2021
2022
$
$
YOY%
Revenue
Service revenue
Digital Entertainment
1,099,367
892,879
(18.8)%
E-commerce and other services
1,309,912
1,976,743
50.9%
Sales of goods
279,605
286,329
2.4%
2,688,884
3,155,951
17.4%
Cost of revenue
Cost of service
Digital Entertainment
(314,363)
(264,833)
(15.8)%
E-commerce and other services
(1,099,189)
(1,405,749)
27.9%
Cost of goods sold
(266,628)
(257,651)
(3.4)%
(1,680,180)
(1,928,233)
14.8%
Gross profit
1,008,704
1,227,718
21.7%
Other operating income
68,557
65,972
(3.8)%
Sales and marketing expenses
(1,009,601)
(816,662)
(19.1)%
General and administrative expenses
(294,848)
(551,700)
87.1%
Research and development expenses
(231,368)
(420,972)
81.9%
Total operating expenses
(1,467,260)
(1,723,362)
17.5%
Operating loss
(458,556)
(495,644)
8.1%
Non-operating loss, net
(12,816)
(9,173)
(28.4)%
Income tax expense
(101,040)
(65,279)
(35.4)%
Share of results of equity investees
1,431
821
(42.6)%
Net loss
(570,981)
(569,275)
(0.3)%
Net loss excluding share-basedcompensation(1)
(448,014)
(373,520)
(16.6)%
Basic and diluted loss per share based on
net loss excluding share-based compensation attributable
to Sea Limited’s ordinary shareholders (1)
(0.84)
(0.66)
(21.4)%
Change in deferred revenue of Digital Entertainment
121,306
(228,207)
(288.1)%
Adjusted EBITDA for Digital Entertainment (1)
715,139
289,879
(59.5)%
Adjusted EBITDA for E-commerce (1)
(683,813)
(495,735)
(27.5)%
Adjusted EBITDA for Digital Financial Services (1)
(159,037)
(67,746)
(57.4)%
Adjusted EBITDA for Other Services (1)
(31,920)
(76,530)
139.8%
Unallocated expenses (2)
(5,823)
(7,520)
29.1%
Total adjusted EBITDA(1)
(165,454)
(357,652)
116.2%
(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 Operating Decision Maker (“CODM”) as part of segment performance.
Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021
Revenue
Our total GAAP revenue increased by 17.4% to US$3.2 billion in the third quarter of 2022 from US$2.7 billion in the third quarter of 2021.
Cost of Revenue
Our total cost of revenue increased by 14.8% to US$1.9 billion in the third quarter of 2022 from US$1.7 billion in the third quarter of 2021.
Other Operating Income
Other operating income was US$66.0 million and US$68.6 million in the third quarter of 2022 and 2021, respectively. Other operating income mainly consists of rebates from e-commerce related logistics services providers.
Sales and Marketing Expenses
Total sales and marketing expenses decreased by 19.1% to US$816.7 million in the third quarter of 2022 from US$1.0 billion in the third quarter of 2021. The table below sets forth breakdown of the sales and marketing expenses of our major reporting segments. Amounts are expressed in thousands of US dollars (“$”).
For the Three Months
ended September 30,
2021
2022
YOY%
Sales and Marketing Expenses
$
$
Digital Entertainment
108,631
60,521
(44.3)%
E-commerce
688,924
575,676
(16.4)%
Digital Financial Services
195,794
130,824
(33.2)%
The decrease in sales and marketing expenses across all major reporting segments were mainly attributable to our efforts to continue to reduce operating costs and achieve higher cost efficiencies.
General and Administrative Expenses
Our general and administrative expenses increased by 87.1% to US$551.7 million in the third quarter of 2022 from US$294.8 million in the third quarter of 2021. This increase was primarily due to the increase in credit loss expense related to loans receivable, in addition to higher staff cost, including share-based compensation, and higher office facilities and related expenses to support our business growth. Credit loss expenses on loans receivable increased to US$136.4 million in the third quarter of 2022 from US$33.2 million in the third quarter of 2021, primarily driven by the growth in our loan book.
Research and Development Expenses
Research and development expenses increased by 81.9% to US$421.0 million in the third quarter of 2022 from US$231.4 million in the third quarter of 2021, primarily attributable to higher staff cost from the increase in headcount as we invested in our technological capabilities and expanded our service offerings.
Non-operating Income or Losses, Net
Non-operating income or losses mainly consist of interest income, interest expense, investment gain (loss) and foreign exchange gain (loss). We recorded a net non-operating loss of US$9.2 million in the third quarter of 2022, compared to a net non-operating loss of US$12.8 million in the third quarter of 2021.
Income Tax Expense
We had a net income tax expense of US$65.3 million and US$101.0 million in the third quarter of 2022 and 2021, respectively.
Net Loss
As a result of the foregoing, we had net losses of US$569.3 million and US$571.0 million in the third quarter of 2022 and 2021, respectively.
Net Loss Excluding Share-based Compensation
Net loss excluding share-based compensation, was US$373.5 million and US$448.0 million in the third quarter of 2022 and 2021, respectively.
Basic and Diluted Loss Per Share Based on Net Loss Excluding Share-based Compensation Attributable to Sea Limited’s Ordinary Shareholders
Basic and diluted loss per share based on net loss excluding share-based compensation, was US$0.66 and US$0.84 in the third quarter of 2022 and 2021, 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 15, 2022
8:30 PM Singapore / Hong Kong Time on November 15, 2022
Webcast link:
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:
5795737
A replay of the conference call will be available at the Company’s investor relations website ( www.sea.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. Its mission is to better the lives of consumers and small businesses with technology. Sea operates 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 “may,” “could,” “will,” “expect,” “anticipate,” “aim,” “future,” “intend,” “plan,” “believe,” “estimate,” “likely to,” “potential,” “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 expected growth in, and market size of, the digital entertainment, e-commerce and digital financial services industries in the markets where it operates, including segments within those industries; expected changes or guidance 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 expected growth of its digital entertainment, e-commerce and digital financial services businesses; its expectations regarding growth in its user base, level of engagement, and monetization; its ability to continue to develop new technologies and/or upgrade its existing technologies; its expectations regarding the use of proceeds from its financing activities, including its follow-on equity offerings and convertible notes offerings; growth and trends of its markets and competition in its industries; government policies and regulations relating to its industries, including the effects of any government orders or actions on its businesses; general economic, political, social and business conditions in its markets; and the impact of widespread health developments, including the COVID-19 pandemic, and the responses thereto (such as voluntary and in some cases, mandatory quarantines as well as shut downs and other restrictions on travel and commercial, social and other activities, and the availability of effective vaccines or treatments) and the impact of economies reopening further to the COVID-19 pandemic. 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 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 (“$”) except for number of shares & per share data.
For the Three Months ended September 30, 2022
Digital
Entertainment
E-
commerce
Digital
Financial
Services
Other
Services (1)
Unallocated
expenses (2)
Consolidated
$
$
$
$
$
$
Operating income (loss)
456,952
(586,148
)
(82,462
)
(80,711
)
(203,275
)
(495,644
)
Net effect of changes in deferred
revenue and its related cost
(177,874
)
-
-
-
-
(177,874
)
Depreciation and Amortization
10,801
90,413
14,716
4,181
-
120,111
Share-based compensation
-
-
-
-
195,755
195,755
Adjusted EBITDA
289,879
(495,735
)
(67,746
)
(76,530
)
(7,520
)
(357,652
)
For the Three Months ended September 30, 2021
Digital
Entertainment
E-
commerce
Digital
Financial
Services
Other
Services (1)
Unallocated
expenses (2)
Consolidated
$
$
$
$
$
$
Operating income (loss)
611,673
(741,399
)
(166,127
)
(33,913
)
(128,790
)
(458,556
)
Net effect of changes in deferred
revenue and its related cost
93,707
-
-
-
-
93,707
Depreciation and Amortization
9,759
57,586
7,090
1,993
-
76,428
Share-based compensation
-
-
-
-
122,967
122,967
Adjusted EBITDA
715,139
(683,813
)
(159,037
)
(31,920
)
(5,823
)
(165,454
)
(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. These expenses are excluded from segment results as they are not reviewed by the CODM as part of segment performance.
For the Three Months
ended September 30,
2021
2022
$
$
Net loss
(570,981)
(569,275)
Share-based compensation
122,967
195,755
Net loss excluding share-based compensation
(448,014)
(373,520)
Net (profit) loss attributable to non-controlling interests
(2,038)
3,976
Net loss excluding share-based compensation attributable
to Sea Limited’s ordinary shareholders
(450,052)
(369,544)
Weighted average shares used in loss per share computation:
Basic and diluted
538,666,684
558,442,254
Basic and diluted loss per share based on net loss excluding
share-based compensation attributable to Sea Limited’s
ordinary shareholders
(0.84)
(0.66)
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,
2021
2022
$
$
Revenue
Service revenue
Digital Entertainment
2,904,969
2,928,306
E-commerce and other services
3,081,952
5,232,040
Sales of goods
746,155
837,775
Total revenue
6,733,076
8,998,121
Cost of revenue
Cost of service
Digital Entertainment
(855,299)
(834,547)
E-commerce and other services
(2,590,475)
(3,911,891)
Cost of goods sold
(702,295)
(763,719)
Total cost of revenue
(4,148,069)
(5,510,157)
Gross profit
2,585,007
3,487,964
Operating income (expenses):
Other operating income
215,652
210,731
Sales and marketing expenses
(2,609,885)
(2,795,603)
General and administrative expenses
(786,698)
(1,423,878)
Research and development expenses
(545,061)
(1,132,306)
Impairment of goodwill
–
(177,280)
Total operating expenses
(3,725,992)
(5,318,336)
Operating loss
(1,140,985)
(1,830,372)
Interest income
25,158
61,179
Interest expense
(86,653)
(34,587)
Investment loss, net
(24,585)
(84,327)
Foreign exchange gain
24,951
9,737
Loss before income tax and share of results of equity investees
(1,202,114)
(1,878,370)
Income tax expense
(227,256)
(211,856)
Share of results of equity investees
2,629
9,616
Net loss
(1,426,741)
(2,080,610)
Net (profit)/loss attributable to non-controlling interests
(2,410)
2,391
Net loss attributable to Sea Limited’s ordinary shareholders
(1,429,151)
(2,078,219)
Loss per share:
Basic and diluted
(2.72)
(3.73)
Weighted average shares used in loss per share computation:
525,652,569
557,376,415
Basic and diluted
UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
Amounts expressed in thousands of US dollars (“$”)
As of
December 31,
As of
September 30,
2021
2022
$
$
ASSETS
Current assets
Cash and cash equivalents
9,247,762
6,253,387
Restricted cash
1,551,635
1,336,839
Accounts receivable, net of allowance for credit losses of
$5,772 and $8,015 as of December 31, 2021 and
September 30, 2022 respectively
388,308
235,932
Prepaid expenses and other assets
1,401,863
1,436,462
Loans receivable, net of allowance for credit losses of
$91,504 and $251,341, as of December 31, 2021 and
September 30, 2022 respectively
1,500,954
2,136,101
Inventories, net
117,499
122,391
Short-term investments
911,281
1,042,291
Amounts due from related parties
16,095
14,461
Total current assets
15,135,397
12,577,864
Non-current assets
Property and equipment, net
1,029,963
1,382,963
Operating lease right-of-use assets, net
649,680
1,074,205
Intangible assets, net
52,517
74,114
Long-term investments
1,052,861
1,349,186
Prepaid expenses and other assets
124,521
236,228
Loans receivable, net of allowance for credit losses of $6,172
and $2,012, as of December 31, 2021 and September 30,
2022 respectively
28,964
22,804
Restricted cash
38,743
53,544
Deferred tax assets
103,755
103,386
Goodwill
539,624
407,994
Total non-current assets
3,620,628
4,704,424
Total assets
18,756,025
17,282,288
UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
Amounts expressed in thousands of US dollars (“$”)
As of
December 31,
As of
September 30,
2021
2022
$
$
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable
213,580
289,810
Accrued expenses and other payables
3,531,187
4,252,081
Advances from customers
244,574
242,685
Amounts due to related parties
74,738
370
Bank borrowings
100,000
49,000
Operating lease liabilities
186,494
269,858
Deferred revenue
2,644,463
1,763,837
Convertible notes (1)
–
31,208
Income tax payable
181,400
152,506
Total current liabilities
7,176,436
7,051,355
Non-current liabilities
Accrued expenses and other payables
76,234
94,750
Operating lease liabilities
491,313
861,664
Deferred revenue
104,826
161,357
Convertible notes (1)
3,475,708
4,148,004
Deferred tax liabilities
6,992
8,916
Unrecognized tax benefits
107
107
Total non-current liabilities
4,155,180
5,274,798
Total liabilities
11,331,616
12,326,153
UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
Amounts expressed in thousands of US dollars (“$”)
As of
December 31,
As of
September 30,
2021
2022
$
$
Shareholders’ equity
Class A Ordinary shares
204
256
Class B Ordinary shares
74
23
Additional paid-in capital (1)
14,622,292
14,324,004
Accumulated other comprehensive loss
(28,519)
(267,223)
Statutory reserves
6,144
6,443
Accumulated deficit (1)
(7,201,498)
(9,166,292)
Total Sea Limited shareholders’ equity
7,398,697
4,897,211
Non-controlling interests
25,712
58,924
Total shareholders’ equity
7,424,409
4,956,135
Total liabilities and shareholders’ equity
18,756,025
17,282,288
(1)
The Company adopted ASU 2020-06 on January 1, 2022 using modified retrospective method and the cumulative effects have been adjusted via retained earnings opening balance. As a result of adoption, our Convertible Notes balances have increased and additional paid-in capital and accumulated deficit have decreased accordingly.
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Amounts expressed in thousands of US dollars (“$”)
For the Nine Months ended
September 30,
2021
2022
$
$
Net cash generated from (used in) operating activities
513,473
(1,375,383)
Net cash used in investing activities
(1,991,763)
(2,480,331)
Net cash generated from financing activities
7,015,596
913,967
Effect of foreign exchange rate changes on cash, cash
equivalents and restricted cash
(64,727)
(252,623)
Net increase (decrease) in cash, cash equivalents and restricted cash
5,472,579
(3,194,370)
Cash, cash equivalents and restricted cash at beginning of the
period
7,053,393
10,838,140
Cash, cash equivalents and restricted cash at end of the period
12,525,972
7,643,770
Net cash used in investing activities amounted to US$2.5 billion for the nine months ended September 30, 2022. This was primarily attributable to an increase in loans receivable of US$1.1 billion and purchase of property and equipment of US$772 million to support the growth of our businesses, as well as net placement of US$189 million into time deposits and liquid investment products for better cash yield management. We aim to continue to maintain a net cash position, after budgeting for the full retirement in cash of the outstanding convertible bonds, and assuming no external funding.
UNAUDITED SEGMENT INFORMATION
The Company has three reportable segments, namely digital entertainment, e-commerce and digital financial services. The Chief Operating Decision Maker (“CODM”) reviews the performance of each segment based on revenue and certain key operating metrics of the operations and uses these results for the purposes of allocating resources to and evaluating the financial performance of each segment. Amounts are expressed in thousands of US dollars (“$”).
For the Three Months ended September 30, 2022
Digital
Entertainment
E-
commerce
Digital
Financial
Services
Other
Services (1)
Unallocated
expenses (2)
Consolidated
$
$
$
$
$
$
Revenue
892,879
1,920,126
326,853
16,093
-
3,155,951
Operating income (loss)
456,952
(586,148
)
(82,462
)
(80,711
)
(203,275
)
(495,644
)
Non-operating loss, net
(9,173
)
Income tax expense
(65,279
)
Share of results of equity investees
821
Net loss
(569,275
)
For the Three Months ended September 30, 2021
Digital
Entertainment
E-
commerce
Digital
Financial
Services
Other
Services (1)
Unallocated
expenses (2)
Consolidated
$
$
$
$
$
$
Revenue
1,099,367
1,450,397
132,204
6,916
-
2,688,884
Operating income (loss)
611,673
(741,399
)
(166,127
)
(33,913
)
(128,790
)
(458,556
)
Non-operating loss, net
(12,816
)
Income tax expense
(101,040
)
Share of results of equity investees
1,431
Net loss
(570,981
)
(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. These expenses are excluded from segment results as they are not reviewed by the CODM as part of segment performance.
View source version on businesswire.com:https://www.businesswire.com/news/home/20221114006143/en/
CONTACT: For enquiries: Investors / analysts:ir@sea.com
Media: Martin Reidy,media@sea.com
KEYWORD: ASIA PACIFIC SINGAPORE
INDUSTRY KEYWORD: TECHNOLOGY FINANCE ENTERTAINMENT BANKING PROFESSIONAL SERVICES MOBILE ENTERTAINMENT SMALL BUSINESS INTERNET RETAIL ONLINE RETAIL
SOURCE: Sea Limited
Copyright Business Wire 2022.
PUB: 11/15/2022 06:30 AM/DISC: 11/15/2022 06:32 AM
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