Gridsum Reports Unaudited Second Quarter 2019 Financial Results

BEIJING,Sept. 9,2019 -- 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 second quarter ended June 30,2019.

Highlights

Net revenues decreased by 38% to RMB69.7 million (US$10.2 million) from RMB112.4 million in the comparable period of 2018.

Net loss attributable to Gridsum's ordinary shareholders decreased toRMB123.5 million(US$18.0 million) fromRMB132.2 million in the comparable period of 2018.

Second Quarter 2019 Financial Results

REVENUES:Net revenues decreased by 38% toRMB69.7 million(US$10.2 million) fromRMB112.4 millionin the comparable period of 2018.

Enterprise revenues decreased by 40% toRMB60.4 million(US$8.8 million) fromRMB100.7 millionin the comparable period of 2018,primarily due to 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 decreased by 25% toRMB9.9 million (US$1.4 million) fromRMB13.2 millionin the comparable period of 2018,mainly due to the lengthening sales cycles and lower budgeted spending by the Chinese government for legal services solutions as a result of government reorganization efforts which began in 2018.

COST OF REVENUES:Cost of revenues wasRMB19.9 million(US$2.9 million),compared withRMB22.8 millionin the comparable period of 2018.

GROSS PROFIT AND GROSS MARGIN:Gross profit decreased by 44% toRMB49.7 million(US$7.2 million) fromRMB89.6 millionin the comparable period of 2018,while gross margin decreased to 71.4% from 79.7%. 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 EXPENSES:Total operating expenses wereRMB181.7 million(US$26.5 million),compared withRMB203.3 millionin the comparable period of 2018.

Sales and marketing expenses were RMB38.1 million (US$5.6 million),compared with RMB40.1 million in the comparable period of 2018. The decrease was primarily due to a RMB4.0 million decrease in staff and other costs,which was partially offset by a RMB1.0 million increase in share-based compensation expenses.

Research and development expenses were RMB87.9 million (US$12.8 million),compared with RMB119.9 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 were RMB55.7 million (US$8.1 million),compared with RMB43.3 million in the comparable period of 2018. The increase was primarily due to a RMB8.7 million increase in share-based compensation expenses,a RMB5.4 million increase in office leasing costs and a RMB5.3 million increase in staff costs,which were partially offset by a RMB12.9 million decrease in professional service fees.

LOSS FROM OPERATIONS:Loss from operations wasRMB132.0 million(US$19.2 million),compared with RMB113.7 millionin the comparable period of 2018.

NET LOSS ATTRIBUTABLE TO GRIDSUM'S ORDINARY SHAREHOLDERS:Net loss attributable toGridsum'sordinary shareholders wasRMB123.5 million (US$18.0 million),compared withRMB132.2 millionin the comparable period of 2018. Net loss attributable to Gridum's ordinary shareholders narrowed due to a decrease in research and development expenses,gain on change in fair value of derivative liabilities and income tax benefit.

NON-GAAP NET LOSS ATTRIBUTABLE TO GRIDSUM'S ORDINARY SHAREHOLDERS:Non-GAAP net loss attributable toGridsum'sordinary shareholders,which is defined as net loss attributable toGridsum'sordinary shareholders before share-based compensation expenses,wasRMB103.2 million(US$15.0 million),compared withRMB123.1 millionin the comparable period of 2018.

EBITDA:Loss before interest,income tax,depreciation and amortization wasRMB119.6 million(US$17.4 million),compared withRMB113.1 millionin the comparable period of 2018.

ADJUSTED EBITDA:Adjusted loss before interest,depreciation and amortization,which excludes share-based compensation expenses,wasRMB99.3 million(US$14.5 million),compared withRMB104.0 millionin the comparable period of 2018.

NET LOSS PER ADS ATTRIBUTABLE TO GRIDSUM'S ORDINARY SHAREHOLDERS:Net loss per ADS attributable toGridsum'sordinary shareholders wasRMB3.60 (US$0.52),compared withRMB4.29in the comparable period of 2018.

NON-GAAP NET LOSS PER ADS ATTRIBUTABLE TO GRIDSUM'S ORDINARY SHAREHOLDERS:Non-GAAP net loss per ADS attributable toGridsum'sordinary shareholders wasRMB3.01 (US$0.44),compared withRMB3.99in the comparable period of 2018.

Each ADS represents one Class B ordinary share. For purposes of determining net loss per ADS attributable toGridsum'sordinary shareholders,the weighted average number of ordinary shares for the second quarter of 2019 was 34,315,488. As ofJune 30,2019,the total number of ordinary shares outstanding was 34,460,747.

Balance Sheet

As ofJune 30,the Company had cash and cash equivalents ofRMB65.6 million(US$9.6 million),and restricted cash ofRMB1.3 million(US$0.2 million).

Second Quarter 2019 Review

The Company's performance in the second quarter of 2019 continued to reflect the Company moving through resolution of some of the challenges,originating in 2018,where a number of events and issues negatively impacted the Company's business and performance. Additionally,revenue and growth momentum continued to be impacted by the slowdown in the Chinese economy.

The Company's restructuring of its sales and service functions continues to gain traction and is creating a more optimal revenue mix with a focus on higher-return opportunities. Following significant investments in its industrial AI and IIoT platforms throughout 2018,revenue from the Company's IIoT business continued to gain strong growth momentum during the quarter and accounted for a low double-digit percentage of total revenues in the quarter.

Recent Development

On July 16,the Company announced that its board of directors (the "Board") had received a preliminary non-binding proposal letter,dated July 15,from Guosheng Qi,Chairman of the Board and the Chief Executive Officer of the Company,Guofa Yu,a director and the Chief Operating Officer of the Company,and their respective affiliated entities,and Beta Dynamic Limited,an affiliate of Hammer Capital Private Investments Limited,proposing to acquire the Company in a going private transaction for US$3.80 in cash per American depositary share (each representing one Class B ordinary share of the Company),or US$3.80 in cash per ordinary share.

On July 22,the Company announced that the Board had formed a special committee (the "Special Committee") comprised of three independent directors Mr. Dannis Cheuk Yin Lee,Mr. Xudong Gao and Mr. Feng Lu,to evaluate the proposal and any other alternative transactions. Mr. Lee had been appointed as Chairman of the Special Committee.

On August 9,the Company announced that the Special Committee retained Orrick,Herrington & Sutcliffe LLP as its legal counsel in connection with its review and evaluation of the proposal.

At this time,no decisions have been made with respect to Gridsum's response to the proposal or any other alternative transaction. There can be no assurance that any definitive offer will be made,that any agreement will be executed or that the proposal or any other alternative transaction will be approved or consummated.

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 ofRMB6.8650 to US$1.00,the noon buying rate in effect onJune 28,2019in the H.10 statistical release of the Federal Reserve Board. The Company makes no representation that the RMB or US$ 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.

AboutGridsum

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 visithttp://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 unexpected difficulties in pursuit of our goals and strategies,unpredictability of demand for new solutions we have developed,difficulties keeping and strengthening relationships with customers,potential difficult expanding our customer base or securing new orders from existing customers,potentially costly research and development activities,liquidity and the availability of additional capital when needed,and weaknesses of our internal controls,competition in the digital intelligence market,PRC governmental policies relating to media,software,big data,the internet,internet content providers and online advertising; and general economic and business conditions . 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

InChina

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

December31,

June30,

2018

2019

2019

Assets

RMB

RMB

USD

Current assets:

Cash and cash equivalents

92,684

65,567

9,551

Restricted cash

1,334

1,349

197

Accounts receivable,net

397,969

402,901

58,689

Prepayments and other current assets

294,904

268,465

39,107

Total current assets

786,891

738,282

107,544

Non-current assets:

Investment in associates

5,000

5,000

728

Property,equipment and software,net

62,328

53,633

7,813

Intangible assets,net

13,840

22,109

3,221

Goodwill

537

537

78

Deferred tax assets

46,359

62,466

9,099

Other non-current assets

435

434

63

Operating lease right-of-use assets

-

131,709

19,186

Total non-current assets

128,499

275,888

40,188

Total assets

915,390

1,014,170

147,732

Liabilities and Shareholders' Equity

Current liabilities:

Short-term bank loan

5,000

60,000

8,740

Accounts payable

97,293

27,138

3,953

Salary and welfare payables

65,451

54,574

7,950

Taxes payable

110,529

114,644

16,700

Deferred revenues

36,126

47,640

6,940

Advances from customers

154,731

168,906

24,604

Accrued expenses and other current

liabilities

147,940

141,770

20,651

Derivative liabilities

596

19,059

2,776

Operating lease liabilities current

-

36,861

5,369

Convertible note

242,702

261,692

38,120

Total current liabilities

860,368

932,284

135,803

Non-current liabilities:

Long-term borrowing

-

91,948

13,394

Deferred tax liabilities

212

193

28

Operating lease liabilities non-current

-

104,889

15,279

Total non-current liabilities

212

197,030

28,701

Total liabilities

860,580

1,129,314

164,504

Shareholders' (deficit)/equity:

Ordinary shares —Class A

31

31

5

Ordinary shares —Class B

177

200

29

Additional paid-in capital

1,146,253

1,251,771

182,341

Statutory reserve

12,903

12,903

1,879

Accumulated other comprehensive loss

(35,496)

(25,464)

(3,709)

Accumulated deficit

(1,077,409)

(1,362,327)

(198,445)

Total Gridsum shareholders' (deficit)/equity

46,459

(122,886)

(17,900)

Non-controlling interest

8,351

7,742

1,128

Total shareholders' (deficit)equity

54,810

(115,144)

(16,772)

Total liabilities and shareholders' equity

915,390

1,170

147,732

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-Jun-18

30-Jun-19

30-Jun-19

RMB

RMB

USD

Revenues:

Enterprise

100,676

60,381

8,796

e-Government and other

13,204

9,879

1,439

Less: Business tax and

surcharges

(1,487)

(576)

(84)

Net revenues

112,393

69,684

10,151

Cost of revenues

(22,812)

(19,936)

(2,904)

Gross profit

89,581

49,748

7,247

Operating expenses:

Sales and marketing expenses

(40,102)

(38,125)

(5,554)

Research and development

expenses

(119,907)

(87,947)

(12,811)

General and administrative

expenses

(43,296)

(55,652)

(8,107)

Total operating expenses

(203,305)

(181,724)

(26,472)

Losses from operations

(113,724)

(131,976)

(19,225)

Foreign exchange loss

(3,462)

(297)

(43)

Interest expense,net

(2,332)

(4,783)

(697)

Other (expense)/income,net

2,058

3,045

444

Amortization of debt discount

(5,995)

(10,415)

(1,517)

Gain on change in fair value of

derivative liabilities

-

10,824

1,577

Loss before income tax

(123,455)

(133,602)

(19,461)

Income tax benefit

(8,873)

9,745

1,420

Net loss

(132,328)

(123,857)

(18,041)

Less: Net loss attributable to non-

controlling interests

(142)

(331)

(48)

Net loss attributable to Gridsum Holding

Inc.

(132,186)

(123,526)

(17,993)

Net loss attributable to Gridsum's

ordinary shareholders

(132,993)

Net loss

(132,328)

(123,857)

(18,041)

Foreign currency translation adjustment,

net of tax

4,853

4,371

637

Comprehensive loss

(127,475)

(119,486)

(17,404)

Less: Comprehensive loss attributable to

non-controlling interests

(142)

(331)

(48)

Comprehensive loss attributable to

Gridsum Holding Inc.

(127,333)

(119,155)

(17,356)

Weighted average number of ordinary

shares used in per share calculations:

Basic and diluted

30,825,645

34,488

34,488

Net loss per ordinary share attributable

to Gridsum's ordinary shareholders:

Basic and diluted

(4.29)

(3.60)

(0.52)

Net loss per ADS attributable to

Gridsum's ordinary shareholders:

Basic and diluted

(4.29)

(3.60)

(0.52)

GRIDSUM HOLDING INC.

RECONCILIATION OF GAAP AND NON-GAAP RESULTS

(All amounts in thousands,unaudited)

For the Three Months Ended

30-Jun-18

30-Jun-19

30-Jun-19

RMB

RMB

USD

Reconciliation of net loss attributable to Gridsum's ordinary shareholders tonon-GAAPnet loss attributable to

Gridsum's ordinary shareholders

Net loss attributable to Gridsum's ordinary shareholders

(132,186)

(123,526)

(17,993)

Share-based compensation

9,091

20,332

2,962

Non-GAAPnet loss attributable to Gridsum's ordinary shareholders

(123,095)

(103,194)

(15,031)

Weighted average number of ordinary shares used in net loss per share

attributable to Gridsum's ordinary shareholders andnon-GAAPnet loss

per share attributable to Gridsum's ordinary shareholders calculations:

Basic and diluted

30,488

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

Basic and diluted

(4.29)

(3.60)

(0.52)

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

Basic and diluted

(4.29)

(3.60)

(0.52)

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

ordinary shareholders:

Basic and diluted

(3.99)

(3.01)

(0.44)

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

shareholders:

Basic and diluted

(3.99)

(3.01)

(0.44)

Reconciliation of net loss to EBITDA and adjusted EBITDA

Net loss

(132,041)

Interest expense,332

4,783

697

Income tax expenses

8,873

(9,745)

(1,420)

Depreciation and amortization expenses

8,032

9,204

1,341

EBITDA

(113,091)

(119,615)

(17,423)

Share-based compensation

9,962

Adjusted EBITDA

(104,000)

(99,283)

(14,461)

View original content:/news-releases/gridsum-reports-unaudited-second-quarter-2019-financial-results-300913889.html