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YY Reports Third Quarter 2018 Unaudited Financial Results

GUANGZHOU, China, Nov. 13, 2018 (GLOBE NEWSWIRE) -- 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.”

/EIN News/ -- 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.

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.

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 RMB822.4 million (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

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.

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.

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

____________________________

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.

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.

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.

6ADS 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.

7Non-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.

 
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
             


 
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.

 
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  
                                         


 
 
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
                             


 
 
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$
                         
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
                           
                           


 
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
           


 
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
                   


 
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
           


 
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  
                               


 
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.

 
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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