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 CONDENSED CONSOLIDATED 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 LiveHuyaTotalTotal
  RMBRMBRMBUS$
      
Cost of revenues 21,4062,65324,0593,636
Research and development expenses 62,0715,84167,91210,263
Sales and marketing expenses 1,6747322,406364
General and administrative expenses 60,10064,878124,97818,887
      


 
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 LiveHuyaTotalTotal
  RMBRMBRMBUS$
      
Cost of revenues 19,35325519,6083,126
Research and development expenses 52,6771,79054,4678,683
Sales and marketing expenses 1,4514181,869298
General and administrative expenses 14,65921,90436,5635,829
      


 
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 LiveHuyaTotalTotal
  RMBRMBRMBUS$
      
Cost of revenues 2,3726493,021446
Research and development expenses 8,2292,26310,4921,548
Sales and marketing expenses 2822130345
General and administrative expenses 6,8722,7779,6491,423
      

(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