energy monster(EM) - 2021 Q4 - Annual Report

PART I Item 3. Key Information The company's VIE structure, associated risks, and key financial data from 2019-2021 are presented, highlighting revenue growth alongside a recent net loss - Smart Share Global Limited is a Cayman Islands holding company that controls its Chinese operations through PRC subsidiaries and contractual arrangements with a Variable Interest Entity (VIE), Shanghai Zhixiang[14] - The company faces significant risks related to its China operations, including regulatory oversight, cybersecurity, data privacy, and potential delisting under the Holding Foreign Companies Accountable Act (HFCAA) due to PCAOB inspection limitations[16][17] - For 2019, 2020, and 2021, revenues contributed by the VIE were 0.18%, 0.34%, and 0.46% of total revenues, respectively, with third-party revenues from the VIE reaching RMB16.4 million in 2021[14] Selected Consolidated Financial Data Selected Consolidated Statement of Operations Data (in thousands RMB) | Indicator | 2019 | 2020 | 2021 | | :--- | :--- | :--- | :--- | | Total revenues | 2,022,310 | 2,809,359 | 3,585,391 | | Income/(loss) from operations | 232,061 | 131,832 | (108,999) | | Net income/(loss) | 166,606 | 75,427 | (124,615) | Selected Consolidated Balance Sheet Data (in thousands RMB) | Indicator | As of Dec 31, 2020 | As of Dec 31, 2021 | | :--- | :--- | :--- | | Total current assets | 1,745,816 | 3,247,732 | | Total assets | 2,785,635 | 4,397,981 | | Total current liabilities | 854,833 | 1,028,365 | | Total liabilities | 1,087,021 | 1,165,957 | | Total shareholders' (deficit)/equity | (3,439,260) | 3,232,024 | Selected Consolidated Cash Flow Data (in thousands RMB) | Indicator | 2019 | 2020 | 2021 | | :--- | :--- | :--- | :--- | | Net cash generated from operating activities | 444,040 | 536,118 | 226,778 | | Net cash used in investing activities | (868,296) | (261,487) | (1,714,287) | | Net cash generated from financing activities | 579,668 | 654,571 | 1,563,397 | Risk Factors - The company's business is significantly affected by the COVID-19 pandemic, which has reduced user traffic and negatively impacted revenue and expansion efforts[51][53] - The company operates in a highly competitive mobile device charging industry, which could lead to pricing pressure and a potential loss of market share[55] - The company's ADSs face a significant delisting risk and will be prohibited from trading in the U.S. in 2024 if the PCAOB cannot inspect its China-based auditor for three consecutive years[47][122] - A dual-class voting structure gives founders control of 62.0% of the aggregate voting power as of March 31, 2022, limiting the influence of other shareholders[142] Item 4. Information on the Company This section details the company's history, business model, operational network, and the organizational structure governing its Variable Interest Entity (VIE) History and Development of the Company - The company was founded in 2017 with the establishment of Shanghai Zhixiang Technology Co, Ltd, and the holding company was incorporated in the Cayman Islands[169] - The company listed its American Depositary Shares (ADSs) on the Nasdaq Global Select Market under the symbol "EM" in April 2021[169] Business Overview - The company is a consumer tech firm providing mobile device charging services via an extensive network of power banks located at Points of Interest (POIs)[171] Key Operational Metrics | Metric | As of Dec 31, 2019 | As of Dec 31, 2020 | As of Dec 31, 2021 | | :--- | :--- | :--- | :--- | | Cumulative Registered Users | 149.1 million | 219.4 million | 286.9 million | | Number of POIs | ~588,000 | ~664,000 | >845,000 | | Power Banks in Circulation | 4.5 million | 5.4 million | 5.7 million | - The company operates through a direct operation model for larger urban areas and a network partner model to expand into smaller cities[180] - Proprietary technology, including a hardware management system for its 5.7 million power banks and an AI-enabled business intelligence system, is used to optimize operations[171][197] Organizational Structure - To comply with PRC restrictions on foreign ownership, the company conducts certain business through a Variable Interest Entity (VIE), Shanghai Zhixiang, controlled via contractual arrangements[278] - Control over the VIE is established through key contractual agreements, including Proxy Agreements, an Equity Interest Pledge Agreement, and an Exclusive Business Cooperation Agreement[279][281][282] Operating and Financial Review and Prospects Financial performance analysis shows 27.6% revenue growth in 2021 but a shift to a net loss due to higher expenses and COVID-19 impacts Operating Results Year-over-Year Financial Performance (in millions RMB) | Metric | 2020 | 2021 | % Change | | :--- | :--- | :--- | :--- | | Total Revenues | 2,809.4 | 3,585.4 | 27.6% | | Mobile device charging business | 2,711.5 | 3,455.8 | 27.4% | | Cost of Revenues | 430.8 | 557.2 | 29.3% | | Sales and Marketing Expenses | 2,121.0 | 2,951.0 | 39.1% | | Income/(Loss) from Operations | 131.8 | (109.0) | N/A | | Net Income/(Loss) | 75.4 | (124.6) | N/A | - The increase in 2021 revenue was primarily driven by recovery from COVID-19 and an increase in the number of POIs from over 664,000 to over 845,000[314] - Sales and marketing expenses rose 39.1% in 2021, mainly due to a 34.0% increase in incentive fees paid to partners as business expanded[315] - The company incurred a net loss of RMB124.6 million in 2021, compared to a net income of RMB75.4 million in 2020, attributed to the impact of regional COVID-19 outbreaks[317] Liquidity and Capital Resources Summary of Cash Flows (in thousands RMB) | Cash Flow Activity | 2020 | 2021 | | :--- | :--- | :--- | | Net cash generated from operating activities | 536,118 | 226,778 | | Net cash used in investing activities | (261,487) | (1,714,287) | | Net cash generated from financing activities | 654,571 | 1,563,397 | - The company raised approximately US$136.0 million in net proceeds from its initial public offering in March 2021[323] - As of December 31, 2021, cash and cash equivalents were RMB 1,296.9 million (US$203.5 million), and short-term investments were RMB 1,418.7 million (US$222.6 million)[323] - Material cash requirements as of December 31, 2021, include RMB 29.0 million in operating lease commitments and RMB 80.1 million in equipment purchase obligations[333] Directors, Senior Management and Employees Details on leadership, compensation, board structure, and workforce are provided, highlighting the founders' significant voting control via a dual-class share system - As of December 31, 2021, the company had 5,094 employees, with 4,310 designated as business development personnel[361][362] - For the year ended December 31, 2021, the company paid an aggregate of RMB 9.4 million (US$1.5 million) in cash to its executive officers[347] - The company has a dual-class share structure where founders, through their holdings of all Class B shares, controlled 63.7% of the total voting power as of March 31, 2022[365] - The company adopted the 2021 Share Incentive Plan, with options for 4,636,358 Class A ordinary shares and 9,266,459 restricted share units outstanding as of March 31, 2022[350][351] Major Shareholders and Related Party Transactions The company's major shareholders are outlined alongside significant related party transactions, including equipment purchases and historical lease agreements - The company granted registration rights to certain shareholders under its shareholders' agreement, though special rights terminated upon the IPO in April 2021[371] - Significant related party transactions include power bank and cabinet purchases from ZMI (Hong Kong) International Company Limited, with amounts due totaling RMB 23.3 million as of December 31, 2021[374] - In May 2020, the company entered a one-year capital lease agreement for cabinets with shareholder People Better Limited for a selling price of RMB 50.0 million[374] Financial Information This section includes the company's consolidated financial statements, confirms no material legal proceedings, and outlines its dividend retention policy - The company is not currently a party to any material legal proceedings that would be expected to have a significant adverse effect on its business[377] - The company has no present plan to pay cash dividends and intends to retain future earnings to operate and expand its business[378] Additional Information Corporate governance details, including the dual-class share structure, and material tax considerations for investors in various jurisdictions are described - The company's shares are divided into Class A (one vote per share) and Class B (ten votes per share), concentrating voting power with Class B shareholders[385] - The Cayman Islands, the company's jurisdiction of incorporation, does not levy taxes on profits, income, gains, or appreciation, and there is no withholding tax on dividends[405] - The company does not believe it was a Passive Foreign Investment Company (PFIC) for the 2021 taxable year but notes that this status is determined annually[414] Quantitative and Qualitative Disclosures about Market Risk The company's exposure to credit, foreign exchange, and interest rate risks is detailed, noting the absence of derivative hedging instruments - The company's primary market risks are credit risk, foreign exchange risk, and interest rate risk[424][425][426] - The company is exposed to foreign exchange risk as its business is denominated in RMB while its ADSs are traded in U.S. dollars; a 1% change in the USD/RMB exchange rate would have impacted 2021 profit by approximately RMB 15.1 million[425] - The company has not used any derivative financial instruments to manage its interest rate or foreign exchange risk exposure[425][426] PART II Modifications to the Rights of Security Holders and Use of Proceeds The use of US$136.0 million in net proceeds from the March 2021 IPO is detailed, with funds allocated to business and workforce expansion - The company raised approximately US$136.0 million in net proceeds from its IPO, which was declared effective on March 31, 2021[432] - From the IPO date to December 31, 2021, the company used approximately US$100 million of the net proceeds for business expansion (US$30M), workforce expansion (US$20M), and capital expenditure (US$50M)[432] Controls and Procedures Management concluded disclosure controls were ineffective as of year-end 2021 due to material weaknesses in financial reporting expertise and procedures - Management concluded that as of December 31, 2021, the company's disclosure controls and procedures were not effective due to material weaknesses in internal control[433] - Two material weaknesses were identified: (i) a lack of sufficient accounting personnel with U.S. GAAP expertise and (ii) a lack of formal period-end financial closing policies[437] - Remediation measures have been adopted but were not fully implemented as of December 31, 2021[437] Corporate Governance and Other Matters This section covers corporate governance topics including the audit committee expert, accountant fees, and a US$50 million share repurchase program - The board of directors has identified Onward Choi, an independent director, as the audit committee financial expert[438] Principal Accountant Fees (in thousands RMB) | Fee Category | 2020 | 2021 | | :--- | :--- | :--- | | Audit fees | 4,000 | 4,500 | - In September 2021, the company authorized a share repurchase program for up to US$50 million of its shares, with approximately US$47.0 million remaining available as of March 31, 2022[443][445] PART III Financial Statements The company's audited consolidated financial statements for fiscal years 2019-2021, prepared under U.S. GAAP, are presented with the auditor's report - The consolidated financial statements were audited by PricewaterhouseCoopers Zhong Tian LLP, which has served as the company's auditor since 2020[459] Consolidated Balance Sheet Summary (in thousands RMB) | Account | Dec 31, 2020 | Dec 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | 1,252,493 | 1,296,924 | | Total Assets | 2,785,635 | 4,397,981 | | Total Liabilities | 1,087,021 | 1,165,957 | | Total Mezzanine Equity | 5,137,874 | — | | Total Shareholders' (Deficit)/Equity | (3,439,260) | 3,232,024 | Consolidated Statement of Comprehensive Income/(Loss) Summary (in thousands RMB) | Account | 2019 | 2020 | 2021 | | :--- | :--- | :--- | :--- | | Total Revenues | 2,022,310 | 2,809,359 | 3,585,391 | | Income/(loss) from operations | 232,061 | 131,832 | (108,999) | | Net income/(loss) | 166,606 | 75,427 | (124,615) | | Net loss attributable to ordinary shareholders | (264,451) | (3,130,897) | (4,958,370) |