Sea Limited

Good morning and good evening. Welcome to the Sea Limited fourth quarter and full year 2022 results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Ms. Minju Song. Please go ahead.

Hello everyone and welcome to CEE's 2022 Fourth Quarter and Full Year Earnings Conference Call. I'm Minju Song from CEE's Group Chief Corporate Officer's Office. Before we continue, I would like to remind you that we may make forward-looking statements which are inherently subject to risks and uncertainties and may not be realized in the future for various reasons as stated in our press release. Also, this call includes the discussion of certain non-GAAP financial measures such as adjusted EBITDA. We believe these measures can enhance our investors' understanding of the actual cash flows of our major businesses when used as a complement to our GAAP disclosures. For our discussion of the use of non-GAAP financial measures and reconciliation with the closest GAAP measures, please refer to the section on non-GAAP financial measures in our press release. I have with me C's Chairman and Group Chief Executive Officer, Forrest Lee, Group Chief Financial Officer, Tony Ho, and Group Chief Corporate Officer, Yanjun Wang. Our management will share strategy and business updates, operating highlights, and financial performance for the fourth quarter and full year of 2022. This will be followed by a Q&A session in which we welcome any questions you have. With that, let me turn the call over to Forrest.

Hello, everyone, and thank you for joining today's call. 2022 was another year of evolution for us. Even the micro uncertainties We pivoted decisively late last year to focus on efficiency and profitability. As a result, we began to see meaningful improvements in the bottom line. For the fourth quarter, our net income and the total adjusted EBITDA both turned positive. Moreover, we generated $320 million of cash from operations in the quarter. It has not been an easy journey. We could make this significant shift within such a short period of time only because of the collective efforts of our C team as a whole and very strong determination and resilience that our team has demonstrated. We took the hard path, but we believe this is the right path to achieve long-term success. As we continue this transition and manage sustainable growth going forward, we have adopted the approach of doing less but doing it better. First, we sharpened our focus on areas with the greatest potential across our businesses. We exited or downsized operations in non-core markets, streamlined our game pipeline with developments and project closures, and deprioritized non-core initiatives. These measures brought immediate cost improvements. More importantly, they allowed us to focus our managerial, operational, and financial resources on doing the core things better. Meanwhile, we focused on doing better for our users across our digital ecosystem. At Shopee, we continued to optimize customer services, seller management, and logistics. At Garena, we worked to improve the accessibility and the content quality of our core games. We have also been leveraging Z-Money's strong synergy with the rest of our ecosystem to better serve the under-addressed financial needs in our market. I will elaborate more in detail during the segment discussion. Given the micro uncertainty and our recent strong pivot, We continue to closely monitor the market environment and adjust our pace and fine-tune our operations accordingly. As a result, there may be near-term fluctuations in our results and performance. However, we remain highly confident in the long-term growth potential of our market and highly focus on capturing this opportunity. More importantly, Our determination and ability to execute towards profitability enable us to start 2023 on a much stronger footing. Let's now discuss each business segment in detail. Starting with e-commerce, I'm pleased to share that Shopee's adjusted EBITDA turned positive for the first time in the fourth quarter of 2022. The improvements we achieved in core marketplace revenue and operating costs were key factors driving fourth quarter profitability. In the fourth quarter, gap revenue was $2.1 billion, up 32% year-on-year. This was mainly due to strong growth in core marketplace revenue. Within the core marketplace revenue, both transaction-based fees and advertising revenue increased as we deepened monetization and saw greater investment by sellers on our platform to serve buyers better. Full-year performance generally mirrors the trend of the fourth quarter, with gap revenue growing 42% from 2021. In terms of operating costs, we made improvements across each of the major expenses in the fourth quarter. Gas sales and marketing expenses improved by 34% quarter-on-quarter and 55% year-on-year, driven by more targeted investments across shipping incentives and brand marketing. There were also sequential improvements in R&D and GSA expenses. Now looking at each region. In our Asia market, we reported a positive adjusted EBITDA of $320 million in the first quarter. This represents a significant improvement from the previous quarter, which had an adjusted EBITDA loss of $217 million. In our other markets, the adjusted EBITDA loss also decreased by more than 50% quarter-on-quarter to $124 million. In Brazil, we continue to enjoy strong improvements in unique economics. Our contribution margin loss per order decreased by 54% from the previous quarter to $0.47. During 2022, we have been able to drive meaningful improvements in logistics costs to our ecosystem. This will remain an important area of focus going forward. We believe that lowering the cost to serve will be key to our long-term growth by unlocking large, underserved user segments across our markets. While we have already seen early results from these efforts, there is still greater room for improvement. In addition to cost management, we remain highly focused on improving user experience. For example, we have been systematically reviewing and optimizing our process management for customer services. We focus not only on certain key metrics and targets for general user experience, but also on more proactive management of tail cases. On logistics, we have been working to provide a more efficient and reliable experience to our users. This includes reducing wait time minimizing delivery losses, and providing a more seamless in-app experience to both sellers and buyers in managing logistics. The macro environment remains uncertain, and there are still headwinds on consumption in our market. With our recent pivot, we are showing a positive bottom line for the first time. As such, our focus this year will be to continue to solidify the efficiency gains and optimize the cost structure across our markets. In our Asian markets, we will work to further strengthen our leading position and profitability. In Brazil, we will focus on driving the business towards profitability to capture significant opportunities in this new market. GMV will largely remain an output for us in the near term. It is important to re-emphasize our long-term focus on sustainable growth for Shopee. In our view, e-commerce penetration in our market remains low as compared to its full potential relative to offline retail. Our market also enjoys highly favorable demographic trends. in terms of their large and growing digital population. This is further supported by long-term economic growth potential across our market. The key question presented to us at this stage is how much of these underserved needs for online consumption we can sustainably address. This determines the size of the profitable TAM we will be able to capture. We believe a large part of the answer lies in our ability to continue to improve the cost structure of our ecosystem through creativity, technology, operational excellence and most importantly, an unwavering commitment to serve our users. We believe everything we are doing now is to best position us to achieve sustainable growth, profitability and the defensibility of our ecosystem in the long run. Now, let's turn to digital entertainment. In 2022, online games as a market was broadly impacted by ongoing moderation in user engagement and monetization. Our games experienced a similar trend. During the fourth quarter, Garena's gap revenue was $949 million and bookings or $544 million. Quarterly active users reached 486 million, with 44 million quarterly paying users. The paying user ratio and average revenue per user remained relatively stable quarter on quarter. For the full year of 2022, gas revenue was $3.9 billion, with bookings at $2.8 billion. Despite ongoing moderation, we remain highly focused on sustaining our current core games. We prioritize user engagement by offering better and more enjoyable experiences in our games. We have targeted initiatives for existing and returning users. We have also been streamlining game content to improve accessibility and gameplay for all users across diverse markets. In managing cost efficiency, we have comprehensively reviewed our publishing and self-development pipeline in line with our principle of doing less but doing it better. As a result, we have invested and closed certain projects and remain selective about high potential projects to better direct our resources. This year, we will focus on solidifying our strengths in core games and communities, while continuing to position ourselves to pursue long-term growth opportunities as they arise. Lastly, on our digital financial services business, Simbani's gap revenue was $318 million in the fourth quarter of 2022, up 92% year-on-year. The adjusted EBITDA also turned positive for the fourth time at $76 million for the fourth quarter. The improvement in profitability was driven by both strong top-line growth and optimization of sales and marketing spend. For the full year of 2022, GAAP revenue was $1.2 billion, growing 160% year-on-year, and adjusted EBITDA loss was $229 million. As of the end of the first quarter, the total loans receivable on our balance sheet was $2.1 billion, net of allowances for credit losses of $239 million. Our C-Money business is a highly synergistic part of our digital ecosystem. For example, our mobile wallet has resulted in lower transaction costs. and a more seamless transaction experience on Shopee. Shopee in turn has allowed the mobile wallet to grow its user base and build user habits more efficiently. With Shopee, our credit business is able to leverage a large captive user base, a highly relevant use case with significant scale, and a wealth of user insights for more effective underwriting. At the same time, Shopee benefits as consumers enjoy more flexible payment options, access to credit, and greater affordability. We expect our digital insurers, wealth management, and bank businesses to enjoy similar synergies with our e-commerce platform to serve the large underserved communities in our market. We see C-Money as an important long-term growth engine for us. we will continue to prioritize the ecosystem strategy in pursuing this significant opportunity with efficiency and profitability. To conclude, our performance in the first quarter was an important demonstration of our ability to focus on profitability and deliver meaningful results. This is a testament to the strength and resilience of our underlying business model and the execution capabilities of our teams. Although we expect micro uncertainty to continue to cloud the horizon in the near term, the long-term potential of our businesses and the market remains vast. We plan to capture these opportunities while delivering strong and sustained shareholder returns over time. With that, I will invite Tony to discuss our financials.