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, reported its unaudited financial results for the 1st quarter ended March 31, 2k19.
Highlights
- Net revenues declined by 56 percent (%) to RMB58.7(M) (US$8.7(M)) from RMB132.4(M) in the comparable period of 2k18.
- Net loss attributable to Gridsum’s ordinary shareholders inclined to RMB161.4(M) (US$24.0(M)) from RMB62.5(M) in the comparable period of 2k18.
1st Quarter 2k19 Financial Results
REVENUES: Net revenues declined by 56 percent (%) to RMB58.7(M) (US$8.7(M)) from RMB132.4(M) in the comparable period of 2k18.
Enterprise revenues declined by 52 percent (%) to RMB57.9(M) (US$8.6(M)) from RMB119.8(M) in the comparable period of 2k18, mainly due to: an exceptionally strong performance in sales of Social Listening solutions recorded in the comparable period of 2k18; the Company’s ongoing strategic evolution to achieve a more optimal revenue mix by proactively optimizing its Search Engine Marketing (SEM) business toward higher return opportunities; and a slowdown in the Chinese economy.
E-Government and other revenues declined by 88 percent (%) to RMB2.0(M) (US$0.3(M)) from RMB17.3(M) in the comparable period of 2k18, mainly due to the lengthening of the sales cycle and lower budgeted spending of the Chinese government for E-Government solutions caused by China’s government reorganization activities in 2k18.
COST OF REVENUES: Cost of revenues was RMB17.9(M) (US$2.7(M)), compared with RMB16.3(M) in the comparable period of 2k18.
GROSS PROFIT AND GROSS MARGIN: Gross profit declined by 65 percent (%) to RMB40.9(M) (US$6.1(M)) from RMB116.1(M) in the comparable period of 2k18, while gross margin declined to 69.6 percent (%) from 87.7 percent (%). This was mainly due to a change in revenue mix as well as a time-lag between the Company’s restructuring/optimization of its revenue mix and its cost structure.
OPERATING COSTS: Total operating costs were RMB193.1(M) (US$28.8(M)), compared with RMB175.3(M) in the comparable period of 2k18.
- Sales and marketing costs were RMB36.8(M) (US$5.5(M)), compared with RMB36.0(M) in the comparable period of 2k18. The incline was primarily due to a RMB3.3(M) incline in staff costs, partially offset by an RMB1.5(M) decline in business development, marketing, and promotion costs.
- Research and development costs were RMB95.1(M) (US$14.2(M)), compared with RMB109.2(M) in the comparable period of 2k18. The decline was primarily due to the Company leveraging its substantial foundation investments in Industrial AI, knowledge graph, data warehouse, and IIoT platform and applications in the corresponding period in 2k18.
- General and administrative costs were RMB61.1(M) (US$9.1(M)), compared with RMB30.1(M) in the comparable period of 2k18. The incline was primarily due to a RMB10.5(M) incline in provision for bad debt, a RMB5.1(M) incline in staff costs and a RMB4.7(M) incline in professional fees associated with delayed filing of the Company’s periodic reports with the SEC.
LOSS FROM OPERATIONS: Loss from operations was RMB152.2(M) (US$22.7(M)), compared with RMB59.2million in the comparable period of 2k18.
NET LOSS ATTRIBUTABLE TO GRIDSUM’S ORDINARY SHAREHOLDERS: Net loss attributable to Gridsum’s ordinary shareholders was RMB161.4(M) (US$24.0(M)), compared with RMB62.5(M) in the comparable period of 2k18. The incline was primarily due to the declines in net revenues and an incline in general and administrative costs.
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 expense, was RMB150.3(M) (US$22.4(M)), compared with RMB55.0(M) in the comparable period of 2k18.
EBITDA: Loss before interest, income tax, depreciation, and amortization was RMB155.8(M) (US$23.2(M)), compared with RMB51.6(M) in the comparable period of 2k18. The incline was mainly due to an incline in loss from operations of RMB93.0(M).
ADJUSTED EBITDA: Adjusted loss before interest, income tax, depreciation and amortization, which excludes share-based compensation costs, was RMB144.7(M) (US$21.6(M)), compared with RMB44.1(M) in the comparable period of 2k18.
NET LOSS PER ADS ATTRIBUTABLE TO GRIDSUM’S ORDINARY SHAREHOLDERS: Net loss per ADS attributable to Gridsum’s ordinary shareholders was RMB5.06 (US$0.75), compared with RMB2.03 in the comparable period of 2k18.
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 RMB4.72 (US$0.70), compared with RMB1.78 in the comparable period of 2k18.
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 1st quarter of 2k19 was 31,876,482. As of March 31, 2k19, the total number of ordinary shares outstanding was 34,302,710.
Balance Sheet
As of March 31, 2k19, the Company had cash and cash equivalents of RMB38.8(M) (US$5.8(M)), and restricted cash of RMB1.3(M) (US$0.2(M)).
1st Quarter 2k19 Review and Outlook
The Company’s performance in the 1st quarter of 2k19 continued to reflect the Company moving through a resolution of some of the challenges, originating in 2k18, where a number of events and issues negatively impacted the Company’s business and performance. Revenue and development momentum was further impacted by the slowdown in the Chinese economy.
As a result of the Company’s strategic evolution and restructuring to achieve a more optimal revenue mix and focus on higher return opportunities, revenues from Search Engine Marketing (SEM) solutions represented a smaller percentage of Enterprise revenues compared with the comparable period in 2k18.
Additionally, within SEM, the Company continued to evolve its client mix toward higher return opportunities.
The 1st quarter of 2k19 saw inclined traction from the restructuring of the Company’s sales and service functions to encourage more effective cross-sell and upsell of additional products and solutions to its client base, as well as to focus on higher return opportunities within the Company’s revenue-mix.
The Company has seen early indications of additional cross-sell and upsell of products and solutions across its client base. The Company believes that this is an important initiative that will help its financial performance in the coming months and years.
The 1st quarter of 2k19 continued to see solid traction in the Company’s IIoT business leveraging its significant investments in its industrial AI and IIoT platforms throughout 2k18.
The Company expects to continue to stabilize its core businesses and regain development momentum through 2k19 with higher Enterprise revenues and revenue development in its IIoT vertical.
On the back of the Company’s front-end investment in its IIoT and related platform and solutions in 2k18, the Company is showing early signs of potentially emerging as a leader in certain verticals in this nascent but high-opportunity industry segment in China.
Based on its current estimates and business trajectory, the Company expects a return to development in net revenues in 2k19.
Exchange Rate
This declared 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 RMB6.7112 to US$1.00, the noon buying rate in effect on March 29, 2k19 in the H.10 statistical release of the Federal Reserve Board.
The Company makes no representation that the RMB or US$ 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 costs, income tax costs and depreciation costs, 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 costs and share-based compensation, and without considering the impact of non-operating items such as interest income and costs and income tax costs.
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 costs, income tax costs, depreciation costs, 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 our 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 a 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.