BEIJING

, Dec. 7, 2020 /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 six months ended

June 30, 2020

.

First Half of 2020




Highlights

• Net revenues increased 1% to RMB129.4 million (
  
  US$18.3 million
  
  ), from RMB128.4 million in the comparable period of 2019.
• Net loss attributable to Gridsum’s ordinary shareholders was RMB180.7 million (
  
  US$25.6 million
  
  ), compared with RMB284.9 million in the same period of 2019.

First Half of 2020




Financial Results

REVENUES:


Net revenues increased 1% to RMB129.4 million (

US$18.3 million

) from RMB128.4 million in the comparable period of 2019.

Enterprise revenues were

RMB81.9

million (

US$11.6 million

), representing a decrease of 31% compared with the comparable period in 2019, primarily due to the Company’s ongoing strategic restructuring towards a focus on higher growth and ultimately higher margin solutions such as Legal and IIoT solution services. Enterprise revenues were also impacted by a softening Chinese macroeconomic environment and a decrease in consumer demand.

E-Government and other revenues increased 307% to RMB48.5 million (

US$6.9 million

) from RMB11.9 million in the comparable period of 2019. The increase was primarily due to the rapid growth of the Company’s Legal solutions business, which accounted for a double-digit percentage of total revenues in the first half of 2020, compared to a low single-digit percentage of total revenues in the comparable period of 2019.

COST OF REVENUES:


Cost of revenues increased 18% to RMB44.6 million (

US$6.3 million

), compared with RMB37.8 million in the comparable period of 2019.

GROSS PROFIT AND GROSS MARGIN:


Gross profit decreased 6% to RMB84.8 million (

US$12.0 million

) from RMB90.6 million in the comparable period of 2019. Gross margin decreased to 65.5% from 70.6%, mainly due to the change in revenue mix from our strategic restructuring combined with the inherently time-lagged nature of costs versus revenues.

OPERATING EXPENSES:


Total operating expenses decreased 38% to

RMB232.4

million (

US$32.9 million

) from

RMB374.8

million in the comparable period of 2019, reflecting the Company’s continued change in business mix and other impacts associated with the Company’s continued strategic restructuring.

• Sales and marketing expenses decreased 36% to
  
  RMB48.3 million
  
  (
  
  US$6.8 million
  
  ) from
  
  RMB75.0 million
  
  in the comparable period of 2019. The decrease was primarily due to a
  
  RMB18.3 million
  
  decrease in staff costs, a
  
  RMB4.3 million
  
  decrease in entertainment expenses, and a
  
  RMB2.3 million
  
  decrease in travel expenses.
• Research and development expenses decreased 49% to
  
  RMB94.1 million
  
  (
  
  US$13.3 million
  
  ) from
  
  RMB183.1 million
  
  in the comparable period of 2019. 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 decreased 23% to
  
  RMB90.0 million
  
  (
  
  US$12.7 million
  
  ) from
  
  RMB116.8 million
  
  in the comparable period of 2019. The decrease was primarily due to a
  
  RMB9.8 million
  
  decrease in staff costs.

LOSS FROM OPERATIONS:


Loss from operations was RMB147.6 million (

US$20.9 million

), compared with

RMB284.2

million in the comparable period of 2019.

NET LOSS ATTRIBUTABLE TO GRIDSUM’S ORDINARY SHAREHOLDERS:


Net loss attributable to Gridsum’s ordinary shareholders was RMB180.7 million (

US$25.6 million

), compared with RMB284.9 million in the comparable period of 2019.

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 RMB159.7 million (

US$22.6 million

), compared with RMB253.5 million in the comparable period of 2019.

EBITDA:


Loss before interest, income tax, depreciation and amortization was RMB125.5 million (

US$17.8 million

), compared with RMB275.4 million in the comparable period of 2019.

ADJUSTED EBITDA:


Adjusted loss before interest, income tax, depreciation and amortization, which excludes share-based compensation expenses, was RMB104.4 million (

US$14.8 million

), compared with RMB244.0 million in the comparable period of 2019.

NET LOSS PER ADS ATTRIBUTABLE TO GRIDSUM’S ORDINARY SHAREHOLDERS:


Net loss per ADS attributable to Gridsum’s ordinary shareholders was RMB5.22

(US$0.74)

, compared with RMB8.30 in the comparable period of 2019.

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 RMB4.61

(US$0.65)

, compared with RMB7.39 in the comparable period of 2019.

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 first half of 2020 was 34,622,313. As of June 30, 2020, the total number of ordinary shares outstanding was 34,658,013.

Balance Sheet

As of June 30, 2020, the Company had cash and cash equivalents of RMB10.4 million (

US$1.5 million

), and restricted cash of RMB0.04 million (

US$0.006 million

).

Recent Developments

Going-Private Transaction

On

October 1, 2020

, the Company announced that it had entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Gridsum Corporation (“Parent”), and Gridsum Growth Inc., a wholly owned Subsidiary of Parent (“Merger Sub”), pursuant to which the Company will be acquired by an investor consortium led by Mr. Guosheng Qi (the “Chairman”), chairman of the board of directors of the Company (the “Consortium”) in an all-cash transaction that values the Company’s equity at approximately

US$75.5 million

(the “Merger”).

Pursuant to the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each ordinary share of the Company (each, a “Share”) issued and outstanding immediately prior to the Effective Time will be cancelled and cease to exist in exchange for the right to receive

US$2.00

in cash without interest, and each outstanding American depositary share of the Company (each, an “ADS,” representing one class B ordinary share of the Company) will be cancelled in exchange for the right to receive

US$2.00

in cash without interest, except for (a) Shares (including Shares represented by ADSs), Company’s options and restricted share unit awards owned by the Chairman, Mr.

Guofa Yu

and their affiliates (the “Rollover Securityholders”) which will be rolled over in the transaction, (b) Shares (including Shares represented by ADSs ) owned by Parent, Merger Sub, the Company (as treasury shares, if any) or any of their direct or indirect wholly-owned subsidiaries, (c) Shares (including Shares represented by ADSs ) reserved (but not yet allocated) by the Company for settlement upon exercise or vesting of Company’s options and/or restricted share unit awards, and (d) Shares held by shareholders who have validly exercised and not effectively withdrawn or lost their rights to dissent from the merger pursuant to Section 238 of the Companies Law of the Cayman Islands, which will be cancelled and cease to exist in exchange for the right to receive the payment of fair value of those dissenting shares in accordance with Section 238 of the Companies Law of the Cayman Islands.

KANG BO SI NAN

(

BEIJING

) TECHNOLOGY CO., LTD., a company formed by the Consortium and the sole shareholder of Parent (“KBSN”), and the Rollover Securityholders intend to fund the Merger with a combination of rollover equity and cash, and KBSN has delivered copy of an executed equity commitment letter to the Company.

The Board, acting upon the unanimous recommendation of a committee of independent directors established by the Board (the “Special Committee”), approved the Merger Agreement and the Merger and resolved to recommend that the Company’s shareholders vote to authorize and approve the Merger Agreement and the Merger. The Special Committee negotiated the terms of the Merger Agreement with the assistance of its financial and legal advisors.

The Merger is currently expected to close in the first quarter of 2021 and is subject to customary closing conditions, including the receipt of certain PRC governmental approvals and the approval of the Merger Agreement by an affirmative vote of holders of Shares representing at least two-thirds of the voting power of the Shares present and voting in person or by proxy at a meeting of the Company’s shareholders. The Rollover Securityholders have each agreed to vote all of the Shares and ADSs they beneficially own, which represent approximately 68% of the voting rights attached to the outstanding Shares as of the date of the Merger Agreement, in favor of the authorization and approval of the Merger Agreement and the Merger. If completed, the Merger will result in the Company becoming a privately held company, and its ADSs will no longer be listed on The Nasdaq Global Select Market.

On November  24, 2020 The Company filed with the U.S. Securities and Exchange Commission a Schedule 13E-3 transaction statement, which attached as an exhibit a preliminary proxy statement of the Company which, subject to completion, will be used in connection with the extraordinary general meeting of the Company’s shareholders to be convened to vote on the Merger. Please refer to the preliminary proxy statement for more information about the Merger, the Company and the other participants in the Merger, including the effects of the Merger on the Company and the effects on it if the Merger is not completed.

Convertible Note Settlement

On

May 5, 2018

, the Company issued to FutureX Innovation SPC (the “FutureX”) a convertible note in the principal amount of

$40.0 million

due

November 5, 2019

(the “Original Note”), and bearing interest at the rate of 2.80% per year. On

March 3, 2020

, the Company entered into an extension agreement with FutureX, pursuant to which the parties agreed, among other things, to extend the maturity date of the Note to

May 31, 2020

(the Original Note as so amended and supplemented, the “Note”). The Company has not yet repaid the Note.

On

October 22, 2020

, the Company entered into a settlement agreement (the “Settlement Agreement”) in respect of the Note with FutureX, Parent, Merger Sub and KBSN.

Pursuant to the Settlement Agreement, the Company shall pay or cause to be paid to FutureX a lump sum amount in cash equal to

US$46,000,000

(the “Settlement Amount”) on the earliest of (i) the closing of the Merger pursuant to the Merger Agreement, or any other transaction having a similar effect, (ii) the termination of the Merger Agreement, and (iii)

March 31, 2021

, which may be extended to

June 30, 2021

by mutual written consent of the Company and FutureX solely for the purpose of satisfying certain closing conditions set forth in the Merger Agreement (such earliest date, the “Settlement Date”). The equity commitment by KBSN under the equity commitment letter issued by KBSN on

September 30, 2020

to Gridsum Group Limited and Parent in connection with the Merger Agreement is permitted to be used to fund the Settlement Amount. Upon full payment of the Settlement Amount in accordance with the Settlement Agreement, the Company will be deemed to have satisfied and discharged in full and be released from its obligations under the Note.

Under the Settlement Agreement, FutureX agrees that, between

October 22, 2020

and the Settlement Date, it will not initiate any arbitration proceedings in

Hong Kong

or serve any statutory demand on the Company in the

Cayman Islands

, or engage in any other punitive legal or other action against the other parties to the Settlement Agreement which would prevent the consummation of the Merger in accordance with the Merger Agreement, in each case based on any claim arising from any event of default or breach for non-payment of principal or interest under the Note.

COVID-19

Since the beginning of 2020,

China

has experienced an outbreak of COVID-19, a disease caused by a novel and highly contagious form of coronavirus, which then spread throughout

China

and other parts of the world, including

the United States

. On

January 30, 2020

, the World Health Organization declared the outbreak of COVID-19 a “Public Health Emergency of International Concern,” and on

March 11, 2020

, the World Health Organization characterized the outbreak as a “pandemic.”

Government efforts to contain the spread of the coronavirus through lockdowns of cities, business closures, travel restrictions and emergency quarantines, among others, and responses by businesses and individuals to reduce the risk of exposure to infection, including reduced travel, cancellation of meetings and events, and implementation of work-at-home policies, among others, have caused significant disruptions to the global economy and normal business operations across a substantial list of sectors and countries. The foregoing adversely affected business confidence, consumer sentiment and economic activity, and have been, and may continue to be, accompanied by significant volatility in financial and commodity markets. The spread of the coronavirus is also likely to have broader macroeconomic implications, including reduced levels of economic growth and possibly a global recession, the effects of which will likely be felt well beyond the time the spread of infection is contained.

Substantially all of the Company’s operations are conducted in

China

and substantially all of the Company’s revenues are generated in

China

. In response to the intensifying efforts to contain the spread of COVID-19, the Chinese government took certain emergency measures, including extension of the Lunar New Year holidays, implementation of travel bans, blockade of certain roads and closure of factories and businesses, and may continue to take further measures to keep this epidemic outbreak in check. From

January 2020

to

February 2020

, the Company temporarily closed all of its corporate offices and requested all employees to work remotely. This outbreak of communicable diseases has caused, and may continue to cause companies, including the Company and certain of its customers, and other stakeholders, to implement temporary adjustment of work schemes allowing employees to work from home and adopt remote collaboration.

In particular, the outbreak of COVID-19 has caused a significant number of the Company’s marketing automation customers to reduce their marketing budgets, which has negatively affected the Company’s marketing-related solutions revenues and financial performance generally. Consequently, the COVID-19 outbreak and any measures to combat the spread of the virus, and their aftermath, has adversely affected, and may continue to adversely affect, the Company’s business operations, financial condition, operating results and cash flow.

Following the outbreak of COVID-19, the Company has seen particular and immediate impacts in its operations, including a significant slowdown in the customer sales origination and renewal cycle, increased timeframes to accomplish key tasks and incremental challenges in collecting accounts receivable in a timely manner. It has hence caused material negative impacts to the Company’s net revenues and liquidity position. The Company expects these and other negative impacts as a result of COVID-19 to continue to adversely affect our business operations, results of operation and financial position through 2020 and potentially in future periods, and the magnitude of the impact will depend on future developments, which are highly uncertain and cannot be predicted.

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 RMB7.0651 to

US$1.00

, the noon buying rate in effect on June 30, 2020 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 the substantial doubt about our ability to continue as a going concern, duration and impact of the COVID-19 pandemically, 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 repayment or settlement of indebtedness, and uncertainties as to how the Company’s shareholders will vote at the extraordinary general meeting in connection with the Merger, the possibility that competing offers will be made, the possibility that financing for the Merger may not be available, the possibility that various closing conditions for the Merger may not be satisfied or waived, and other risks and uncertainties discussed in documents filed with the U.S. Securities and Exchange Commission by the Company. Further information regarding these and other risks is included in Gridsum’s annual 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


[email protected]

Christensen

In China

Mr. Eric Yuan

Phone: +86-10-5900-1548

Email:

[email protected]

In U.S.

Mr. Tip Fleming

Phone: +1 917 412 3333

Email:

[email protected]

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SOURCE Gridsum Holding Inc.