EX-99.1 2 tv507087_ex99-1.htm EXHIBIT 99.1

 

Exhibit 99.1

 

YY Reports Third Quarter 2018 Unaudited Financial Results

 

Guangzhou, China, November 13, 2018 – YY Inc. (NASDAQ: YY) (“YY” or “the Company”), a leading live streaming social media platform in China, today announced its unaudited financial results for the third quarter of 2018.

 

Third Quarter 2018 Highlights

·Net revenues increased by 32.6% to RMB4,100.5 million (US$597.0 million) from RMB3,092.3 million in the corresponding period of 2017.
·Net income attributable to YY was RMB650.7 million (US$94.7 million) compared to RMB636.0 million in the corresponding period of 2017.
·Non-GAAP net income attributable to YY1 increased by 19.7% to RMB787.0 million (US$114.6 million) from RMB657.3 million in the corresponding period of 2017.

 

Mr. David Xueling Li, Chairman and acting Chief Executive Officer of YY, stated, “During the third quarter of 2018 we recorded outstanding operating results, highlighted by a 20.7% year-over-year growth in our mobile live streaming monthly active users (MAU) and a 26.3% year-over-year growth in our total live streaming paying users. Our strong performance in the third quarter was attributable to the continuous market expansion for both YY Live and Huya. For YY Live, we continued to leverage our industry-leading AI technology to increase the accuracy and effectiveness of our content recommendation process. Meanwhile, we have initiated a strategic cooperation with Xiaomi to exclusively operate certain entertainment live streaming services on Xiaomi Live. The cooperation will provide Xiaomi’s users with a better experience in entertainment live streaming services and enable both YY and Xiaomi to explore additional monetization opportunities. Looking ahead, we will remain focused on cementing YY’s leadership in the live streaming industry through product innovation and technology advancements.”

 

Mr. Bing Jin, Chief Financial Officer of YY, further commented, “We once again achieved solid financial performance in the third quarter of 2018. Our total net revenues increased by 32.6% year over year to RMB4,100.5 million, exceeding the high end of our previous guidance range. The increase in net revenues was driven by the robust growth of our live streaming revenues which increased by 35.6% year over year to RMB3,894.5 million. Our non-GAAP net income attributable to YY also increased by 19.7% year over year to RMB787.0 million in the third quarter of 2018. We are confident that our strategies to enhance our content offerings and AI technologies will continue to yield sustainable growth, and increase our market share in the live streaming industry.”

 

 

 

1 Non-GAAP net income attributable to YY Inc. is a non-GAAP financial measure, which is defined as net income attributable to YY Inc. excluding share-based compensation expenses, impairment of goodwill and investment, gain on deconsolidation and disposal of subsidiary, gain on deemed disposal and disposal of investments (deemed disposal refers to dilution of equity interest in equity-method investments), gain on fair value change of investments and equity investees’ investments, fair value loss on derivative liabilities, deemed dividend to subsidiary’s Series A preferred shareholders, income tax effects on non-GAAP adjustment and non-GAAP adjustment for net (loss) income attributable to non-controlling interests shareholders. These adjustments amounted to RMB136.3 million (US19.8 million) and RMB21.3 million in the third quarter of 2018 and 2017, respectively. Please refer to the section titled “Reconciliation of GAAP and Non-GAAP Results” for details.

 

 1 

 

 

Third Quarter 2018 Financial Results

 

NET REVENUES

Net revenues increased by 32.6% to RMB4,100.5 million (US$597.0 million) in the third quarter of 2018 from RMB3,092.3 million in the corresponding period of 2017, primarily driven by an increase in live streaming revenues. Live streaming revenues increased by 35.6% to RMB3,894.5 million (US$567.1 million) in the third quarter of 2018 from RMB2,871.6 million in the corresponding period of 2017.

 

Other revenues2 decreased by 6.7% to RMB205.9 million (US$30.0 million) in the third quarter of 2018 from RMB220.7 million in the corresponding period of 2017.

 

COST OF REVENUES AND GROSS PROFIT

Cost of revenues increased by 41.6% to RMB2,674.5 million (US$389.4 million) in the third quarter of 2018 from RMB1,889.3 million in the corresponding period of 2017, primarily attributable to an increase in revenue-sharing fees and content costs to RMB2,212.6 million (US$322.2 million) in the third quarter of 2018 from RMB1,604.9 million in the corresponding period of 2017. The increase in revenue-sharing fees and content costs paid to performers, guilds and content providers was in line with the increase in live streaming revenues for both YY Live and Huya segments, respectively. In addition, bandwidth costs increased to RMB249.5 million (US$36.3 million) in the third quarter of 2018 from RMB160.5 million in the corresponding period of 2017, primarily reflecting continued user base expansion and live streaming quality improvements.

 

Gross profit increased by 18.5% to RMB1,426.0 million (US$207.6 million) in the third quarter of 2018 from RMB1,203.0 million in the corresponding period of 2017. Gross margin was 34.8% in the third quarter of 2018 compared to 38.9% in the corresponding period of 2017, primarily due to the increase in revenue-sharing fees and content costs. In addition, the relatively low gross margin of the Huya segment had negative impact to the overall gross margin, since the Huya segment’s contribution to net revenues increased significantly year-over-year.

 

 

 

2 Starting from the first quarter of 2018, the Company re-classified its revenues from online games, revenues from memberships, and other revenues (which mainly represent revenues from the Company’s online advertising revenues) to the category “other revenues” in order to better reflect the Company’s continued strategic shift towards its live streaming business.

 

 2 

 

 

OPERATING INCOME

Operating expenses were RMB864.7 million (US$125.9 million) in the third quarter of 2018 compared to RMB560.3 million in the corresponding period of 2017, primarily due to increased investments in talent recruitment as part of the Company’s efforts to enhance its research and development capabilities.

 

Operating income was RMB610.9 million (US$88.9 million) in the third quarter of 2018 compared to RMB661.4 million in the corresponding period of 2017. Operating margin was 14.9% in the third quarter of 2018 compared to 21.4% in the corresponding period of 2017, primarily due to the increase in research and development expenses and the decrease in gross margin.

 

Non-GAAP operating income3 increased by 12.9% to RMB774.2 million (US$112.7 million) in the third quarter of 2018 from RMB685.8 million in the corresponding period of 2017. Non-GAAP operating margin4 was 18.9% in the third quarter of 2018 compared to 22.2% in the corresponding period of 2017.

 

NET INCOME

Net income attributable to YY Inc. increased by 2.3% to RMB650.7 million (US$94.7 million) in the third quarter of 2018 from RMB636.0 million in the corresponding period of 2017.

 

Non-GAAP net income attributable to YY Inc. increased by 19.7% to RMB787.0 million (US$114.6 million) from RMB657.3 million in the corresponding period of 2017. Non-GAAP net margin5 was 19.2% in the third quarter of 2018 compared to 21.3% in the corresponding period of 2017.

 

NET INCOME PER ADS

Diluted net income per ADS6 was RMB10.01 (US$1.46) in the third quarter of 2018 compared to RMB10.51 in the corresponding period of 2017.

 

Non-GAAP diluted net income per ADS7 increased by 11.1% to RMB12.07 (US$1.76) in the third quarter of 2018 from RMB10.86 in the corresponding period of 2017.

 

 

 

3 Non-GAAP operating income is a non-GAAP financial measure, which is defined as operating income excluding share-based compensation expenses, impairment of goodwill and investments and gain on deconsolidation and disposal of a subsidiary. Please refer to the section titled "Reconciliation of GAAP and Non-GAAP Results" for details.

4 Non-GAAP operating margin is a non-GAAP financial measure, which is defined as non-GAAP operating income as a percentage of net revenues. Please refer to the section titled "Reconciliation of GAAP and Non-GAAP Results" for details.

5 Non-GAAP net margin is non-GAAP net income attributable to YY Inc. as a percentage of net revenues.

6 ADS is American Depositary Share. Each ADS represents twenty Class A common shares of the Company. Diluted net income per ADS is net income attributable to YY Inc. divided by weighted average number of diluted ADS.

7 Non-GAAP diluted net income per ADS is a non-GAAP financial measure, which is defined as non-GAAP net income attributable to YY Inc. divided by weighted average number of ADS used in the calculation of diluted net income per ADS. Please refer to the section titled "Reconciliation of GAAP and Non-GAAP Results" for details.

 

 3 

 

 

BALANCE SHEET AND CASH FLOWS

As of September 30, 2018, the Company had cash and cash equivalents of RMB4,921.1 million (US$716.5 million) and short-term deposits of RMB8,302.6 million (US$1,208.9 million). For the third quarter of 2018, net cash from operating activities was RMB822.4million (US$119.7 million).

 

SHARES OUTSTANDING

As of September 30, 2018, the Company had a total of 1,269.6 million common shares, or the equivalent of 63.5 million ADSs, outstanding.

 

Business Outlook

For the fourth quarter of 2018, the Company expects net revenues to be between RMB4.39 billion and RMB4.54 billion, representing a year-over-year growth of 21.1% to 25.2%. This forecast reflects the Company's current and preliminary views on the market and operational conditions, which are subject to change.

 

Recent Developments

In October 2018, the Company entered into a strategic cooperation agreement with Xiaomi Corporation (“Xiaomi”). Pursuant to the agreement, YY has the exclusive right to operate certain entertainment live streaming services on Xiaomi Zhibo, or Xiaomi Live, the primary platform for Xiaomi’s live streaming services. Through this partnership, YY will enrich Xiaomi’s ecosystem by integrating its high quality streaming content and extensive experience in live streaming operations with Xiaomi Live. The agreement will provide Xiaomi’s users with a superior experience in entertainment live streaming services, while both parties continue to explore additional monetization opportunities.

 

Conference Call Information

The Company will hold a conference call on Monday, November 12, 2018, at 9:00 pm Eastern Time or Tuesday, November 13, 2018, at 10:00 am Beijing Time to discuss the financial results. Participants may access the call by dialing the following numbers:

 

United States: +1-845-675-0437
International: +65-6713-5090
China Domestic: 400-6208-038
Hong Kong: +852-3018-6771
Conference ID: #8227539

 

The replay will be accessible through November 20, 2018, by dialing the following numbers:

 

United States: +1-646-254-3697
International: +61-2-8199-0299
Conference ID: #8227539

 

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A live and archived webcast of the conference call will also be available at the Company's investor relations website at http://ir.yy.com/.

 

Exchange Rate

This press release contains translations of certain Renminbi amounts into U.S. dollars at specified rates solely for the convenience of readers. Unless otherwise noted, all translations from Renminbi to U.S. dollars, in this press release, were made at a rate of RMB6.8680 to US$1.00, the noon buying rate in effect on September 28, 2018 in the City of New York for cable transfers in Renminbi per U.S. dollar as certified for customs purposes by the Federal Reserve Bank of New York.

 

About YY Inc.

YY Inc. (“YY” or the “Company”) is a leading live streaming social media platform in China. The Company’s highly engaged users contribute to a vibrant social community by creating, sharing, and enjoying a vast range of entertainment content and activities. YY enables users to interact with each other in real time through online live media and offers users a uniquely engaging and immersive entertainment experience. YY Inc. was listed on the NASDAQ in November 2012.

 

Safe Harbor Statement

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” and similar statements. Among other things, the business outlook and quotations from management in this announcement, as well as YY's strategic and operational plans, contain forward-looking statements. YY may also make written or oral forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission (“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. Statements that are not historical facts, including statements about YY’s beliefs and expectations, are forward-looking statements. 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: YY’s goals and strategies; YY's future business development, results of operations and financial condition; the expected growth of the online communication social platform market in China; the expectation regarding the rate at which to gain active users, especially paying users; YY’s ability to monetize the user base; fluctuations in general economic and business conditions in China and assumptions underlying or related to any of the foregoing. Further information regarding these and other risks is included in YY’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 YY does not undertake any obligation to update any forward-looking statement, except as required under applicable law.

 

 5 

 

 

Use of Non-GAAP Financial Measures

The unaudited condensed consolidated financial information is prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). YY uses non-GAAP operating income, non-GAAP operating margin, non-GAAP net income attributable to YY Inc., non-GAAP net margin, and basic and diluted non-GAAP net income per ADS, which are non-GAAP financial measures. Non-GAAP operating income is operating income excluding share-based compensation expenses, impairment of goodwill and investments, and gain on deconsolidation and disposal of subsidiary. Non-GAAP operating margin is non-GAAP operating income as a percentage of net revenues. Non-GAAP net income is net income excluding share-based compensation expenses, impairment of goodwill and investments, gain on deconsolidation and disposal of subsidiary, gain on deemed disposal and disposal of investments, gain on fair value change of investments and equity investees’ investments, fair value loss on derivative liabilities, and income tax effects of above non-GAAP reconciling items. Non-GAAP net income attributable to YY Inc. is net income attributable to YY Inc. excluding share-based compensation expenses, impairment of goodwill and investments, gain on deconsolidation and disposal of subsidiary, gain on deemed disposal and disposal of investments, gain on fair value change of investments and equity investees’ investments, fair value loss on derivative liabilities, deemed dividend to subsidiary’s Series A preferred shareholders and income tax effects of above non-GAAP reconciling items and adjustment for non-GAAP reconciling items for the income attributable to non-controlling interests. Non-GAAP net margin is non-GAAP net income attributable to YY Inc. as a percentage of net revenues. Basic and diluted non-GAAP net income per ADS is non-GAAP net income attributable to YY Inc. divided by weighted average number of ADS used in the calculation of basic and diluted net income per ADS. The Company believes that separate analysis and exclusion of the non-cash impact of above reconciling items adds clarity to the constituent parts of its performance. The Company reviews these non-GAAP financial measures together with GAAP financial measures to obtain a better understanding of its operating performance. It uses the non-GAAP financial measure for planning, forecasting and measuring results against the forecast. The Company believes that non-GAAP financial measure is useful supplemental information for investors and analysts to assess its operating performance without the non-cash effect of (i) share-based compensation expenses, which have been and will continue to be significant recurring expenses in its business, (ii) impairment of goodwill and investments, gain on deconsolidation and disposal of subsidiary, gain on deemed disposal and disposal of investments, gain on fair value change of investments and equity investees’ investments, fair value loss on derivative liabilities, and deemed dividend to subsidiary’s Series A preferred shareholders, which may not be recurring in its business, and (iii) income tax expenses and non-GAAP adjustments for net income (loss) attributable to non-controlling interest shareholders, which are affected by above non-GAAP reconciling items. However, the use of non-GAAP financial measures has material limitations as an analytical tool. One of the limitations of using non-GAAP financial measures is that they do not include all items that impact the Company’s net income for the period. In addition, because non-GAAP financial measures are not measured in the same manner by all companies, they may not be comparable to other similar titled measures used by other companies. In light of the foregoing limitations, you should not consider non-GAAP financial measure in isolation from or as an alternative to the financial measure prepared in accordance with U.S. GAAP.

 

 6 

 

 

The presentation of these non-GAAP financial measures is not intended to be considered in isolation from, or as a substitute for, the financial information prepared and presented in accordance with U.S. GAAP. For more information on these non-GAAP financial measures, please see the table captioned “YY Inc. Reconciliations of GAAP and Non-GAAP Results” near the end of this release.

 

Investor Relations Contact

YY Inc.

Matthew Zhao

Tel: +86 (20) 8212-0000

Email: IR@YY.com

 

ICR, Inc.

Jack Wang

Tel: +1 (646) 915-1611

Email: IR@YY.com

 

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YY INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(All amounts in thousands, except share, ADS and per ADS data)

 

  

December

31,

2017 

  

September

30,

2018

  

September

30,

2018

 
   RMB   RMB   US$ 
Assets            
Current assets               
Cash and cash equivalents   2,617,432    4,921,114    716,528 
Short-term deposits   6,000,104    8,302,609    1,208,883 
Restricted short-term deposits   1,000,000    -    - 
Short-term investments   124,550    1,249,267    181,897 
Accounts receivable, net   153,944    206,060    30,003 
Inventory   315    -    - 
Amounts due from related parties   11,190    70,887    10,321 
Prepayments and other current assets   221,939    1,030,584    150,055 
                
Total current assets   10,129,474    15,780,521    2,297,687 
                
Non-current assets               
Deferred tax assets   113,017    41,432    6,033 
Investments   1,153,019    4,565,401    664,735 
Property and equipment, net   1,016,998    1,188,341    173,026 
Land use rights, net   1,832,739    1,796,663    261,599 
Intangible assets, net   37,481    74,671    10,872 
Goodwill   11,716    11,765    1,713 
Amounts due from related parties   20,000    -    - 
Other non-current assets   144,275    197,061    28,693 
                
Total non-current assets   4,329,245    7,875,334    1,146,671 
                
Total assets   14,458,719    23,655,855    3,444,358 
                
Liabilities, mezzanine equity and shareholders’ equity               
Current liabilities               
Convertible bonds   -    6,878    1,001 
Accounts payable   76,351    109,656    15,966 
Deferred revenue   758,044    696,785    101,454 
Advances from customers   80,406    97,987    14,267 
Income taxes payable   146,298    134,964    19,651 
Accrued liabilities and other current liabilities   1,465,963    1,978,000    288,002 
Amounts due to related parties   30,502    20,763    3,023 
Short-term loans   588,235    -    - 
                
Total current liabilities   3,145,799    3,045,033    443,364 
                
Non-current liabilities               
Convertible bonds   6,536    -    - 
Deferred revenue   57,718    79,947    11,641 
Deferred tax liabilities   10,810    25,166    3,664 
                
Total non-current liabilities   75,064    105,113    15,305 
                
Total liabilities   3,220,863    3,150,146    458,669 

 

 8 

 

 

YY INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)

(All amounts in thousands, except share, ADS and per ADS data)

 

  

December

31,

2017

  

September

30,

2018

  

September

30,

2018

 
   RMB   RMB   US$ 
             
Mezzanine equity   524,997    -    - 
                
Shareholders’ equity               
Class A common shares (US$0.00001 par value; 10,000,000,000 and 10,000,000,000 shares authorized, 945,245,908 and 981,384,448  shares issued and outstanding as of December 31, 2017 and September 30, 2018, respectively)   57    59    9 
Class B common shares (US$0.00001 par value; 1,000,000,000 and 1,000,000,000 shares authorized, 317,982,976 and  288,182,976  shares issued and outstanding as of December 31, 2017 and September 30, 2018, respectively)   23    21    3 
Additional paid-in capital   5,339,844    11,014,105    1,603,684 
Statutory reserves   62,718    62,718    9,132 
Retained earnings(1)   5,218,110    6,263,853    912,035 
Accumulated other comprehensive (loss) income(1)   (9,597)   350,054    50,969 
                
Total YY Inc.’s shareholders’ equity   10,611,155    17,690,810    2,575,832 
                
Non-controlling interests   101,704    2,814,899    409,857 
                
Total shareholders’ equity   10,712,859    20,505,709    2,985,689 
                
Total liabilities, mezzanine equity and               
shareholders’ equity   14,458,719    23,655,855    3,444,358 

 

(1)On January 1, 2018, the Company adopted ASU 2016-1, “Classification and Measurement of Financial Instruments”. After the adoption of this new guidance, the Company measures long-term investments other than equity method investments at fair value through earnings. For those investments without readily determinable fair values, the Company elects to record these investments at cost, less impairment, and plus or minus subsequent adjustments for observable price changes. Changes in the basis of these investments are reported in current earnings. Following the adoption of this guidance, accumulated fair value gain, amounting to RMB87.8 million, was reclassified from accumulated other comprehensive loss to retained earnings as of January 1, 2018.

 

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YY INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(All amounts in thousands, except share, ADS and per ADS data)

 

   Three Months Ended   Nine Months Ended 
  

September

30,

2017

  

June

30,

2018

  

September

30,

2018

  

September

30,

2018

  

September

30,

2017

  

September

30,

2018

  

September

30,

2018

 
   RMB   RMB   RMB   US$   RMB   RMB   US$ 
                             
Net revenues(1)                                   
Live streaming   2,871,610    3,559,666    3,894,548    567,057    7,302,434    10,486,249    1,526,827 
Others   220,695    213,564    205,924    29,983    665,820    636,384    92,659 
                                    
Total net revenues   3,092,305    3,773,230    4,100,472    597,040    7,968,254    11,122,633    1,619,486 
                                    
Cost of revenues(2)   (1,889,313)   (2,313,772)   (2,674,502)   (389,415)   (4,829,753)   (7,004,071)   (1,019,812)
                                    
Gross profit   1,202,992    1,459,458    1,425,970    207,625    3,138,501    4,118,562    599,674 
                                    
Operating expenses(2)                                   
Research and development expenses   (166,139)   (295,946)   (314,128)   (45,738)   (499,059)   (859,539)   (125,151)
Sales and marketing expenses   (249,480)   (246,130)   (343,839)   (50,064)   (542,516)   (825,627)   (120,214)
General and administrative expenses   (144,678)   (237,532)   (206,738)   (30,102)   (325,875)   (608,246)   (88,562)
                                    
Total operating expenses   (560,297)   (779,608)   (864,705)   (125,904)   (1,367,450)   (2,293,412)   (333,927)
                                    
Gain on deconsolidation and disposal of subsidiaries   -    -    -    -    37,989    -    - 
Other income   18,667    33,922    49,640    7,228    68,653    95,936    13,969 
                                    
Operating income   661,362    713,772    610,905    88,949    1,877,693    1,921,086    279,716 
                                    
Interest expense   (3,651)   (1,548)   (4,910)   (715)   (28,378)   (8,477)   (1,234)
Interest income and investment income   47,505    128,850    141,110    20,546    105,853    362,151    52,730 
Foreign currency exchange (losses) gains, net   (251)   (2,823)   (3,072)   (447)   (1,825)   824    120 
Gain on deemed disposal and disposal of investments   -    13,999    -    -    45,861    13,999    2,038 
Gain on fair value change of investments   -    1,205,049    31,670    4,611    -    1,663,266    242,176 
Fair value loss on derivative liabilities   -    (2,273,355)   -    -    -    (2,285,223)   (332,735)
Other non-operating expenses   -    (2,000)   -    -    -    (2,000)   (291)
                                    
Income (loss) before income tax expenses   704,965    (218,056)   775,703    112,944    1,999,204    1,665,626    242,520 
                                    
Income tax expenses   (74,684)   (147,419)   (74,929)   (10,910)   (264,288)   (370,593)   (53,959)
                                    
Income (loss) before share of income  in equity method investments, net of income taxes   630,281    (365,475)   700,774    102,034    1,734,916    1,295,033    188,561 
                                    
Share of income (loss) in equity method investments, net of income taxes   6,806    88,992    (19,957)   (2,906)   15,467    78,214    11,388 
                                    
Net income (loss)   637,087    (276,483)   680,817    99,128    1,750,383    1,373,247    199,949 
                                    
Less: Net income (loss) income attributable to the non-controlling interest shareholders and the mezzanine equity classified non-controlling interest shareholders   1,120    (139,596)   30,127    4,387    (2,446)   (73,978)   (10,771)
Deemed dividend to subsidiary’s Series A preferred shareholders   -    -    -    -    -    (489,284)   (71,241)
                                    
Net income (loss) attributable to YY Inc.   635,967    (136,887)   650,690    94,741    1,752,829    957,941    139,479 

 

 10 

 

 

YY INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)

(All amounts in thousands, except share, ADS and per ADS data)

 

   Three Months Ended   Nine Months Ended 
  

September

30,

2017

  

June

30,

2018

  

September

30,

2018

  

September

30,

2018

  

September

30,

2017

  

September

30,

2018

  

September

30,

2018

 
   RMB   RMB   RMB   US$   RMB   RMB   US$ 
                             

 

Net income (loss) per ADS

                                   
—Basic   10.60    (2.14)   10.12    1.47    30.30    14.98    2.18 
—Diluted   10.51    (2.14)   10.01    1.46    29.72    14.80    2.15 
Weighted average number of ADS used in calculating net income (loss) per ADS                                   
—Basic   60,008,235    63,839,293    64,301,796    64,301,796    57,857,025    63,952,614    63,952,614 
—Diluted   60,503,529    63,839,293    64,829,757    64,829,757    59,681,394    64,738,363    64,738,363 

 

(1)On January 1, 2018, the Company adopted ASC 606, "Revenue from Contracts with Customers" using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Based on the Company’s assessment, the adoption of ASC 606 did not have any material impact on the Company’s consolidated financial statements.

 

(2)Share-based compensation was allocated in cost of revenues and operating expenses as follows:

 

   Three Months Ended   Nine Months Ended 
  

September

30,

2017

  

June

30,

2018

  

September

30,

2018

  

September

30,

2018

  

September

30,

2017

  

September

30,

2018

  

September

30,

2018

 
           RMB   US$   RMB   RMB   US$ 
                             
Cost of revenues   (434)   24,059    16,022    2,333    6,210    59,689    8,691 
Research and development expenses   (6,049)   67,912    52,752    7,681    15,847    175,131    25,500 
Sales and marketing expenses   (74)   2,406    290    42    738    4,565    665 
General and administrative expenses   9,700    124,978    92,340    13,445    26,406    253,881    36,966 

 

 11 

 

 

YY INC.

RECONCILIATION OF GAAP AND NON-GAAP RESULTS

(All amounts in thousands, except share, ADS and per ADS data)

 

   Three Months Ended   Nine Months Ended 
  

September

30,

2017

  

June

30,

2018

  

September

30,

2018

  

September

30,

2018

  

September

30,

2017

  

September

30,

2018

  

September

30,

2018

 
   RMB   RMB   RMB   US$   RMB   RMB   US$ 
                             
Operating income   661,362    713,772    610,905    88,949    1,877,693    1,921,086    279,716 
Share-based compensation expenses   3,143    219,355    161,404    23,501    49,201    493,266    71,822 
Impairment of goodwill and investments   21,285    -    1,900    277    41,619    20,249    2,948 
Gain on deconsolidation and disposal of a subsidiary   -    -    -    -    (37,989)   -    - 
                                    
Non-GAAP operating income   685,790    933,127    774,209    112,727    1,930,524    2,434,601    354,486 
Net income (loss)   637,087    (276,483)   680,817    99,128    1,750,383    1,373,247    199,949 
Share-based compensation expenses   3,143    219,355    161,404    23,501    49,201    493,266    71,822 
Impairment of goodwill and investments   21,285    -    1,900    277    41,619    20,249    2,948 
Gain on deconsolidation and disposal of a subsidiary   -    -    -    -    (37,989)   -    - 
Gain on deemed disposal and disposal  of investments   -    (13,999)   -    -    (45,861)   (13,999)   (2,038)
(Gain) loss on fair value change of investments and equity investees’ investments   -    (1,287,301)   3,428    499    -    (1,710,420)   (249,042)
Fair value loss on derivative liabilities   -    2,273,355    -    -    -    2,285,223    332,735 
Income tax effects on non-GAAP adjustments   (3,000)   30,601    1,014    148    9,264    76,081    11,078 
                                    
Non-GAAP net income   658,515    945,528    848,563    123,553    1,766,617    2,523,647    367,452 
Net income (loss) attributable to YY Inc.   635,967    (136,887)   650,690    94,741    1,752,829    957,941    139,479 
Share-based compensation expenses   3,143    219,355    161,404    23,501    49,201    493,266    71,822 
Impairment of goodwill and investments   21,285    -    1,900    277    41,619    20,249    2,948 
Gain on deconsolidation and disposal of a subsidiary   -    -    -    -    (37,989)   -    - 
Gain on deemed disposal and disposal  of investments   -    (13,999)   -    -    (45,861)   (13,999)   (2,038)
(Gain) loss on fair value change of investments and equity investees’ investments   -    (1,287,301)   3,428    499    -    (1,710,420)   (249,042)
Fair value loss on derivative liabilities   -    2,273,355    -    -    -    2,285,223    332,735 
Deemed dividend to subsidiary's Series A preferred shareholders   -    -    -    -    -    489,284    71,241 
Income tax effects on non-GAAP adjustments   (3,000)   30,601    1,014    148    9,264    76,081    11,078 
Non-GAAP adjustments for net loss attributable to the non-controlling interest shareholders   (84)   (211,884)   (31,449)   (4,579)   (1,678)   (237,513)   (34,583)
                                    
Non-GAAP net income attributable to YY Inc.   657,311    873,240    786,987    114,587    1,767,385    2,360,112    343,640 

 

Non-GAAP net income per ADS

                                   
—Basic   10.95    13.68    12.24    1.78    30.55    36.90    5.37 
—Diluted   10.86    13.46    12.07    1.76    29.96    36.31    5.29 
Weighted average number of ADS used in calculating Non-GAAP  net income per ADS                                   
—Basic   60,008,235    63,839,293    64,301,796    64,301,796    57,857,025    63,952,614    63,952,614 
—Diluted   60,503,529    64,701,643    64,829,757    64,829,757    59,681,394    64,738,363    64,738,363 

 

 12 

 

 

YY INC.

UNAUDITED SEGMENT REPORT

(All amounts in thousands, except share, ADS and per ADS data)

 

   Three Months Ended 
   September 30, 2018 
                     
    YY Live    Huya    Elimination(1)    Total    Total 
    RMB    RMB    RMB    RMB    US$ 
                          
Net revenues                         
Live streaming   2,678,081    1,216,467    -    3,894,548    567,057 
Others   145,894    60,130    (100)   205,924    29,983 
                          
Total net revenues   2,823,975    1,276,597    (100)   4,100,472    597,040 
                          
Cost of revenues(2)   (1,591,645)   (1,082,857)   -    (2,674,502)   (389,415)
                          
Gross profit   1,232,330    193,740    (100)   1,425,970    207,625 
Operating expenses(2)                         
Research and development expenses   (239,503)   (74,625)   -    (314,128)   (45,738)
Sales and marketing expenses   (282,237)   (61,702)   100    (343,839)   (50,064)
General and administrative expenses   (135,537)   (71,201)   -    (206,738)   (30,102)
                          
Total operating expenses   (657,277)   (207,528)   100    (864,705)   (125,904)
                          
Other income   38,568    11,072    -    49,640    7,228 
                          
Operating income (loss)   613,621    (2,716)   -    610,905    88,949 
                          
Interest expenses   (4,910)   -    -    (4,910)   (715)
Interest income and investment income   90,292    50,818    -    141,110    20,546 
Foreign currency exchange (losses) gains, net   (3,170)   98    -    (3,072)   (447)
Gain on fair value change of investments   31,670    -    -    31,670    4,611 
                          
Income before income tax expenses   727,503    48,200    -    775,703    112,944 
                          
Income tax (expenses) benefits   (83,491)   8,562    -    (74,929)   (10,910)
                          
Income before share of (loss) income in equity method investments, net of income taxes   644,012    56,762    -    700,774    102,034 
                          
Share of (loss) income in equity method investments, net of income taxes   (19,967)   10    -    (19,957)   (2,906)
                          
Net income   624,045    56,772    -    680,817    99,128 

 

(1)The elimination mainly consists of revenues and expenses generated from advertising services among YY Live and Huya segments.

 

(2)Share-based compensation was allocated in cost of revenues and operating expenses as follows:

 

   Three Months Ended 
   September  30, 2018 
                 
    YY Live    Huya    Total    Total 
    RMB    RMB    RMB    US$ 
                     
Cost of revenues   12,120    3,902    16,022    2,333 
Research and development expenses   41,139    11,613    52,752    7,681 
Sales and marketing expenses   215    75    290    42 
General and administrative expenses   43,701    48,639    92,340    13,445 

 

 13 

 

 

YY INC.

RECONCILIATION OF GAAP AND NON-GAAP RESULTS OF UNAUDITED SEGMENT REPORT

(All amounts in thousands, except share, ADS and per ADS data)

 

   Three Months Ended 
   September  30, 2018 
                 
    YY Live    Huya    Total    Total 
    RMB    RMB    RMB    US$ 
                     
Operating income (loss)   613,621    (2,716)   610,905    88,949 
Share-based compensation expenses   97,175    64,229    161,404    23,501 
Impairment of goodwill and investments   1,900    -    1,900    277 
                     
Non-GAAP operating income   712,696    61,513    774,209    112,727 
                     
Net income   624,045    56,772    680,817    99,128 
Share-based compensation expenses   97,175    64,229    161,404    23,501 
Impairment of goodwill and investments   1,900    -    1,900    277 
Loss on fair value change of investments and equity investees’ investments   3,428    -    3,428    499 
Income tax effects on non-GAAP adjustments   1,014    -    1,014    148 
                     
Non-GAAP net income   727,562    121,001    848,563    123,553 

 

 14 

 

 

YY INC.

UNAUDITED SEGMENT REPORT

(All amounts in thousands, except share, ADS and per ADS data)

 

   Three Months Ended 
   June 30, 2018 
                     
    YY Live    Huya    Elimination(1)    Total    Total 
    RMB    RMB    RMB    RMB    US$ 
                          
Net revenues                         
Live streaming   2,567,854    991,812    -    3,559,666    537,950 
Others   167,044    46,520    -    213,564    32,275 
                          
Total net revenues   2,734,898    1,038,332    -    3,773,230    570,225 
                          
Cost of revenues(2)   (1,441,807)   (871,965)   -    (2,313,772)   (349,666)
                          
Gross profit   1,293,091    166,367    -    1,459,458    220,559 
Operating expenses(2)                         
Research and development expenses   (235,982)   (59,964)   -    (295,946)   (44,724)
Sales and marketing expenses   (204,448)   (41,682)   -    (246,130)   (37,196)
General and administrative expenses   (149,059)   (88,473)   -    (237,532)   (35,897)
                          
Total operating expenses   (589,489)   (190,119)   -    (779,608)   (117,817)
                          
Other income   27,463    6,459    -    33,922    5,126 
                          
Operating income (loss)   731,065    (17,293)   -    713,772    107,868 
                          
Interest expenses   (1,548)   -    -    (1,548)   (234)
Interest income and investment income   86,406    42,444    -    128,850    19,472 
Foreign currency exchange losses,  net   (2,823)   -    -    (2,823)   (427)
Gain on deemed disposal and disposal of  investments   13,999    -    -    13,999    2,116 
Gain on fair value change of investments   1,003,050    -    201,999    1,205,049    182,111 
Fair value loss on derivative liabilities   -    (2,273,355)   -    (2,273,355)   (343,558)
Other non-operating expenses   (2,000)   -    -    (2,000)   (302)
                          
Income (loss) before income tax expenses   1,828,149    (2,248,204)   201,999    (218,056)   (32,954)
                          
Income tax (expenses) benefits   (126,522)   6,070    (26,967)   (147,419)   (22,278)
                          
Income (loss) before share of income in equity method investments, net of income taxes   1,701,627    (2,242,134)   175,032    (365,475)   (55,232)
                          
Share of income in equity method investments, net of income taxes   147,337    116,687    (175,032)   88,992    13,449 
                          
Net income (loss)   1,848,964    (2,125,447)   -    (276,483)   (41,783)

 

(1)Elimination represents the gain resulting from change in fair value of an investment of one of the Company's subsidiaries, on which YY Live segment and Huya segment have joint control and accounted for as equity method investment.

 

(2)Share-based compensation was allocated in cost of revenues and operating expenses as follows:

 

   Three Months Ended 
   June 30, 2018 
     
    YY Live    Huya    Total    Total 
    RMB    RMB    RMB    US$ 
                     
Cost of revenues   21,406    2,653    24,059    3,636 
Research and development expenses   62,071    5,841    67,912    10,263 
Sales and marketing expenses   1,674    732    2,406    364 
General and administrative expenses   60,100    64,878    124,978    18,887 

 

 15 

 

 

YY INC.

RECONCILIATION OF GAAP AND NON-GAAP RESULTS OF UNAUDITED SEGMENT REPORT

(All amounts in thousands, except share, ADS and per ADS data)

 

   Three Months Ended 
   June 30, 2018 
     
    YY Live    Huya    Elimination    Total    Total 
    RMB    RMB    RMB    RMB    US$ 
                          
Operating income (loss)   731,065    (17,293)   -    713,772    107,868 
Share-based compensation expenses   145,251    74,104    -    219,355    33,150 
                          
Non-GAAP operating income   876,316    56,811    -    933,127    141,018 
                          
Net income (loss)   1,848,964    (2,125,447)   -    (276,483)   (41,783)
Share-based compensation expenses   145,251    74,104    -    219,355    33,150 
Gain on deemed disposal and disposal of investments   (13,999)   -    -    (13,999)   (2,116)
Gain on fair value change of investments and equity investees’ investments   (1,143,680)   (116,654)   (26,967)   (1,287,301)   (194,541)
Fair value loss on derivative liabilities   -    2,273,355    -    2,273,355    343,558 
Income tax effects on non-GAAP adjustments   3,634    -    26,967    30,601    4,625 
                          
Non-GAAP net income   840,170    105,358    -    945,528    142,893 

 

 16 

 

 

YY INC.

UNAUDITED SEGMENT REPORT

(All amounts in thousands, except share, ADS and per ADS data)

 

   Three Months Ended 
   September 30, 2017 
     
    YY Live    Huya    Total    Total 
    RMB    RMB    RMB    US$ 
                     
Net revenues                    
Live streaming   2,319,251    552,359    2,871,610    431,607 
Others   189,520    31,175    220,695    33,171 
                     
Total net revenues   2,508,771    583,534    3,092,305    464,778 
                     
Cost of revenues(1)   (1,379,016)   (510,297)   (1,889,313)   (283,966)
                     
Gross profit   1,129,755    73,237    1,202,992    180,812 
Operating expenses(1)                    
Research and development expenses   (117,231)   (48,908)   (166,139)   (24,971)
Sales and marketing expenses   (228,318)   (21,162)   (249,480)   (37,497)
General and administrative expenses   (107,342)   (37,336)   (144,678)   (21,745)
                     
Total operating expenses   (452,891)   (107,406)   (560,297)   (84,213)
                     
Other income   18,569    98    18,667    2,806 
                     
Operating income (loss)   695,433    (34,071)   661,362    99,405 
                     
Interest expenses   (3,651)   -    (3,651)   (549)
Interest income and investment income   42,738    4,767    47,505    7,140 
Foreign currency exchange losses, net   (251)   -    (251)   (38)
                     
Income (loss) before income tax expenses   734,269    (29,304)   704,965    105,958 
                     
Income tax expenses   (74,684)   -    (74,684)   (11,225)
                     
Income (loss) before share of income  in equity method investments, net of income taxes   659,585    (29,304)   630,281    94,733 
                     
Share of income in equity method investments, net of income taxes   6,806    -    6,806    1,023 
                     
Net Income (loss)(2)   666,391    (29,304)   637,087    95,756 

 

(1)Share-based compensation was allocated in cost of revenues and operating expenses as follows:

 

 

   Three Months Ended 
   September 30, 2017 
                 
   YY Live   Huya   Total   Total 
   RMB   RMB   RMB   US$ 
                 
Cost of revenues   (1,190)   756    (434)   (65)
Research and development expenses   (7,973)   1,924    (6,049)   (909)
Sales and marketing expenses   (106)   32    (74)   (11)
General and administrative expenses   8,473    1,227    9,700    1,458 

 

(2)Starting from the three months ended December 31, 2017, the Company reviews the financial performance of the operating segments up to the net income of each segment. Segment information for comparative periods has been revised to be presented on the same basis as the three months ended December 31, 2017

 

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YY INC.

RECONCILIATION OF GAAP AND NON-GAAP RESULTS OF UNAUDITED SEGMENT REPORT

(All amounts in thousands, except share, ADS and per ADS data)

 

   Three Months Ended 
   September 30, 2017 
     
    YY Live    Huya    Total    Total 
    RMB    RMB    RMB    US$ 
                     
Operating income (loss)   695,433    (34,071)   661,362    99,405 
Share-based compensation expenses   (796)   3,939    3,143    473 
Impairment of goodwill and investments   21,285    -    21,285    3,199 
                     
Non-GAAP operating income (loss)   715,922    (30,132)   685,790    103,077 
                     
Net income (loss)   666,391    (29,304)   637,087    95,756 
Share-based compensation expenses   (796)   3,939    3,143    473 
Impairment of goodwill and investments   21,285    -    21,285    3,199 
Income tax effects on non-GAAP adjustments   (3,000)   -    (3,000)   (451)
                     
Non-GAAP net income (loss)   683,880    (25,365)   658,515    98,977 

 

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