Gridsum Reports Unaudited Third Quarter 2019 Financial Results

BEIJING, Dec. 23, 2019 /PRNewswire/ -- Gridsum Holding Inc. ("Gridsum" or the "Company") (NASDAQ:GSUM), a leading provider of cloud-based big-data analytics and artificial intelligence ("AI") solutions in China, today reported its unaudited financial results for the third quarter ended September 30, 2019.

Highlights

    --  Net revenues decreased 25%, to RMB60.1 million (US$8.4 million), from
        RMB80.5 million in the comparable period of 2018.
    --  Net loss attributable to Gridsum's ordinary shareholders decreased 35%,
        to RMB126.7 million (US$17.7 million), from RMB193.9 million in the
        comparable period of 2018.

Third Quarter 2019 Financial Results

REVENUES: Net revenues decreased 25%, to RMB60.1 million (US$8.4 million), from RMB80.5 million in the comparable period of 2018.

Enterprise revenues decreased 20%, to RMB54.5 million (US$7.6 million), from RMB67.8 million in the comparable period of 2018, primarily due to the Company's ongoing strategic restructuring to target its Search Engine Marketing (SEM) business toward higher return opportunities and to a slowdown in the Chinese economy.

E-Government and other revenues decreased 56%, to RMB6.0 million (US$0.8 million), from RMB13.7 million in the comparable period of 2018, primarily due to reduced budgeted spending by the Chinese government as a result of government reorganization activities that began in 2018.

COST OF REVENUES: Cost of revenues decreased 10%, to RMB21.3 million (US$3.0 million), compared with RMB23.6 million in the comparable period of 2018.

GROSS PROFIT AND GROSS MARGIN: Gross profit decreased 32%, to RMB38.8 million (US$5.4 million), from RMB56.8 million in the comparable period of 2018. Gross margin decreased to 64.5% from 70.6%, reflecting the shift in revenue mix and the timelag between the Company's revenue restructuring. The Company believes its gross profit will begin to improve in 2020 as its sales mix continues to evolve with its IIoT solutions delivering a greater contribution.

OPERATING EXPENSES: Total operating expenses declined 42%, to RMB148.4million (US$20.8 million), from RMB254.4 million in the comparable period of 2018.

    --  Sales and marketing expenses declined 27%, to RMB33.1 million (US$4.6
        million), from RMB45.6 million in the comparable period of 2018. The
        decrease reflected a RMB6.6 million decrease in marketing and promotion
        expenses and a RMB4.2 million decrease in staff costs.
    --  Research and development expenses declined 53%, to RMB74.5 million
        (US$10.4 million), from RMB158.3 million in the comparable period of
        2018. The decrease primarily reflected the Company moving past the peak
        of front-end investment into its industrial AI and IIoT platforms.
    --  General and administrative expenses declined 19%, to RMB40.9 million
        (US$5.7 million), from RMB50.5 million in the comparable period of 2018.
        The decrease was primarily due to a RMB8.3 million decrease in
        professional services fees.

LOSS FROM OPERATIONS: Loss from operations was RMB109.6 million (US$15.3 million), compared with RMB197.5 million in the comparable period of 2018.

NET LOSS ATTRIBUTABLE TO GRIDSUM'S ORDINARY SHAREHOLDERS: Net loss attributable to Gridsum's ordinary shareholders was RMB126.7 million (US$17.7 million), compared with RMB193.9 million in the comparable period of 2018.

NON-GAAP NET LOSS ATTRIBUTABLE TO GRIDSUM'S ORDINARY SHAREHOLDERS: Non-GAAP net loss attributable to Gridsum's ordinary shareholders, which is defined as net loss attributable to Gridsum's ordinary shareholders before share-based compensation expenses, was RMB115.9 million (US$16.2million), compared with RMB182.8 million in the comparable period of 2018.

EBITDA: Loss before interest, income tax, depreciation and amortization was RMB97.1 million (US$13.6 million), compared with RMB199.6 million in the comparable period of 2018.

ADJUSTED EBITDA: Adjusted loss before interest, income tax, depreciation and amortization, which excludes share-based compensation expenses, was RMB86.3 million (US$12.1 million), compared with RMB188.5 million in the comparable period of 2018.

NET LOSS PER ADS ATTRIBUTABLE TO GRIDSUM'S ORDINARY SHAREHOLDERS: Net loss per ADS attributable to Gridsum's ordinary shareholders was RMB3.68 (US$0.51), compared with RMB6.29 in the comparable period of 2018.

NON-GAAP NET LOSS PER ADS ATTRIBUTABLE TO GRIDSUM'S ORDINARY SHAREHOLDERS: Non-GAAP net loss per ADS attributable to Gridsum's ordinary shareholders was RMB3.36 (US$0.47), compared with RMB5.93 in the comparable period of 2018.

Each ADS represents one Class B ordinary share. For purposes of determining net loss per ADS attributable to Gridsum's ordinary shareholders, the weighted average number of ordinary shares for the third quarter of 2019 was 34,470,418. As of September 30, 2019, the total number of ordinary shares outstanding was 34,540,511.

Balance Sheet

As of September 30, 2019, the Company had cash and cash equivalents of RMB42.7 million (US$6.0 million), and restricted cash of RMB0.06 million (US$0.008 million).

Third Quarter 2019 Review

The Company's performance in the third quarter of 2019 continued to reflect the Company'sefforts and challenges around its strategic restructuring to achieve a more optimal revenue and cost structure under operating conditions also characterized by cashflow and liquidity pressures. Momentum also continued to be impacted by the slowdown in the Chinese economy.

Recent Developments

On October 9, 2019, the Company announced that the special committee (the "Special Committee") of the Company's board of directors (the "Board") retained Houlihan Lokey (China) Limited as its financial advisor in connection with its review and evaluation of the preliminary non-binding proposal received by the Board on July 15, 2019 (the "Proposal") from Guosheng Qi, Guofa Yu, their respective affiliated entities, and Beta Dynamic Limited, an affiliate of Hammer Capital Private Investments Limited.

At this time, no decisions have been made by the Special Committee with respect to the Company's response to the Proposal or any other alternative transaction. The Special Committee has not set a definitive timetable for the completion of its evaluation of the Proposal or any other alternative transaction, and does not currently intend to announce developments unless and in the event a definitive agreement has been reached. There can be no assurance that any definitive offer will be made, that any agreement will be executed or that the transactions contemplated by the Proposal or any other alternative transaction will be approved or consummated.

On May 5, 2018, the Company issued to FutureX Innovation SPC ("FutureX") a convertible note in the principal amount of US$40,000,000 due November 5, 2019 (the "Note").The Company has not yet repaid the Note.On December 9, 2019, FutureXserved a statutory demand on the Company, under which FutureX (i) claims that the Company owes, as of December 9, 2019, a total amount of US$41,913,498 under the Note (the "Debt"), (ii) demands that the Company pay the Debt or secure or compound for it to FutureX's satisfaction, and (iii) states that if payment of the Debt is not made within 21 days of the date when the statutory demand was served on the Company, the Company will be deemed to be insolvent and a winding up petition may be presented against the Company in accordance with applicable Cayman laws.The Company is engaged in discussions to resolve its obligations under the Note but there can be no assurance that any such resolution can be reached on a timely basis, or at all. In the event the Company is deemed insolvent there can be no assurance that the Company's ADRs will remain listed for trading on The Nasdaq Stock Market.

Exchange Rate

This announcement contains translations of certain RMB amounts into U.S. Dollars ("US$") at specified rates solely for the convenience of the reader. Unless otherwise stated, all translations from RMB to US$ were made at the rate of RMB7.1477 to US$1.00, the noon buying rate in effect on September 30, 2019 in the H.10 statistical release of the Federal Reserve Board. The Company makes no representation that the RMB or US$ amounts referred could be converted into US$ or RMB, as the case may be, at any particular rate or at all.

Use of Non-GAAP Financial Measures

In evaluating the Company's business, the Company considers and uses the following non-GAAP financial measures as supplemental measures to review and assess the Company's operating performance: non-GAAP net loss attributable to Gridsum's ordinary shareholders, non-GAAP net loss per share attributable to Gridsum's ordinary shareholders, non-GAAP net loss per ADS attributable to Gridsum's ordinary shareholders, EBITDA and adjusted EBITDA. The presentation of these non-GAAP financial measures is not intended to be considered in isolation or as a substitute for the financial information prepared in accordance with U.S. GAAP. Non-GAAP net loss attributable to Gridsum's ordinary shareholders is net loss attributable to Gridsum's ordinary shareholders before share-based compensation, non-GAAP net loss per share attributable to Gridsum's ordinary shareholders is the per share equivalent and non-GAAP net loss per ADS attributable to Gridsum's ordinary shareholders is the per ADS equivalent, EBITDA is net loss before interest income and expenses, income tax expenses and depreciation expenses, and adjusted EBITDA is EBITDA before share-based compensation.

The Company presents these non-GAAP financial measures because they are used by the Company's management to evaluate the Company's operating performance and formulate the Company's business plans. These non-GAAP financial measures enable the Company's management to assess the Company's operating results without considering the impact of non-cash charges, including depreciation expenses and share-based compensation, and without considering the impact of non-operating items such as interest income and expenses and income tax expenses. The Company also believes that the use of these non-GAAP measures facilitates investors' assessment of the Company's operating performance.

These non-GAAP financial measures are not defined under U.S. GAAP and are not presented in accordance with U.S. GAAP. These non-GAAP financial measures have limitations as analytical tools. One of the key limitations of using these non-GAAP financial measures is that they do not reflect all items of income and expense that affect the Company's operations. Interest income and expenses, income tax expenses, depreciation expenses and share-based compensation have been and may continue to be incurred in the Company's business and are not reflected in the presentation of adjusted EBITDA. Further, these non-GAAP financial measures may differ from the non-GAAP financial measures used by other companies, including Gridsum's peer companies, so their utility for comparison purposes may be limited.

The Company compensates for these limitations by reconciling the Company's non-GAAP financial measures to the most directly comparable U.S. GAAP financial measures, which should be considered when evaluating the Company's performance. Investors are encouraged to review the Company's financial information in its entirety and not rely on a single financial measure. A reconciliation of these non-GAAP financial measures to their closest U.S. GAAP financial measures appears at the end of this release.

About Gridsum

Gridsum Holding Inc. (NASDAQ: GSUM) is a leading provider of cloud-based big-data analytics and AI solutions for multinational and domestic enterprises and government agencies in China. Gridsum's core technology, the Gridsum Big Data Platform and the Gridsum Prophet: Enterprise AI Engine, is built on a distributed computing framework and performs real-time multi-dimensional correlation analysis of both structured and unstructured data. This enables Gridsum's customers to identify complex relationships within their data and gain new insights that help them make better business decisions. The Company is named "Gridsum" to symbolize the combination of distributed computing (Grid) and analytics (sum). As a digital intelligence pioneer, the Company's mission is to help enterprises and government organizations in China use data in new and powerful ways to make better-informed decisions and be more productive.

For more information, please visit http://www.gridsum.com/.

Safe Harbor Statement

This announcement contains forward-looking statements. These forward-looking statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements can be identified by terminology such as "may," "will," "expects," "anticipates," "aims," "future," "intends," "plans," "believes," "estimates," "likely to" and similar statements. Forward-looking statements involve inherent risks and uncertainties. Many factors could cause actual results to differ materially from those contained in any forward-looking statement, including but not limited to general economic conditions in China, unexpected difficulties in pursuit of our business strategy, unpredictable demand for solutions we have developed, difficulties keeping and strengthening relationships with existing customers or expanding our customer base, availability of additional capital when needed, uncertainties associated with our repayiment of indebtedness and our ability to maintain listing for trading on The Nasdaq Stock Market, and uncertainty about the Proposal. Further information regarding these and other risks is included in Gridsum'sannual report on Form 20-F and other reports filed with, or furnished to, the U.S. Securities and Exchange Commission. All information provided in this press release is as of the date of this press release, and Gridsum undertakes no duty to update such information except as required under applicable law.

Investor Relations

Gridsum
ir@gridsum.com

Christensen
In China
Mr. Christian Arnell
Phone: +86-10-5900-1548
Email: carnell@christensenir.com

In U.S.
Mr. Tip Fleming
Phone: +1 917 412 3333
Email: tfleming@christensenir.com


                                                                 
       
         GRIDSUM HOLDING INC.


            
            
              CONSOLIDATED BALANCE SHEETS


       
            
              (All amounts in thousands, unaudited)






                                                                                                   
        
          As of



                                                                   
        
            December 31,    
        
        September 30,     
       
       September 30,


                                                                                            2018                        2019                       2019



     
      
              Assets                                             
       
               RMB           
        
          RMB            
       
          USD


     
      
              Current assets:


     
      Cash and cash equivalents                                                         92,684                      42,717                      5,976


     
      Restricted cash                                                                    1,334                          55                          8


     
      Accounts receivable, net                                                         397,969                     370,159                     51,787


     
      Prepayments and other current assets                                             294,904                     283,093                     39,606



     
      
              Total current assets                                                  786,891                     696,024                     97,377


     
      
              Non-current assets:


     
      Investment in associates                                                           5,000                       5,000                        700


     
      Property, equipment and software, net                                             62,328                      50,978                      7,132


     
      Intangible assets, net                                                            13,840                      21,373                      2,990


     
      Goodwill                                                                             537                         537                         75


     
      Deferred tax assets                                                               46,359                      47,712                      6,675


     
      Other non-current assets                                                             435                         337                         47


     
      Operating lease right-of-use assets                                                                         122,224                     17,100


     
      
              Total non-current assets                                              128,499                     248,161                     34,719



     
      
              Total assets                                                          915,390                     944,185                    132,096





     
      
              Liabilities and Shareholders' Equity


     
      Current liabilities:


     
      Short-term bank loan                                                               5,000                      40,000                      5,596


     
      Accounts payable                                                                  97,293                      50,581                      7,076


     
      Salary and welfare payables                                                       65,451                      62,101                      8,688


     
      Taxes payable                                                                    110,529                     113,749                     15,914


     
      Deferred revenues                                                                 36,126                      52,769                      7,383


     
      Advances from customers                                                          154,731                     187,088                     26,175


     
      Accrued expenses and other current liabilities                                   147,940                     156,891                     21,950


     
      Derivative liabilities                                                               596                       5,649                        790


     
      Operating lease liabilities current                                                                          31,104                      4,352


     
      Convertible note                                                                 242,702                     282,548                     39,530


     
      
              Total current liabilities                                             860,368                     982,480                    137,454


     
      Non-current liabilities:


     
      Long-term borrowing                                                                                          91,627                     12,819


     
      Corporate bond                                                                                               18,289                      2,559


     
      Deferred tax liabilities                                                             212                         184                         26


     
      Other non-current liabilities                                                                                 1,248                        175


     
      Operating lease liabilities non-current                                                                     101,586                     14,212


     
      
              Total non-current liabilities                                             212                     212,934                     29,791



     
      
              Total liabilities                                                     860,580                   1,195,414                    167,245





     
      
              Shareholders' (deficit)/equity:


     
      Ordinary shares -Class A                                                              31                          31                          4


     
      Ordinary shares -Class B                                                             177                         200                         28


     
      Additional paid-in capital                                                     1,146,253                   1,262,751                    176,665


     
      Statutory reserve                                                                 12,903                      12,903                      1,805


     
      Accumulated other comprehensive loss                                            (35,496)                   (47,464)                   (6,640)


     
      Accumulated deficit                                                          (1,077,409)                (1,489,041)                 (208,324)



     
      Total Gridsum shareholders' (deficit)/equity                                      46,459                   (260,620)                  (36,462)


     
      Non-controlling interest                                                           8,351                       9,391                      1,314



     
      Total shareholders' (deficit)equity                                               54,810                   (251,229)                  (35,148)



     
      Total liabilities and shareholders' equity                                       915,390                     944,185                    132,096


                                                                            
            
       GRIDSUM HOLDING INC.


                             CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
                                                        LOSS


                             (All amounts in thousands, except for share, per share
                                           and per ADS data, unaudited)




                                                                                                    For the Three Months Ended



                                                                                                             30-Sep-18             30-Sep-19      30-Sep-19



                                                                                       
              
                 RMB            
     
         RMB    
     
         USD


     
              
                Revenues:


     
              Enterprise                                                                                              67,815         54,464           7,620


     
              e-Government and other                                                                                  13,701          6,049             846


     
              Less: Business tax and surcharges                                                                      (1,062)         (379)           (53)



     
              
                Net revenues                                                                               80,454         60,134           8,413


     
              Cost of revenues                                                                                      (23,630)      (21,326)        (2,984)



     
              
                Gross profit                                                                               56,824         38,808           5,429


     
              
                Operating expenses:


     
              Sales and marketing expenses                                                                          (45,565)      (33,064)        (4,626)


     
              Research and development expenses                                                                    (158,348)      (74,490)       (10,422)


     
              General and administrative expenses                                                                   (50,454)      (40,889)        (5,720)



                             Total operating expenses                                                                (254,367)     (148,443)       (20,768)



     
              
                Losses from operations                                                                  (197,543)     (109,635)       (15,339)


     
              Foreign exchange loss                                                                                  (3,644)            37               5


     
              Interest expense, net                                                                                  (2,795)       (4,126)          (577)


     
              Other (expense)/income, net                                                                              3,297            589              82


     
              Amortization of debt discount                                                                          (9,593)      (10,711)        (1,498)


                Gain on change in fair value of derivative
                 liabilities                                                                                                          13,932           1,949



     
              
                Loss before income tax                                                                  (210,278)     (109,914)       (15,378)


     
              Income tax benefit (expenses)                                                                           15,783       (15,151)        (2,119)



     
              
                Net loss                                                                                (194,495)     (125,065)       (17,497)


                Less: Net loss attributable to non-
                 controlling interests                                                                                   (597)         1,649             231



                             Net loss attributable to Gridsum Holding Inc.                                           (193,898)     (126,714)       (17,728)



                             Net loss attributable to Gridsum's ordinary                                             (193,898)     (126,714)       (17,728)
     shareholders





     
              Net loss                                                                                             (194,495)     (125,065)       (17,497)


                Foreign currency translation adjustment, net
                 of tax                                                                                                (2,567)      (22,000)        (3,078)


     
              
                Comprehensive loss                                                                      (197,062)     (147,065)       (20,575)


                Less: Comprehensive loss attributable to non-                                                            (598)         1,649             231
     controlling interests


                             Comprehensive loss attributable to Gridsum                                              (196,464)     (148,714)       (20,806)
     Holding Inc.





                             Weighted average number of ordinary shares
     used in per share calculations:


     
              Basic and diluted                                                                                   30,827,609     34,470,418      34,470,418


                             Net loss per ordinary share attributable to
     Gridsum's ordinary shareholders:


     
              Basic and diluted                                                                                       (6.29)        (3.68)         (0.51)


                             Net loss per ADS attributable to Gridsum's
     ordinary shareholders:


     
              Basic and diluted                                                                                       (6.29)        (3.68)         (0.51)


                                                                                                          
              
           GRIDSUM HOLDING INC.


                                   
              
                RECONCILIATION OF GAAP AND NON-GAAP RESULTS


                                       (All amounts in thousands, except for share, per share and per ADS data, unaudited)




                                                                                                                                                     For the Three Months Ended



                                                                                                                                           
          
               30-Sep-18         
       
       30-Sep-19     
       
       30-Sep-19



                                                                                                                                              
         
                RMB              
       
        RMB          
       
        USD


                             Reconciliation of net loss attributable to Gridsum's ordinary shareholders to non-GAAP net loss
                              attributable to
     Gridsum's ordinary shareholders


     
              Net loss attributable to Gridsum's ordinary shareholders                                                                                              (193,898)            (126,714)              (17,728)


     
              Share-based compensation                                                                                                                                 11,081                10,859                  1,519


     
              Non-GAAP net loss attributable to Gridsum's ordinary                                                                                                  (182,817)            (115,855)              (16,209)
     shareholders


     
              Weighted average number of ordinary shares used in net
     loss per share attributable to Gridsum's ordinary
     shareholders and non-GAAP net loss per share attributable
     to Gridsum's ordinary shareholders calculations:


     
              Basic and diluted                                                                                                                                    30,827,609            34,470,418             34,470,418


     
              Net loss per ordinary share attributable to Gridsum's ordinary
     shareholders:


     
              Basic and diluted                                                                                                                                        (6.29)               (3.68)                (0.51)


     
              Net loss per ADS attributable to Gridsum's ordinary
     shareholders:


     
              Basic and diluted                                                                                                                                        (6.29)               (3.68)                (0.51)


     
              Non-GAAP net loss per ordinary share attributable to
     Gridsum's ordinary shareholders:


     
              Basic and diluted                                                                                                                                        (5.93)               (3.36)                (0.47)


     
              Non-GAAP net loss per ADS attributable to Gridsum's
     ordinary shareholders:


     
              Basic and diluted                                                                                                                                        (5.93)               (3.36)                (0.47)




                             Reconciliation of net loss to EBITDA and adjusted EBITDA


     
              Net loss                                                                                                                                              (194,495)            (125,065)              (17,497)


     
              Interest expense, net                                                                                                                                     2,795                 4,126                    577


     
              Income tax expenses                                                                                                                                    (15,783)               15,151                  2,120


     
              Depreciation and amortization expenses                                                                                                                    7,922                 8,659                  1,211


     
              EBITDA                                                                                                                                                (199,561)             (97,129)              (13,589)


     
              Share-based compensation                                                                                                                                 11,081                10,859                  1,519


     
              Adjusted EBITDA                                                                                                                                       (188,480)             (86,270)              (12,070)

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SOURCE Gridsum Holding Inc.