Q3 2022 Sea Ltd Earnings Call
All participants will be in listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero. After today's presentation there'll be an opportunity to ask questions. Please note. This event is being recorded and now I'd like to turn the conference over to MS. Zhu song. Please go ahead.
Thank you Hello, everyone and welcome to <unk> 2022 third quarter earnings Conference call. I mean, you saw from the Chief Corporate Officer.
Before we continue I would like to remind you that we may make forward looking statements, which are subject to risks and uncertainties and may not be realized in the future for various reasons as stated in our press release.
This call includes a discussion of non-GAAP financial measures such as adjusted EBITDA and net loss excluding share based compensation.
We believe these measures can enhance their understanding of the actual cash flow of our major businesses when used as a complement to our GAAP disclosures.
For a 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 haven't seen a tremendous piece anchor Chief Executive Officer, Pete <unk>, Chief Financial Officer, Tony Hull and group Chief Corporate Officer, Andrew My.
Our market share strategy and business update operating highlights and financial performance for the third quarter of 2022.
This will be followed by a Q&A session in which we welcome any questions.
With that let me turn the call over to Port.
Yeah.
Hello, everyone and thank you for joining us today.
We recently passed our five year IPO anniversary.
The rest of the management team and I have learned a lot from rent and see it as a public company.
The journey that testing deep high and the low.
I'm grateful for the support the device all of you have given us over the years.
Thank you for your patience and faith in us.
Given the significant.
Certainties in the macro environment, we have to entirely shifted our mindset and our focus from growth to achieving self sufficiency on the profitability as soon as possible.
Without relying on external funding.
We are adapting quickly to the changing climate, because we believe that companies that fail to do so not the wise.
Our efforts are directed to ensure that the not only survive the macro storms, but emerge stronger more efficient and more resilient.
And as a long term winner in our markets.
This positions us to continue capturing the long term potential for our businesses and markets.
And to deliver strong and sustainable shareholder returns overtime.
Over the last quarter, we took decisive actions to improve margins.
That's clear goals and priorities for the quarters to come.
In addition to emphasize our commitment to the states coal.
I announced in September that the management team will stop receiving cash compensation until we achieve self sufficiency.
To share more color on our plans to achieve self sufficiency.
To discuss our current view of a few financial metrics.
Level that we believe may have relatively important effects on our bottom line and cash position.
Okay.
First on.
The adjusted EBITDA.
Our total adjusted EBITDA improved by 29% quarter on quarter.
Meaningful improvement was a result of better profitability from both our E Commerce and digital financial services businesses.
I will discuss this in greater detail later.
Second.
Capital expenditure.
Frankly, our capex, mainly related to servers office space related spending as well.
Logistics related real estate and equipment.
In the third quarter, our Capex was $232 million.
Consisting mainly of servers and the logistics related spending.
This may fluctuate from pure rate to cure rate due to the nature of the expense.
For example, during some plenty of our pure rate, we committed to a heightened level of investment in our server capacity.
This was done in anticipation of future business needs, while considering potential delay in some of our procurement due to the supply chain disruption earlier.
These earlier commitments were partly reflected in our capex for the third quarter and May continue to impact our financials for the coming quarters.
However in line with our current focus we have taken strong measures to tighten up our capex budget and we'll manage it with a strong focus on efficiency and the investment returns over the long run.
Another metric that may cause fluctuations in our cash flow from peer to peer rate is changes in working capital.
This may continue to fluctuate due to many factors such as timing of billing and payment collection cycles.
However in the long run the direction is also clear for us to focus on improving working capital management.
Last but not least.
It goes without saying that we're very focused on our cash position.
At the end of the third quarter.
Cash cash equivalents and short term investments was seven 3 billion, representing a net reduction of $485 million from the end of the second quarter.
We aim to continue to maintain a net cash position.
Budgeting for the full retirement in cash after outstanding convertible bonds and assuming no external funding.
I am confident in our ability to execute well against our stated goals.
We have demonstrated so many times in the past.
Let me now take a moment to talk about some of the specific steps we have taken to improve our bottom line.
We have completely overhauled our budgeting practice.
<unk> consistently and comprehensively review our spending.
Across all businesses in the markets, we reviewed under reduced the high court.
The priest existing spending in the future investment commitments, our office space and the logistics facilities.
And the tightened travel and entertainment policies.
On top of that we improved procurement policies and procedures reduce the spending on computer hardware and stopped all new financial equity investments.
We have also accelerated cost saving initiatives in our business operations.
For example at choppy, we have meaningfully scaled back marketing expenses.
Especially around shipping subsidies.
At Corina, we're not focused on running our existing key franchisee as efficiently as possible and have taken a more selective approach to developing and launching new games to prioritize the highest potential titles in our pipeline.
Finally at the money, we have to prioritize offline adoption of sharpie pay and a further diversify funding for our credit business across multiple sources.
Our current initiatives are designed to further fortify our leading position and enable us to continue to win yeah, our key markets over the long run in.
In the coming quarters, we will continue to focus on improving key financial metrics for the long term health of our business.
While our results may fluctuate and affected by the macro environment and many other factors.
We are currently working towards adjusted EBITDA breakeven for Sharpie overall by the end of 2023.
We believe our strong focus on cash flow and achieving self sufficiency as soon as possible is the right strategy to pursue at this stage, even though we may see no growth or even negative growth in certain operating metrics in the near term.
To be very clear, we remain highly confident about compounding long term growth prospects of our business is in the market.
Whilst we are cheap self sufficiency, we will.
I'll be in a position to decide to reaccelerate growth again in a much more efficient and a long term sustainable manner.
Let's now discuss each business segment in detail.
Beginning with e-commerce.
We made significant progress in narrowing shop is losses across all regions, despite headwinds from ongoing macro uncertainties and the reopening trends.
Adjusted EBITDA loss in the third quarter was $496 million.
Improving quarter on quarter by 24%.
This was driven by strong topline growth, particularly in core marketplace revenue and a meaningful efficiency improvements in operating costs across our market.
These improvements were partially offset by severance and early lease termination related costs and increases in HQ cost such as shared R&D staffing and the sharp silver hosting expenses.
As we began more focused efforts on optimizing HQ costs, including R&D costs from the later part of the third quarter, we expect savings on a shared cost to start to show in the following quarters.
GAAP revenue in the third quarter was $1 9 billion. This includes around $1 billion of core marketplace revenue, mainly consisting of transaction based fees and advertising revenue and therefore offering higher margins.
The core marketplace revenue increased by 54% year on year contributing meaningfully to the improvement in monetization and overall profitability.
We aim to continue to create more value for our sellers and buyers and expect monetization to positively correlate to their satisfaction overtime.
As mentioned, we also further optimized the cost during the quarter with a positive effect on our bottom line.
For example, chocolate GAAP sales and marketing expenses in the third quarter decreased by 15% quarter on quarter as we adjusted our free shipping offerings across several markets.
These initiatives have accelerated shop its path towards profitability.
During the quarter, our Asia markets recorded an adjusted EBITDA loss of 217 million improving by 31% quarter on quarter as a result of profitability improvement across all markets in the region.
Additionally, the region combined recorded a positive contribution margin in line with our previously shared expectations.
How did the individual market level, we recorded positive contribution margins for most of our Asia market, including our largest market Indonesia.
Furthermore, Malaysia, and Taiwan recorded positive adjusted EBITDA.
Well, our other market combined adjusted EBITDA loss was $279 million improving.
Improving by 16% quarter on quarter as a result of increased monetization and cost savings.
In Brazil, we saw continued improvement in unit economics with adjusted EBITDA loss for older before allocation of HQ costs at $1 three.
The improvement of roughly 40% from the previous quarter.
Meanwhile, GAAP revenue grew by over 200, and a 25% year on year.
We will continue to invest in the exciting opportunities, we see in our Brazil market.
I recently spent time in the country meeting with local sellers and the buyers and I was reminded once again of sharpie produced strong and clear value proposition.
Empowering its local community.
This drives a strong and clear business case to continue to invest prudently in that market.
Of course every investments will be made with a discipline and a strong focus on continuous efficiency improvement to reach profitability.
Overall, as we pivoted towards focus on monetization and the profitability. We have continued to see healthy buyer and seller engagement across our platform.
We believe this reflects the value we deliver to our community.
In the third quarter, we observed solid retention rates for our active buyers and to maintain our average order frequency and time spent per active user at a stable level compared to the previous quarter.
The number of brands our shopping mall also continued to grow strongly by 36% year on year to over 42000.
Reflecting more brands recognizing the value shop, he brings to them.
Importantly, we are always looking to further improve the services, we offer our centers and provide a superior shopping experience for our buyers.
We want to make sure that incremental monetization is well justified but additional value we continue to create and deliver our ecosystem.
Over the past few quarters, we have to enhance the efficiency and the predictability of our delivery.
Prove the complaint resolution rate of automated customer services.
And it reduced the respondent resolution time.
Our centers now enjoying more features to help them navigate our ecosystem more easily and increase their sales.
For example, they have access to pricing recommendations if their item prices are detected is now competitive.
And have self service access to our many performance enhancement.
Programs and the business management tools.
Moving on to digital entertainment.
Karina continues to be impacted by reopening trends, especially at our gamers returned to fully be opened school and work post the post pandemic.
At the same time, we are faced with rising global macro uncertainties.
We believe this continues to impact consumer discretionary spending.
Putting in games.
These headwinds pets, resulting weaker engagement and the user trend in the third quarter.
During the quarter GAAP revenue was 800, and a $93 million and the bookings was $665 million.
Karena quarterly active users reached $568 million with 52 million quarterly paying users.
Our paying user ratio and our pool remained stable quarter on quarter.
<unk> experienced ongoing moderation engagement and monetization.
Still relatively to the industry overall free first performance remains robust.
We are also pleased that arena better delivered solid growth in active users and bookings for the third quarter.
It is encouraging to see the games resurgence once again and the strong support from our resilient core user base.
<unk> performance in the past six years since launch is in line with our view that strong operations can have meaningful positive effect on the game and is that a strong mobile game can be built into our long term franchise with multiple piece.
But carina overall with the worsening macro environment and the reopening having a continuing impact on our markets.
We now expect bookings for the full year of 2022 to be between $2 6 billion and $2 8 billion.
Looking ahead, we will focus on stabilizing our large existing franchisees well selectively launching new games and investing in our pipeline with greater discipline and a stronger focus on efficiency and returns.
At the same time, we will be strengthening our organization and are carefully optimizing our spending through more efficient marketing and content investments.
Finally, moving on to our digital financial services business.
In the third quarter see monies GAAP revenue reached $327 million up 147% year on year.
At the same time that adjusted EBITDA loss decreased by 57% year on year to $68 million.
The improvement was predominantly driven by more targeted sales and marketing spending for the mobile wallet business and our credit business, maintaining its healthy profitability, while generating cash for the group.
With the growing volatility across our market we.
We are closely monitoring the health of our credit business and our loan book.
As of the end of the third quarter, our loan book stood at $2 2 billion.
Net of allowance for credit losses of $253 million.
Nonperforming loans past due by more than 90 days represented less than 4% of our total gross loans receivable and.
And the weighted average tenure of loans outstanding was about formats.
We will continue to focus on improving the quality of our underwriting optimizing risk controls and the user experience.
Diversifying our sources of funding for our credit business and improving the quality of our other digital financial offerings to users.
In closing.
Well, we have demonstrated our strong execution and ability to scale rapidly in the right market and the macro environment.
We believe we were also able to adapt to the current conditions swiftly and to demonstrate our ability to manage towards profitability.
The cadence of bottom line and cash flow improvements may vary quarter on quarter to quarter.
But we are confident that we are becoming a more resilient and efficient business in a better position to capture the long term opportunity for that in our markets.
With that I will invite Tony to discuss our financials.
Thank you Forrest and thanks to everyone for joining the call. We have included detailed financial schedules today together with the corresponding management analysis in today's press release.
In Forest has discussed some of our financial highlights. So I will focus my comments on the other relevant metrics for sea overall total GAAP revenue increased 17% year on year to $3 $2 billion. This was mainly driven by the increased monetization of our e-commerce business and the growth of our credit business.
Yeah.
Our e-commerce, our third quarter GAAP revenue of $1 $9 million included GAAP marketplace revenue of $1 $6 billion up 39% year on year and get product revenue of <unk> $3 billion up 3% year on year.
Within gas marketplace revenue core marketplace revenue, mainly consisting of transaction based fees and advertising revenues was $1 billion or asset value added service revenue medical assisting of revenues related to logistics services.
Zero by $6 billion each.
E Commerce adjusted EBITDA loss was $496 million as we continue to improve our monetization by creating more value for our users and further optimized on cost efficiency.
Digital entertainment and bookings were $665 million and GAAP revenue was $893 million for the third quarter of 2022.
Adjusted EBITDA was $219 million.
We continue to experience ongoing moderation in engagement and monetization with the reopening trends and uncertain macro environment.
Digital financial services revenue was $327 million, an increase of 147% year on year from $132 million in the third quarter of 2021.
Adjusted EBITDA loss was $68 million compared to $159 million for the third quarter of 2021.
We recognized a net nonoperating loss of $9 million in third quarter of $2 22, compared to a net nonoperating loss of $13 million in the third quarter of 2021.
We had a net income tax expense of $65 million in the third quarter of 2022.
Which was primarily due to a corporate income tax and withholding tax expenses.
As a result net loss excluding share based compensation was $374 million in the third quarter of 2022 as compared to $448 million for the same period into the other end 'twenty one.
At the end of the third quarter was without in 'twenty, two we had $773 billion of cash cash equivalents and short term investments our balance sheet.
With that let me turn the call to me Andrew.
Thank you Tony we are now ready to open the call for questions operator.
Thank you we will now begin the question and answer session.
I ask a question you May press Star then one on your Touchtone phone.
You're using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
In the interest of time, we will take a maximum of two questions at a time from each caller. If you wish to ask more questions. Please request to join the question queue again. After your first questions have been addressed at this time, we will pause momentarily to assemble our roster.
Our first question comes from <unk> from Goldman Sachs. Please go ahead.
Thank you very much for the opportunity and good afternoon automatic yeah.
Two questions from my side, Firstly on sharpie after now expecting shall be break even by country.
Can you provide a bridge from the current EBITDA loss to your breakeven target. How do you plan to do what is our biggest drivers yeah revenue increase a cost cut and what kind of top line.
Do you expect are you willing to sacrifice market share if you're a competitor doesn't follow suit.
Second one on tailings have you seen any kind of step in isolation for free fire.
And at the same time, we have seen news the termination of our partnership with T. Mobile how does it mean for your publishing business going forward and Lisa and quotation point at Roper agreement.
Okay.
Thank you Pat.
E Commerce.
You bet.
As we shared a course that need that.
The goals that we are working towards all along.
Yeah.
Right.
Fluctuations in results.
All the factors.
Sure.
I think that the twins as indicated.
The quarter itself has been that we are both improving.
Our top line and.
Also on cost efficiency.
So on the on the topline side at least well.
Chris I'll take rate and in particular, our core marketplace and also.
Off site.
Titan expenses, writing kit sales smartly, especially advanced logistics.
Not yet.
I do think just necessity overhaul internally.
Yes.
It's possible that entire ecosystem.
I want to take that.
It sounds like just the top 10 cancer decrease and that's a very clear direction.
Blair.
At the same time, we also.
How can you elaborate more on that.
Well go ahead and other.
Cost.
Patterson P. M. S shops. So this is coming from all directions and in terms of the trial that is intended to police that time will be continued.
A positive trend.
The amortization from the Dol.
Our efficiency and cost improvements.
Some of these savings.
Probably came at a later this quarter and will continue to shell.
Hum.
And shakes himself.
You know the impact on market share that Chad I think from what we have said so Bob safian market, while we continue to maintain our strong market leadership and Uh huh.
Our peers also.
I put him in a wretchedly rationale manner.
Now a lot of these assets are not individually to us but.
Generally we are responding to that macro trend environment.
That we believe is the right thing to do.
For for US Yeah, Yeah. So we will try to continue to focus on improving our cost efficiency.
Tony.
Financial next health for the long term success of the company.
As we also shared.
While there are.
Near term heavily sponsor.
The macro developments.
Our view and our confidence.
Market long term growth potential.
With me is Scott, it's Florida, given the positive demographic trends and low penetration.
In our pockets and therefore, whatever we're doing now is still to best position us.
To be a long term winner in this market businesses.
In terms of a P <unk> <unk>.
You have to see how we are in.
Packing our user.
Engagement as well as monetization we changed the second.
Our third quarter results, but also.
Is that dish.
<unk> guidance for the full year and of course, all athletes conscientiously.
Continuing to focus on engaging with our user base and provide the best content and community engagement to that well.
So you find which remain to be the biggest franchisee portfolio.
In terms of our publishing as we always share before we felt that both on game development and publishing them.
F two key contributors of ours.
And are the reasons.
The combination of that.
As we announced a legal mentioned a partnership with <unk>.
And then just on the exploration.
Agreements and what had no impact.
Our publishing business and the contribution it's immaterial.
But you go again.
Please celebrate it.
Your partnership.
We have with our right and Jeff We think it's a very full fall our partnership and success for both our both potash and we also look to continue to work with top game developers around the world.
To strengthen our publishing pipelines are also this decision is the right decision.
And you have no relationship to anything.
Anything regarding that item that's actually we met what we had was 10 cents.
The next question comes from Alicia Yap from Citigroup. Please go ahead.
Hi, Thank you good evening management. Thanks for taking my questions I have two questions first as do.
Do you have any.
On the core market page revenue given the challenging macro environment. So we'll branch I'm not trying to actually cut back their spending on advertising on shopping and then secondly on.
On the sustainable long term low ball, one shopping week EBITDA profit what could be the margin call follow the rough margin range that we should expect the shop purposes can be and then just lastly on the Brazil and Latam are where.
Well, you sort of scale that one other country and then New York only focus on Brookdale going I mean for Danielle. Thank you.
Thank you Alicia.
In terms of the any headwinds for marketplace revenues so.
So far as we are.
He created a takeaway.
Yeah.
Right.
And sellers adopt them off.
Oh, that's okay.
Hi, Natasha.
Cashman setting and also some of the often call backs to the chassis.
We continue to see.
Yeah sellers.
Response to the main cost it Josh.
They are continuing to invest in the platform as we shared before that our focus is on delivering more value to the sellers and buyers. So that Aegean will continue to grow that business in a healthy and profitable platforms.
They trash the partnership with shopping no crush Oh, we are mindful of the cash on the backhaul headwind.
Semi.
Overtime more deeply affect our reach in the market and this is my effect for example people such as power.
Discretion expanding.
So that's been appointed by also has a more.
More pronounced effect.
Platform.
Yeah overall ecommerce.
In that region.
That happens that could happen in patent assets impact also.
Key to monetize so that is something that we are mindful of and so we're doing everything.
That we can to help our sellers.
Oh, Sarah Sutton offerings with a bias eventually I think our success depends on our success.
Sellers and our buyers.
Fiat enjoyment of the southern states and that's good.
I will not sell it off the top clients.
But in terms of the.
Margins for shopping actually shared their main two components.
Marketplace revenue why is our core marketplace revenues. The other is done at a satisfactory Oh, what do you call marketplace revenues that's mainly.
Transaction based fees advertisement.
We believe that modern for this portion of the revenue.
In the long term steady state clipper casually in one line with what you would normally see for a pure play market place a type of business model.
For value added services that maybe Texas Gulf Logistics Services, Inc.
Including.
It was just the other says which is mostly last mile logistics, what we provide as a first party.
And also the pilot guest services.
Uh huh.
Got it.
Platform desktop.
Our we mapped out there from some of our southern Martin's models to our sellers and buyers to.
To improve the user experience and as a result of that gap.
GAAP accounting perspective, we do recognize that Raphael force basis, now because of that.
It's mostly related to logistics services these royalty for.
Got it okay and logistics services.
And along those lines and all centers is continuing to improve the cost efficiency of logistics services.
<unk> ecosystem.
Whether through our own.
First party provided services.
Partnership with all the third party logistics provider.
All of the costs and provide better higher quality.
Thanks.
In terms of our other markets are actually shared earlier that we believe Brazil is a car.
I'm here to be a very important growth market for us as well.
We see very clear value proposition shopping offering to the local community and.
And we will continue to invest in a market with a strong focus on returns and efficiency.
We also are continuing.
Continue to have high debt.
From a cross border perspective.
That doesn't mean that type of market.
At this point, we have no plan to.
Further changes to kind of approach.
The next question comes from Thomas Chong from Jefferies. Please go ahead.
Hi, Good evening, Thanks management and off with the King My questions. My first question is on Salt P. S. Well peoples that are on a constant currency basis.
We after the scoring that.
He wanted to stand on a year on year basis, but just wanted to get some color from and determine how should we think about the G. M. We oh look in coming quarters or trying to be transitory and keep them back. So the online penetration is still low so just wanted to get some caught up on that.
But long term perspective on the <unk> side and my second question is about the online game as well.
I think I've talked about before I, just want to get management some what we.
We talk to our gaming pipeline.
Should we expect there would be.
More new games being released in 2023. Thank you.
Thank you Tom.
Regarding the G M D well at least shared before.
And at this point, our focus is very clearly.
He truly monetization.
To achieve self sufficiency, so Japanese automobile output.
Until we get to that point and then we can be as that's all situations.
See you know, what's the best path forward.
As I've shared also our long term prospect.
And prospects of the market that has all changed are the short term there'll be a lot of factors, including backhaul.
I imagine inflation.
For us.
Yeah, Yeah yeah.
I can't be opening trends as well as.
And the tough comp.
All comparisons during Covid.
And our own focus on.
Efficiency cost management, and our improving monetization of that platform. So there could be an impact on some of the topline both in the operating metrics are.
There could be no real negative votes, and then we can't stop that but on the other cats are actually shared our long term view is we want to emerge as a strong us with any mismatch.
In terms of the Ace pipeline.
We still have the games in our pipeline.
Pipeline.
Self development, that's what I said.
Publishing that's unusual we don't discuss specific games that have we haven't announced but not yet.
There are always I think somebody on walking.
Our next question comes from <unk> Chowdhry from HSBC. Please go ahead.
Yeah, Hi, Thanks, a lot for the opportunity and two question from my side, Firstly on Green could you but.
I'll share a bit of light on what factors are contributing to this change in guidance because your bookings stood at around $2 2 billion in nine months, while your lower end of the guidance is $2 six implying almost 40% drop in bookings quarter on quarter. So can we understand what could drive such higher.
Slowdown in bookings in fourth quarter versus third quarter, but it's close.
Secondly, your net change in cash position was around 45 million in third quarter.
Can you give us a breakup of home, which was used in cash capex. How much was due to change in working capital and how much was due to lending funds used in India. Thank you.
Yeah.
Thank you Piyush in terms of the guidance.
As we shared with contingency heavily impacting our market.
Both the macro and you're bot manager.
In particular inflation affecting all discretionary spending including spending on games as.
Well Forex.
Or are.
The weakness I think that's also impacting game industry as a whole. So what are we working on user engagement and the quality of our games.
Also want to.
They are more regional picture based off the.
Information that we have now regarding our outlook for the fourth quarter.
I think this is something that Oh, we continue to upsell.
I think it's clear to me and again there are many factors beyond our control.
In terms of the cash flow.
For the improvement as we shared its driven mostly by the EBITDA equal then across our particularly our e-commerce and digital financial services businesses.
As a result of better monetization as well as the cost efficiency improvement.
In terms of our Capex and working capital.
It may fluctuate both may fluctuate from quarter to quarter are asked are we sure it's oh well here.
For many reasons for example.
On the two pad sites.
What's historically.
Office buildings silver.
Logistics related to leases.
Machinery.
Gotcha.
On the office side I think we are continuing to manage our head count.
Okay also.
The office lease required.
For our employees enjoy reduced also renovations going forward.
And that that also reduces the computer hardware that we might need.
So E E.
In terms of the service as we shared we are tightening our budget for service and try to more closely our project our numbers are based on our business.
Previously we didn't have high tech spending.
And are in line with our projection of future business growth, but also to take into account Oh, the previous supply chain disruption globally and that affected tenants of our procurement timetable.
So some of that impact might affect us.
In the coming quarters, as well and when exactly that in my head is that it.
Not certain yet because that depends on delivery timing.
Timing et cetera.
So so some similar faithful working capital, although it doesn't have a oh.
Although a very significant impact on cash flow I think should EBITDA as it is a major component of that but I'm working capital okay.
You're welcome to ask them to have the fluctuations from time to time again based off any payment cycles et cetera.
But it will.
In the long run. However, this is something that we continue to focus on.
To improve our working capital.
So something that Oh, they'll pick up that working capital is something that we control and focus on the long run I don't think cap a quote unquote analysis, it might not be too Jonathan.
In terms of the nanny dismissed.
As we shared we have about $2 4 billion outflows, you don't book and I'm, one of the 200 million of provisions.
Provisions for losses.
So that represents about a little bit more than 10% of our closed the notebook outstanding and Oh that's a.
90 days.
Past due.
<unk>, 4% and so with our county, our outstanding loan book is around four months.
So overall that gives you a sense of how much of that is that included also in the G&A expenses discussion of our earnings release, we did also.
Breakout and talk specifically about Oh, the client loss.
In terms of P&L impact so you can track that as well.
The next question comes from Jiang Shao from Barclays. Please go ahead.
Thank you very much for taking my question.
I have two follow up questions are around your E Commerce business.
For the EBITDA loss for Q3.
Talked about the one off sovereigns.
Costs and the.
Early termination of the leases costs.
Or would you be able to quantify that.
That impact for Q3, and how we should think about that for the current fourth quarter. The second follow up question is.
Competition, there seems to be a deceleration any reason the quarters in the months and years.
Talking about the macro are you talking about the sort of cost cutting initiatives I was wondering if you could potentially talk about competition impact if any.
From.
A particular competitor it seems that there is one particular competitor has been particularly aggressive.
In the region. Thank you very much.
Thank you John in terms of Oh severance and early termination lease termination expenses, we did disclose that at a group level, that's about 777 million.
Most of that is attributable to E. Commerce related so you can get a rough sense of that site.
And in terms of the competition.
And I think hopefully as we continue to track.
And Oh peer that's well in this region, we believe our hours in that type of eating position has been maintained.
In the third quarter of course, we take competition very seriously.
We make sure that Oh service offerings remain competitive.
Although it monetization take rate is well justified by the value additional value often tell us buyers and sellers.
Yes.
With the overall market.
Okay.
The next question comes from venue go Poof Gurry from Bernstein. Please go ahead.
Hi, Thanks, a lot for the opportunity so two questions from me firstly.
Given all the news flow that you've seen on cost actions that you can.
Could you just highlight those Hollywood employee head count looks like at the end of quarter. Three was what it was let's say in Q2, and Q1 and and more importantly, what kind of overall quantum of course, you'd been able to sort of take out from the system and how much you'll say Oh you know it is yet to reflect that you know you know the overall numbers.
That's the first question.
My second question is more.
More related to the investments Oh, given the sort of cost focused snow, especially the couple of areas one is <unk>.
Piggy bank side of things I, just wanted to understand how a rollout plan is shaping up in Singapore, and if it could lead to any cost increases near term and secondly on sharpie expert is how does.
The focus on cost sort of lead to a shift in strategy towards starting because that also requires quite a bit of investments going forward.
Yes.
Thank you Rick.
Our employee head count.
Management.
We the way we approach it is not a top down or.
Targeting a certain percentage of employee kind of exercise the way we approach it as a more of a initiated by initiating a function by function.
That's part of the project.
This meant a 10 of cats.
What is the right amount of resources, we might need followed at the media business teams as well as the ongoing business objectives.
And while we want to prioritize and child, well, we might be part of attacks.
So the reasons headcount management and mostly related to market as it depalatalization episode, Hence our business any shade is for example, as we mentioned that the offline.
Payments to shade it well.
Then.
Also a right sizing and different functions and teams to.
To make sure we have a strong organization of one day shipping this is an ongoing exercise.
And also the country to Oh, well half as a result, we may cause you to have some severance.
Severance costs associated with that or the corners, because some of these that are.
Started in the late part of the third quarter and going into the fourth quarter.
And are the cost savings also Rochelle.
Falling corridors, but I can't.
All of you is that in the long run.
Cost savings.
It's more more.
Having a more efficient organization, having a culture to run things efficiently and focus on it.
Investments.
And having a better discipline.
Running the entire organization in terms of resource allocation and investments to future business initiated projects as opposed to the specific numbers on it.
Do I hear a phone call this quarter.
In terms of our investments in digital banks.
Thanks to this stage.
Well, we are still at a very nascent stage.
Stage, and we have a status on pilot programs.
Oh for the Meramec and Singapore are opening up all the minute features to employees.
Very closely with all regulators to make sure that things are going well. According to plan on the unattached and longtime initiate it while we do not expect any immediate significant ramp up in costs relating to watch.
In terms of what you were.
Logistics.
He took the flow of shopping express this is the last mile of delivery services.
So the most of the expenses that Fox is more related to staff and.
And vehicle rentals.
And then some pieces of our hops the last small shops that we want to place those are pretty close to all buyers well buyers at south.
So these are.
More opex kind of our expenses that we can't invest up and down in line with the business.
So relatively swiftly.
As opposed to a long time since you've been kind of pay tax.
So that's the way we want to run it and to ensure that our Xiaomi express country and to be very competitive and Oh more reduced cost booked in liberty followed buyers tend to work very closely also with the other third party service providers to potentially reduce cost I mean food delivery.
Quality and efficient.
Okay.
The next question comes from Ranjan Sharma from Jpmorgan. Please go ahead.
Yeah.
Hi, good evening and thank you for the presentation and the opportunity two questions from my side Firstly.
Oney or financial services.
With the close to 60% reduction in losses, Although you don't your basis.
Should we also be thinking about potential breakeven.
EBITDA breakeven or financial services next year.
Second question is on your other services adjusted EBITDA losses of about 140%.
Can you please share more details what's behind that and whether we should expect that to reduce in the coming quarters. Thank you.
Thank you Roger.
Uh huh.
Yes, that's a business.
As we shared a reduction in losses.
He came from our tightening on that spending.
Spending in terms of investments into.
Walnuts are mobile wallets are initiated and we will continue to focus on efficiency.
And given our apparently the losses that at a very manageable level.
As we continue to improve cost efficiency and monetization over time, we believe that this business is something that isn't much of a long term business that we need to focus on quality as opposed to scale.
Scale, well as rapidly as possible.
Rapid monetization so.
So we want to make sure that our business model is resilient.
Including the credit business in terms of the.
Alrighty quality user experience operational efficiency et cetera, and also in terms of a banking business again, it's a very much a quality trusted resilience.
So we don't expect a lot of fluctuations.
In this business and so we don't see it at this point as a.
A business that we focus on.
And in terms of profitability are exactly the other services.
Our adjusted EBITDA increase was and I think if you look at the quarter on quarter, it's a much.
Much smaller and a lot of it is actually also related to them.
Severance.
That Oh, we initiated in the corner.
Leading to the food delivery business. So if we are we are taking into account adjusted for that kind of that path and I think the that's trend probably is that it in a different direction, but in any case, we continue to manage the cost efficiency quality efficiency.
Other services and so we expect to see more savings to show up.
I don't quite understand.
The next question comes from Varoom Abuja from Credit Suisse. Please go ahead.
Yeah, Hi, Thanks for the opportunity My first question is on the gaming side.
If you look at the second quarter, there was some stability in the user base.
Third quarter again, we have seen an 8% quarter on quarter decline.
So if you can help us understand what is happening there is it.
The new users who lost three six months, we're coming to the platform as the world of user base, Oh enriched bejan, so that could give some clarity on that front related to gaming business given the reduction in guidance compared with the two suppose midyear last quarter what are the negative surprises that you see on that business.
So.
Oh, what do you would bring down the guidance and not give more clarity on the business.
It can be.
On the overall, oh outlook or guidance to consumption of guidance.
What data points are you looking at in terms of market rent Ken.
And we still expect the resumption of the guidance so.
From a from the company.
Rich all in touch so part two data points that you want to.
Look at before resuming guidance. Thank you.
Thank you Barbara.
So the gain guidance.
As we shared right.
Right now we continue to see a impact on user engagement at our user base.
The macro headlines.
And also we see that in Q.
Two or three where school reopens. That's fully there's also pilots anything can impact on the some of the user base of music engagement churn numbers.
So that's why you know we revised the guidance Miller.
No longer runs and how this will trend.
Trends are I think it still remains to be seen of.
Of course, as we also shared that.
Got it.
As an example.
It's a it's a six year old game at a probably starting to see some beautiful.
In the game six years since its launch until we believe that our after your Beach Center core user base.
For a very long time games with the right type of operations in an effort there could be.
Potential upside to this game.
The tangible knocking that performance now for free fire is still remain to be seen where the core user base are maybe on the beach and chest. So all the focus is on continuing against the in.
Comes up that providing the best experience that we've seen.
As we catch all users.
In terms of the.
Guidance for the future.
As we shared.
The macro uncertainties.
And at this point till we do not intend to provide a guidance a small business.
So if our view changes about the baffle enter operation.
We made a we will update the market then.
The next question comes from Josh Levin from Autonomous Research. Please go ahead.
The first question is on garena.
How much visibility do you have integrated bookings and EBITDA or asked another way how can investors be confident that management can accurately forecast screenings bookings and EBITDA over the next year or so the second question is can you provide a bit more detail on what is in the DFS loan book, what kind of loans are in there and what you might have done to change.
Your underwriting policies given the macro uncertainty thank you.
Thank you Josh.
As we shared are just not that we're not providing guidance.
Our fall business, including bookings for US just so entertainment given stuff that backhaul, although and in terms of the digital financial services.
We have various products across different markets that are related to the credit business, including by not paying a part out.
Laughter, all buyers and sellers.
That's factored into all of the sellers. So we will continue to improve.
Football underwriting quality.
By and reviewing the data and also by looking at cycles inflammation backlog information taking into a population as many factors that we can just happened also past track record all five user and user behavior to the project.
10 shell.
<unk> you Sir.
Use our patents and yeah I know.
Just follow up on the writing policies Accordingly, and that's also as we shared our average tenure funnel outstanding is four months. So it's a relatively short tenure at this point and little potential act swiftly to manage all of them both of them was quality and focus on user experience. Thank you.
Due to time constraints. This concludes our question and answer session I would like to turn the conference back over to MS. Zhu song for any closing remarks.
Thank you all for joining on today's call are we very much look forward to speaking to all of you again next quarter. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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Yeah.
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