YY Reports First Quarter 2017 Unaudited Financial Results

GUANGZHOU, China, May 10, 2017 (GLOBE NEWSWIRE) -- YY Inc. (NASDAQ:YY) ("YY" or the "Company"), a live streaming platform, today announced its unaudited financial results for the first quarter of 2017.

First Quarter 2017 Highlights

• Net revenues increased by 37.4% to RMB2,267.0 million (US$329.3 million) from RMB1,649.3 million in the corresponding period of 2016.
• Net income attributable to YY increased by 160.7% to RMB543.2 million (US$78.9 million) from RMB208.3 million in the corresponding period of 2016.
• Non-GAAP net income attributable to YY¹ increased by 115.7% to RMB565.7 million (US$82.2 million) from RMB262.3 million in the corresponding period of 2016.

“We are very pleased to have delivered another quarter of strong top- and bottom-line results in the first quarter of 2017,” said Mr. Zhou Chen, Chief Executive Officer of YY. “Our live streaming revenues continued to witness significant growth, increasing by 51.5% year over year to RMB2.06 billion. These robust results were driven by the successful execution of our content strategy and demonstrate the strength of both YY Live and Huya broadcasting. Importantly, our mobile live streaming MAUs increased by 11.8% quarter over quarter, reaching 62.6 million in the first quarter of 2017, and our total number of live streaming paying users increased by 66% year over year to 5.88 million. Looking ahead, we will continue to focus on expanding the product and content offerings across our platforms and enhancing our content ecosystem. As the leading live streaming platform in China, we are confident that we have what it takes to further expand our market share in this growing industry and create additional value for all our stakeholders.”

Mr. Eric He, Chief Financial Officer of YY, further commented, “We continued to witness sustainable revenue growth in the first quarter of 2017, with total net revenues increasing by 37.4% year over year to RMB2.27 billion, driven by the robust growth in our live streaming revenues. Importantly, we continued to successfully expand our profit margins and our Non-GAAP operating margins² exceeded 28% in the first quarter of 2017. In addition, our Non-GAAP net income attributable to YY increased by 115.7% year over year to RMB565.7 million, of which Huya segment’s loss shrunk tremendously year over year from RMB140.5 million to RMB35.2 million. Our solid financial and operational results continue to prove that we can maintain our growth momentum and achieve long-term profitability despite the competitiveness in the live streaming industry.”

First Quarter 2017 Financial Results

NET REVENUES
Net revenues increased by 37.4% to RMB2,267.0 million (US$329.3 million) in the first quarter of 2017 from RMB1,649.3 million in the corresponding period of 2016, primarily driven by the increase in live streaming revenues. Live streaming revenues increased by 51.5% to RMB2,057.4 million (US$298.9 million) in the first quarter of 2017 from RMB1,357.6 million in the corresponding period of 2016. Live streaming revenues from the YY Live segment in the first quarter of 2017 was RMB1,674.8 million (US$243.3 million) and live streaming revenues from the Huya segment in the first quarter of 2017 was RMB382.6 million (US$55.6 million). 

Revenues from online games were RMB139.7 million (US$20.3 million) in the first quarter of 2017, as compared to RMB171.1 million in the corresponding period of 2016, which primarily reflected the continued softness in China’s web game market.

Revenues from membership were RMB45.4 million (US$6.6 million) in the first quarter of 2017, as compared to RMB69.4 million in the corresponding period of 2016.

Other revenues, mainly representing revenues from the Company's online advertising revenues, were RMB24.4 million (US$3.5 million) in the first quarter of 2017, compared with RMB51.2 million in the corresponding period of 2016.

COST OF REVENUES AND GROSS PROFIT
Cost of revenues increased by 29.8% to RMB1,377.0 million (US$200.1 million) in the first quarter of 2017 from RMB1,060.5 million in the corresponding period of 2016, primarily attributable to an increase in revenue-sharing fees and content costs to RMB1,035.3 million (US$150.4 million) in the first quarter of 2017 from RMB707.7 million in the corresponding period of 2016. The increase in revenue-sharing fees and content costs paid to performers, channel owners and content providers was in line with the increase in revenues and was primarily due to the higher level of user engagement and spending driven by promotional activities. In addition, bandwidth costs slightly increased to RMB188.9 million (US$27.4 million) in the first quarter of 2017 from RMB182.9 million in the corresponding period of 2016, primarily reflecting the continued user base expansion and video quality improvements, but largely offset by the Company’s improved efficiency and pricing terms.

Gross profit increased by 51.2% to RMB890.0 million (US$129.3 million) in the first quarter of 2017 from RMB588.8 million in the corresponding period of 2016. Gross margin was 39.3% in the first quarter of 2017, as compared to 35.7% in the corresponding period of 2016.

OPERATING INCOME
Operating expenses for the first quarter of 2017 were RMB330.8 million (US$48.1 million), as compared to RMB341.0 million in the corresponding period of 2016.

Operating income in the first quarter of 2017 increased by 140.4% to RMB617.0 million (US$89.6 million) from RMB256.7 million in the corresponding period of 2016. Operating margin in the first quarter of 2017 was 27.2%, as compare to 15.6% in the corresponding period of 2016.

Non-GAAP operating income³ increased by 105.9% to RMB639.6 million (US$92.9 million) in the first quarter of 2017 from RMB310.6 million in the corresponding period of 2016. Non-GAAP operating margin was 28.2% in the first quarter of 2017, as compared to 18.8% in the corresponding period of 2016.

NET INCOME
Net income attributable to YY Inc. increased by 160.7% to RMB543.2 million (US$78.9 million) in the first quarter of 2017 from RMB208.3 million in the corresponding period of 2016. Net margin in the first quarter of 2017 increased to 24.0% from 12.6% in the corresponding period of 2016.

Non-GAAP net income attributable to YY Inc. increased by 115.7% to RMB565.7 million (US$82.2 million) from RMB262.3 million in the corresponding period of 2016. Non-GAAP net margin⁴ in the first quarter of 2017 increased to 25.0% from 15.9% in the corresponding period of 2016.

NET INCOME PER ADS
Diluted net income per ADS⁵ increased by 153.4% to RMB9.25 (US$1.34) in the first quarter of 2017 from RMB3.65 in the corresponding period of 2016.

Non-GAAP diluted net income per ADS⁶ increased by 109.6% to RMB9.62 (US$1.40) in the first quarter of 2017 from RMB4.59 in the corresponding period of 2016.

BALANCE SHEET AND CASH FLOWS
As of March 31, 2017, the Company had cash and cash equivalents of RMB2,043.2 million (US$296.8 million), short-term deposits of RMB1,200.1 million (US$174.4 million), restricted short-term deposits of RMB1,000 million (US$145.3 million), and short-term investments of RMB14.1 million (US$2.0 million). For the first quarter of 2017, net cash from operating activities was RMB395.9 million (US$57.5 million).

SHARES OUTSTANDING
As of March 31, 2017, the Company had a total of 1,113.1 million common shares outstanding, or the equivalent of 55.7 million ADSs outstanding.

Recent Developments 
Ms. Jenny Hong Wei Lee has tendered her resignation as a director of the Company and as a member of the compensation committee of the board of directors of the Company, effective on June 30, 2017.

Business Outlook
For the second quarter of 2017, the Company expects its net revenues to be between RMB2.45 billion and RMB2.55 billion, representing a year-over-year growth of approximately 23.7% to 28.7%. These forecasts reflect the Company's current and preliminary view on the market and operational conditions, which are subject to change.

Conference Call Information
The Company will hold a conference call on May 10, 2017 at 8:00 am Eastern Time or 8:00 pm Beijing Time to discuss the financial results. Participants may access the call by dialing the following numbers:

The replay will be accessible through May 18, 2017 by dialing the following numbers:

A live and archived webcast of the conference call will also be available at the Company's investor relations website at http://investors.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 RMB6.8832 to US$1.00, the noon buying rate in effect on March 31, 2017 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 live streaming platform that enables users to interact in live online group activities through voice, text and video. Launched in July 2008, YY Client, the Company’s core product, empowers users to create and organize groups of varying sizes to discover and participate in a wide range of activities, including online music and entertainment, online games, online dating and live game broadcasting. YY Inc. was listed on NASDAQ in November 2012 and generated revenues of US$1,182 million in the fiscal year 2016.

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 registered user accounts, 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”), except that the consolidated statement of changes in shareholders’ equity, consolidated statements of cash flows, and the detailed notes have not been presented. YY uses non-GAAP operating income, non-GAAP operating margin, non-GAAP net income attributable to YY Inc., non-GAAP net margin, non-GAAP net income attributable to common shareholders, 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. Non-GAAP operating margin is non-GAAP operating income as a percentage of net revenues. Non-GAAP net income attributable to YY Inc. is net income attributable to YY Inc. excluding share-based compensation expenses. Non-GAAP net margin is non-GAAP net income attributable to YY Inc. as a percentage of net revenues. Non-GAAP net income attributable to common shareholders is net income attributable to common shareholders excluding share-based compensation expenses. Basic and diluted non-GAAP net income per ADS is non-GAAP net income attributable to common shareholders 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 share-based compensation 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 effect of non-cash share-based compensation expenses, which have been and will continue to be significant recurring expenses in its business. 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.

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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.

² Non-GAAP operating margin is a non-GAAP financial measure, which is defined as non-GAAP operating income as a percentage of net revenues.

³ Non-GAAP operating income is a non-GAAP financial measure, which is defined as operating income excluding share-based compensation expenses.  

⁴ Non-GAAP net margin is a non-GAAP financial measure, which is defined as non-GAAP net income attributable to YY Inc. as a percentage of net revenues.

⁵ 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 common shareholders divided by weighted average number of diluted ADS.

⁶ Non-GAAP diluted net income per ADS is a non-GAAP financial measure, which is defined as non-GAAP net income attributable to common shareholders divided by weighted average number of ADS used in the calculation of diluted net income per ADS.

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⁽¹⁾  Effectively January 2017, ASU 2015-17 issued by FASB requires entities to reclassify deferred tax assets and liabilities as non-current in the balance sheet. Accordingly, the Company retrospectively reclassified RMB107.3 million of deferred tax assets from current assets into non-current assets as of December 31, 2016.
⁽²⁾  The Company’s Convertible Senior Notes (aggregate principal amount US$400,000,000) due 2019 was redeemable at the holders’ option on April 1, 2017. US$399 million aggregate principal amount (equivalent to RMB2,753.6 million) of the Convertible Senior notes were confirmed to be redeemed on April 1, 2017 and US$1 million aggregate principal amount (equivalent to RMB6.9 million) of the Convertible Senior Notes remains outstanding after the redemption and is reclassified as non-current liabilities .

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

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

(2) Considering that the online education business is becoming insignificant to the Company, the Company decided  that the financial performance of 100 Education no longer be presented for CODM’s review separately in the Company’s internal reporting from the first quarter of 2017. As a result, 100 Education ceased to be a separate operating segment starting from the first quarter of 2017. In addition, the Company revamped its internal organization and one sub-business stream previously presented and reviewed under YY Live was changed to be presented and reviewed under Huya from the first quarter of 2017. Segment information of comparative periods has been restated accordingly.

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

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