GUANGZHOU, China, Aug. 14, 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 second quarter of 2018.

Second Quarter 2018 Highlights

• Net revenues increased by 44.6% to RMB3,773.2 million (US$570.2 million) from RMB2,609.0 million in the corresponding period of 2017.
• Non-GAAP net income attributable to YY¹ increased by 51.6% to RMB873.2 million (US$132.0 million) from RMB576.2 million in the corresponding period of 2017.

“Our strong performance in the second quarter of 2018 once again demonstrated our robust growth momentum in both YY Live and Huya,” stated Mr. David Xueling Li, Chairman and acting Chief Executive Officer of YY. “Our mobile live streaming monthly active users (MAU) increased by 21.3% year over year to 80.2 million, and our total live streaming paying users increased by 21.1% year over year to 6.9 million. During the quarter, we achieved solid progress in traffic acquisition, product advancement, and technology enhancement. We have devised an innovative way to attract traffic to our own ecosystem by promoting our top hosts across various short-form video platforms. We advanced our products further by rolling out two new games into Host Battalion features to enhance user engagement and strengthen the interaction between hosts and users. Meanwhile, we have implemented an AI-based content recommendation technology to accurately and efficiently identify and match live streaming content with user preferences. Looking forward, we remain committed to continuous product innovation and technology advancement to uphold YY’s market leadership in the live streaming industry.”

Mr. Bing Jin, Chief Financial Officer of YY, further commented, “We are pleased to deliver another quarter with strong financial results. During the second quarter, our total net revenues increased by 44.6% year over year to RMB3,773.2 million, exceeding the high end of our previous guidance range. Our total revenue growth was mainly driven by the robust growth of our live streaming revenues, which increased by 50.0% year over year to RMB3,559.7 million. In addition, our non-GAAP net income attributable to YY increased by 51.6% year over year to RMB873.2 million in the second quarter of 2018. Looking ahead, we will continue to bring more innovations and offer more engaging services to users to further grow our market share.”

Second Quarter 2018 Financial Results

NET REVENUES
Net revenues increased by 44.6% to RMB3,773.2 million (US$570.2 million) in the second quarter of 2018 from RMB2,609.0 million in the corresponding period of 2017, primarily driven by an increase in live streaming revenues. Live streaming revenues increased by 50.0% to RMB3,559.7 million (US$538.0 million) in the second quarter of 2018 from RMB2,373.4 million in the corresponding period of 2017.

Other revenues² decreased by 9.4% to RMB213.6 million (US$32.3 million) in the second quarter of 2018 from RMB235.6 million in the corresponding period of 2017.

COST OF REVENUES AND GROSS PROFIT
Cost of revenues increased by 48.0% to RMB2,313.8 million (US$349.7 million) in the second quarter of 2018 from RMB1,563.4 million in the corresponding period of 2017, primarily attributable to an increase in revenue-sharing fees and content costs to RMB1,882.6 million (US$284.5 million) in the second quarter of 2018 from RMB1,259.0 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. In addition, bandwidth costs increased to RMB246.0 million (US$37.2 million) in the second quarter of 2018 from RMB165.3 million in the corresponding period of 2017, primarily reflecting continued user base expansion and live streaming quality improvements.

Gross profit increased by 39.6% to RMB1,459.5 million (US$220.6 million) in the second quarter of 2018 from RMB1,045.5 million in the corresponding period of 2017. Gross margin was 38.7% in the second quarter of 2018 compared to 40.1% in the corresponding period of 2017, primarily due to the increase in revenue-sharing fees and content costs.

OPERATING INCOME
Operating expenses were RMB779.6 million (US$117.8 million) in the second quarter of 2018 compared to RMB476.3 million in the corresponding period of 2017.

Operating income increased by 19.1% to RMB713.8 million (US$107.9 million) in the second quarter of 2018 from RMB599.4 million in the corresponding period of 2017. Operating margin was 18.9% in the second quarter of 2018 compared to 23.0% in the corresponding period of 2017, primarily due to the increase in share-based compensation.

Non-GAAP operating income³ increased by 45.5% to RMB933.1 million (US$141.0 million) in the second quarter of 2018 from RMB641.5 million in the corresponding period of 2017. Non-GAAP operating margin⁴ was 24.7% in the second quarter of 2018 compared to 24.6% in the corresponding period of 2017.

NET INCOME/LOSS
Net loss attributable to YY Inc. was RMB136.9 million (US$20.7 million) in the second quarter of 2018 compared to a net income attributable to YY Inc. of RMB573.7 million in the corresponding period of 2017. Net loss attributable to YY Inc. in the second quarter of 2018 includes a non-recurring and non-cash item of RMB2,273.4 million (US$343.6 million) in fair value loss on derivative liabilities⁵, which resulted from the preferred shares of HUYA Inc. that existed before its IPO and the increase in HUYA Inc.’s enterprise value as indicated by the price of its initial public offering. Net loss attributable to YY Inc. in the second quarter of 2018 is partially offset by RMB1,205.0 million (US$182.1 million) of fair value change of investments⁶. The income tax expense in the second quarter of 2018 was significantly impacted by (i) non-recurring fair value loss on derivative liabilities which was non-deductible for income tax purpose, and (ii) gain on fair value change of Bigo Inc. which was non-taxable for income tax purpose.

Non-GAAP net income attributable to YY Inc. increased by 51.6% to RMB873.2 million (US$132.0million) from RMB576.2 million in the corresponding period of 2017. Non-GAAP net margin⁷ expanded to 23.1% in the second quarter of 2018 compared to 22.1% in the corresponding period of 2017.

NET INCOME PER ADS
Diluted net loss per ADS⁸ was RMB2.14(US$0.32) in the second quarter of 2018 compared to diluted net income per ADS RMB9.98 in the corresponding period of 2017.

Non-GAAP diluted net income per ADS⁹ increased by 34.3% to RMB13.46(US$2.03) in the second quarter of 2018 from RMB10.02 in the corresponding period of 2017.

BALANCE SHEET AND CASH FLOWS
As of June 30, 2018, the Company had cash and cash equivalents of RMB3,562.3 million (US$538.4 million) and short-term deposits of RMB9,503.5 million (US$1,436.2 million). For the second quarter of 2018, net cash from operating activities was RMB738.3 million (US$111.6 million).

SHARES OUTSTANDING
As of June 30, 2018, the Company had a total of 1,265.4 million common shares, or the equivalent of 63.3 million ADSs, outstanding.

Business Outlook
For the third quarter of 2018, the Company expects net revenues to be between RMB3.89 billion and RMB4.02 billion, representing a year-over-year growth of 25.8% to 30.0%. This forecast reflects the Company's current and preliminary views on the market and operational conditions, which are subject to change.

Conference Call Information
The Company will hold a conference call on Monday, August 13, 2018, at 9:00 pm Eastern Time or Tuesday, August 14, 2018, at 9:00 am Beijing Time to discuss the financial results. Participants may access the call by dialing the following numbers:

United States:                         +1-845-675-0438
International:                           +65-6713-5440
China Domestic:                      400-1200-654
Hong Kong:                             +852-3018-6776
Conference ID:                        #7888877

The replay will be accessible through August 21, 2018, by dialing the following numbers:

United States:                         +1-646-254-3697
International:                           +61-2-9003-4211
Conference ID:                        #7888877

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 RMB6.6171 to US$1.00, the noon buying rate in effect on June 29, 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 RMB1,010.1 million (US152.7 million) and RMB2.5 million in the second 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 Following the completion of the Series B financing of the Company's subsidiary, HUYA Inc. on March 8, 2018, the conversion features of the Series B-2 and Series A Preferred Shares were accounted for derivative liabilities and were measured at fair value. The derivative liabilities were transferred to shareholders' equity upon the completion of HUYA Inc.'s IPO as all preferred shares were converted into ordinary shares of HUYA Inc. upon completion of the IPO.

⁶ Following the adoption of ASU 2016-01 on January 1, 2018, 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. In the second quarter of 2018, the Company recognised RMB1,205 million (US$182.1 million) of gain on fair value change on investments (primarily from the gain on fair value change of Bigo Inc).

⁷ Non-GAAP net margin is non-GAAP net income attributable to YY Inc. as a percentage of net revenues.

⁸ 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.

⁹ 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.

YY INC.  UNAUDITED CONDENSEDCONSOLIDATED BALANCE SHEETS (All amounts in thousands, except share, ADS and per ADS data)
		December  31, 2017		June 30, 2018		June 30, 2018
		RMB		RMB		US$
Assets
Current assets
Cash and cash equivalents		2,617,432		3,562,329		538,352
Short-term deposits		6,000,104		9,503,518		1,436,206
Restricted short-term deposits		1,000,000		727,995		110,017
Short-term investments		124,550		686,840		103,798
Accounts receivable, net		153,944		188,389		28,470
Inventory		315		269		41
Amount due from related parties		11,190		20,427		3,087
Prepayments and other current assets		221,939		625,729		94,564
Total current assets		10,129,474		15,315,496		2,314,535
Non-current assets
Deferred tax assets		113,017		109,019		16,475
Investments		1,153,019		4,218,457		637,508
Property and equipment, net		1,016,998		1,145,356		173,090
Land use rights, net		1,832,739		1,808,687		273,335
Intangible assets, net		37,481		61,580		9,306
Goodwill		11,716		11,728		1,772
Amount due from related parties		20,000		-		-
Other non-current assets		144,275		166,652		25,185
Total non-current assets		4,329,245		7,521,479		1,136,671
Total assets		14,458,719		22,836,975		3,451,206
Liabilities ,mezzanine equity and shareholders’ equity
Current liabilities
Convertible bonds		-		6,618		1,000
Accounts payable		76,351		85,346		12,898
Deferred revenue		758,044		692,025		104,581
Advances from customers		80,406		95,311		14,404
Income taxes payable		146,298		182,692		27,609
Accrued liabilities and other current liabilities		1,465,963		1,622,057		245,131
Amounts due to related parties		30,502		24,253		3,665
Short-term loan		588,235		713,435		107,817
Total current liabilities		3,145,799		3,421,737		517,105
Non-current liabilities
Convertible bonds		6,536		-		-
Deferred revenue		57,718		69,272		10,469
Deferred tax liabilities		10,810		68,991		10,426
Total non-current liabilities		75,064		138,263		20,895
Total liabilities		3,220,863		3,560,000		538,000

 

YY INC. UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED) (All amounts in thousands, except share, ADS and per ADS data)
		December 31, 2017		June  30, 2018		June  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 977,240,648 shares issued and outstanding as of December 31, 2017 and June 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 June 30, 2018, respectively)		23		21		3
Additional paid-in capital		5,339,844		10,852,697		1,640,099
Statutory reserves		62,718		62,718		9,478
Retained earnings(1)		5,218,110		5,613,163		848,281
Accumulated other comprehensive (loss) income(1)		(9,597)		70,206		10,610
Total YY Inc.’s shareholders’ equity		10,611,155		16,598,864		2,508,480
Non-controlling interests		101,704		2,678,111		404,726
Total shareholders’ equity		10,712,859		19,276,975		2,913,206
Total liabilities,mezzanine equity and
shareholders’ equity		14,458,719		22,836,975		3,451,206

⁽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								Six Months Ended
		June  30, 2017		March 31, 2018		June  30, 2018		June  30, 2018		June 30, 2017		June 30, 2018		June 30, 2018
		RMB		RMB		RMB		US$		RMB		RMB		US$
Net revenues(1)
Live streaming		2,373,397		3,032,035		3,559,666		537,950		4,430,824		6,591,701		996,162
Others		235,594		216,896		213,564		32,275		445,125		430,460		65,053
Total net revenues		2,608,991		3,248,931		3,773,230		570,225		4,875,949		7,022,161		1,061,215
Cost of revenues(2)		(1,563,445)		(2,015,797)		(2,313,772)		(349,666)		(2,940,440)		(4,329,569)		(654,300)
Gross profit		1,045,546		1,233,134		1,459,458		220,559		1,935,509		2,692,592		406,915
Operating expenses(2)
Research and development expenses		(167,359)		(249,465)		(295,946)		(44,724)		(332,920)		(545,411)		(82,424)
Sales and marketing expenses		(204,434)		(235,658)		(246,130)		(37,196)		(293,036)		(481,788)		(72,810)
General and administrative expenses		(104,545)		(163,976)		(237,532)		(35,897)		(181,197)		(401,508)		(60,677)
Total operating expenses		(476,338)		(649,099)		(779,608)		(117,817)		(807,153)		(1,428,707)		(215,911)
Gain on deconsolidation and disposal of subsidiaries		-		-		-		-		37,989		-		-
Other income		30,166		12,374		33,922		5,126		49,986		46,296		6,996
Operating income		599,374		596,409		713,772		107,868		1,216,331		1,310,181		198,000
Interest expenses		(3,459)		(2,019)		(1,548)		(234)		(24,727)		(3,567)		(539)
Interest income and investment income		27,317		92,191		128,850		19,472		58,348		221,041		33,405
Foreign currency exchange (losses) gains, net		(281)		6,719		(2,823)		(427)		(1,574)		3,896		589
Gain on deemed disposal and disposal of investments		45,861		-		13,999		2,116		45,861		13,999		2,116
Gain on fair value change of investments		-		426,547		1,205,049		182,111		-		1,631,596		246,573
Fair value loss on derivative liabilities		-		(11,868)		(2,273,355)		(343,558)		-		(2,285,223)		(345,351)
Other non-operating expenses		-		-		(2,000)		(302)		-		(2,000)		(302)
Income (loss) before income tax expenses		668,812		1,107,979		(218,056)		(32,954)		1,294,239		889,923		134,491
Income tax expenses		(100,531)		(148,245)		(147,419)		(22,278)		(189,604)		(295,664)		(44,682)
Income (loss) before share of income in equity method investments, net of income taxes		568,281		959,734		(365,475)		(55,232)		1,104,635		594,259		89,809
Share of income in equity method investments, net of income taxes		4,726		9,179		88,992		13,449		8,661		98,171		14,836
Net Income (loss)		573,007		968,913		(276,483)		(41,783)		1,113,296		692,430		104,645
Less: Net (loss) income attributable to the non-controlling interest shareholders and the mezzanine classified non-controlling interest shareholders		(701)		35,491		(139,596)		(21,096)		(3,566)		(104,105)		(15,733)
Deemed dividend to subsidiary’s Series A preferred shareholders		-		489,284		-		-		-		489,284		73,942
Net income (loss) attributable to YY Inc.		573,708		444,138		(136,887)		(20,687)		1,116,862		307,251		46,436

 

YY INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED) (All amounts in thousands, except share, ADS and per ADS data)
		Three Months Ended								Six Months Ended
		June  30, 2017		March 31, 2018		June  30, 2018		June  30, 2018		June  30, 2017		June  30, 2018		June 30, 2018
		RMB		RMB		RMB		US$		RMB		RMB		US$
Net income (loss) per ADS
—Basic		10.09		6.97		(2.14)		(0.32)		19.68		4.82		0.73
—Diluted		9.98		6.86		(2.14)		(0.32)		19.21		4.75		0.72
Weighted average number of ADS used in calculating net income (loss) per ADS
—Basic		56,832,278		63,694,535		63,839,293		63,839,293		56,757,452		63,780,159		63,780,159
—Diluted		57,488,989		64,713,421		63,839,293		63,839,293		59,234,872		64,712,271		64,712,271

(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								Six Months Ended
		June  30, 2017		March  31, 2018		June  30, 2018		June 30, 2018		June  30, 2017		June 30, 2018		June 30, 2018
		RMB		RMB		RMB		US$		RMB		RMB		US$
Cost of revenues		3,021		19,608		24,059		3,636		6,644		43,667		6,599
Research and development expenses		10,492		54,467		67,912		10,263		21,896		122,379		18,494
Sales and marketing expenses		303		1,869		2,406		364		812		4,275		646
General and administrative expenses		9,649		36,563		124,978		18,887		16,706		161,541		24,413

 

YY INC. RECONCILIATION OF GAAP AND NON-GAAP RESULTS (All amounts in thousands, except share, ADS and per ADS data)
		Three Months Ended												Six Months Ended
		June  30,  2017			March  31,  2018			June  30,  2018			June  30,  2018			June  30,  2017			June  30,  2018			June  30,  2018
		RMB			RMB			RMB			US$			RMB			RMB			US$
Operating income		599,374			596,409			713,772			107,868			1,216,331			1,310,181			198,000
Share-based compensation expenses		23,465			112,507			219,355			33,150			46,058			331,862			50,152
Impairment of goodwill and investments		18,634			18,349			-			-			20,334			18,349			2,773
Gain on deconsolidation and disposal of a subsidiary		-			-			-			-			(37,989	)		-			-
Non-GAAP operating income		641,473			727,265			933,127			141,018			1,244,734			1,660,392			250,925
Net income (loss)		573,007			968,913			(276,483	)		(41,783	)		1,113,296			692,430			104,645
Share-based compensation expenses		23,465			112,507			219,355			33,150			46,058			331,862			50,152
Impairment of goodwill and investments		18,634			18,349			-			-			20,334			18,349			2,773
Gain on deconsolidation and disposal of a subsidiary		-			-			-			-			(37,989	)		-			-
Gain on deemed disposal and disposal of investments		(45,861	)		-			(13,999	)		(2,116	)		(45,861	)		(13,999	)		(2,116	)
Gain on fair value change of investments and equity investees’ investments		-			(426,547	)		(1,287,301	)		(194,541	)		-			(1,713,848	)		(259,003	)
Fair value loss on derivative liabilities		-			11,868			2,273,355			343,558			-			2,285,223			345,351
Income tax effects on non-GAAP adjustments		6,820			44,466			30,601			4,625			12,264			75,067			11,344
Non-GAAP net income		576,065			729,556			945,528			142,893			1,108,102			1,675,084			253,146
Net income (loss) attributable to YY Inc.		573,708			444,138			(136,887	)		(20,687	)		1,116,862			307,251			46,436
Share-based compensation expenses		23,465			112,507			219,355			33,150			46,058			331,862			50,152
Impairment of goodwill and investments		18,634			18,349			-			-			20,334			18,349			2,773
Gain on deconsolidation and disposal of a subsidiary		-			-			-			-			(37,989	)		-			-
Gain on deemed disposal and disposal of investments		(45,861	)		-			(13,999	)		(2,116	)		(45,861	)		(13,999	)		(2,116	)
Gain on fair value change of investments and equity investees’ investments		-			(426,547	)		(1,287,301	)		(194,541	)		-			(1,713,848	)		(259,003	)
Fair value loss on derivative liabilities		-			11,868			2,273,355			343,558			-			2,285,223			345,351
Deemed dividend to subsidiary's Series A preferred shareholders		-			489,284			-			-			-			489,284			73,942
Income tax effects on non-GAAP adjustments		6,820			44,466			30,601			4,625			12,264			75,067			11,344
Non-GAAP adjustments for net (loss) income attributable to the non-controlling interest shareholders		(561	)		5,820			(211,884	)		(32,021	)		(1,594	)		(206,064	)		(31,141	)
Non-GAAP net income attributable to YY Inc.		576,205			699,885			873,240			131,968			1,110,074			1,573,125			237,738
Non-GAAP net income per ADS
—Basic		10.14			10.99			13.68			2.07			19.56			24.66			3.73
—Diluted		10.02			10.78			13.46			2.03			19.09			24.24			3.66
Weighted average number of ADS used in calculating Non-GAAP net income per ADS
—Basic		56,832,278			63,694,535			63,839,293			63,839,293			56,757,452			63,780,159			63,780,159
—Diluted		57,488,989			64,713,421			64,701,643			64,701,643			59,234,872			64,721,304			64,721,304

 

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
		March 31, 2018
		YY Live			Huya			Elimination(1)			Total			Total
		RMB			RMB			RMB			RMB			US$
Net revenues
Live streaming		2,239,251			792,784			-			3,032,035			483,378
Others		168,053			50,798			(1,955	)		216,896			34,578
Total net revenues		2,407,304			843,582			(1,955	)		3,248,931			517,956
Cost of revenues(2)		(1,303,264	)		(712,533	)		-			(2,015,797	)		(321,365	)
Gross profit		1,104,040			131,049			(1,955	)		1,233,134			196,591
Operating expenses(2)
Research and development expenses		(198,007	)		(51,458	)		-			(249,465	)		(39,771	)
Sales and marketing expenses		(211,673	)		(25,940	)		1,955			(235,658	)		(37,569	)
General and administrative expenses		(128,193	)		(35,783	)		-			(163,976	)		(26,142	)
Total operating expenses		(537,873	)		(113,181	)		1,955			(649,099	)		(103,482	)
Other income		2,091			10,283			-			12,374			1,973
Operating income		568,258			28,151			-			596,409			95,082
Interest expenses		(2,019	)		-			-			(2,019	)		(322	)
Interest income and investment income		81,607			10,584			-			92,191			14,697
Foreign currency exchange gains, net		6,719			-			-			6,719			1,071
Gain on fair value change of investments		426,547			-			-			426,547			68,002
Fair value loss on derivative liabilities		-			(11,868	)		-			(11,868	)		(1,892	)
Income before income tax expenses		1,081,112			26,867			-			1,107,979			176,638
Income tax (expenses) benefits		(152,709	)		4,464			-			(148,245	)		(23,634	)
Income before share of income in equity method investments, net of income taxes		928,403			31,331			-			959,734			153,004
Share of income in equity method investments, net of income taxes		9,103			76			-			9,179			1,463
Net income		937,506			31,407			-			968,913			154,467

(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
		March 31, 2018
		YY Live	Huya	Total	Total
		RMB	RMB	RMB	US$
Cost of revenues		19,353	255	19,608	3,126
Research and development expenses		52,677	1,790	54,467	8,683
Sales and marketing expenses		1,451	418	1,869	298
General and administrative expenses		14,659	21,904	36,563	5,829

 

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
			March 31, 2018
			YY Live			Huya		Total			Total
			RMB			RMB		RMB			US$
Operating income			568,258			28,151		596,409			95,082
Share-based compensation expenses			88,140			24,367		112,507			17,936
Impairment of goodwill and investments			18,349			-		18,349			2,925
Non-GAAP operating income			674,747			52,518		727,265			115,943
Net income			937,506			31,407		968,913			154,467
Share-based compensation expenses			88,140			24,367		112,507			17,936
Impairment of goodwill and investments			18,349			-		18,349			2,925
Gain on fair value change of investments and equity investees’ investments			(426,547	)		-		(426,547	)		(68,002	)
Fair value loss on derivative liabilities			-			11,868		11,868			1,892
Income tax effects on non-GAAP adjustments			44,466			-		44,466			7,089
Non-GAAP net income			661,914			67,642		729,556			116,307

 

YY INC. UNAUDITED SEGMENT REPORT (All amounts in thousands, except share, ADS and per ADS data)
		Three Months Ended
		June 30, 2017
		YY Live			Huya			Total			Total
		RMB			RMB			RMB			US$
Net revenues
Live streaming		1,931,569			441,828			2,373,397			350,095
Others		216,058			19,536			235,594			34,752
Total net revenues		2,147,627			461,364			2,608,991			384,847
Cost of revenues(1)		(1,159,554	)		(403,891	)		(1,563,445	)		(230,620	)
Gross profit		988,073			57,473			1,045,546			154,227
Operating expenses(1)
Research and development expenses		(132,223	)		(35,136	)		(167,359	)		(24,687	)
Sales and marketing expenses		(183,119	)		(21,315	)		(204,434	)		(30,156	)
General and administrative expenses		(86,678	)		(17,867	)		(104,545	)		(15,421	)
Total operating expenses		(402,020	)		(74,318	)		(476,338	)		(70,264	)
Other income		30,156			10			30,166			4,450
Operating income (loss)		616,209			(16,835	)		599,374			88,413
Interest expenses		(3,459	)		-			(3,459	)		(510	)
Interest income and investment income		25,445			1,872			27,317			4,029
Gain on deemed disposal and disposal of investments		45,861			-			45,861			6,765
Foreign currency exchange losses, net		(281	)		-			(281	)		(41	)
Income (loss)before income tax expenses		683,775			(14,963	)		668,812			98,656
Income tax expenses		(100,531	)		-			(100,531	)		(14,829	)
Income (loss)before share of income in equity method investments, net of income taxes		583,244			(14,963	)		568,281			83,827
Share of income in equity method investments, net of income taxes		4,726			-			4,726			697
Net Income(loss)(2)		587,970			(14,963	)		573,007			84,524

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

		Three Months Ended
		June 30, 2017
		YY Live	Huya	Total	Total
		RMB	RMB	RMB	US$
Cost of revenues		2,372	649	3,021	446
Research and development expenses		8,229	2,263	10,492	1,548
Sales and marketing expenses		282	21	303	45
General and administrative expenses		6,872	2,777	9,649	1,423

(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
			June 30, 2017
			YY Live			Huya			Total			Total
			RMB			RMB			RMB			US$
Operating income (loss)			616,209			(16,835	)		599,374			88,413
Share-based compensation expenses			17,755			5,710			23,465			3,462
Impairment of goodwill and investments			18,634			-			18,634			2,749
Non-GAAP operating income (loss)			652,598			(11,125	)		641,473			94,624
Net income			587,970			(14,963	)		573,007			84,524
Share-based compensation expenses			17,755			5,710			23,465			3,461
Impairment of goodwill and investments			18,634			-			18,634			2,749
Gain on deemed disposal and disposal of investments			(45,861	)		-			(45,861	)		(6,765	)
Income tax effects on non-GAAP adjustments			6,820			-			6,820			1,006
Non-GAAP net income			585,318			(9,253	)		576,065			84,975

 

Source: YY Inc.