Exhibit (c)-(2)
Project Crystal DISCUSSION MA TERIALS FOR THE SPECIAL COMMITTEE JULY 10, 2020 PRELIMINARY AND CONFIDENTIAL | SUBJEC T TO FURTHER REVIEW AND REVISION
Table of Contents Page 3 9 16 17 26 35 38 40 1. 2. 3. Executive Summary Preliminary Financial Analyses Appendices Selected Benchmarking Information Selected Public Market Observations Illustrative Prelim. Financial Information - Go Private Case Glossary Disclaimer 4. 2 Preliminary and Confidential | Subject to Further Review and Revision
Page 3 9 16 40 1. 2. 3. 4. Executive Summary Preliminary Financial Analyses Appendices Disclaimer
Executive Summary Situation Overview Gridsum Holding Inc. (NASDAQ:GSUM) (“Gridsum” or the “Company”) is a publicly traded holding company incorporated in the Cayman Islands with a market capitalization of approximately $27.51 million that provides data analysis software for enterprises and government agencies in China. On July 16, 2019, the Company received a preliminary non-binding proposal letter from Guosheng Qi, Chairman of the Board and the Chief Executive Officer of the Company (the “Chairman”), Guofa Yu, a director and the Chief Operating Officer of the Company (the “COO”), their respective affiliated entities, and Beta Dynamic Limited, an affiliate of Hammer Capital Private Investments Limited, proposing to acquire all of the outstanding shares of the Company that are not already owned by the proposed buyers in a going-private transaction for $3.80 in cash per American Depository Share (“ADS”, each representing one Class B ordinary share) (the “2019 Proposal”). On May 1, 2020, the Company received a revised preliminary non-binding proposal from an enlarged group of buyers consisting of the Chairman, the COO, their respective affiliated entities, Beta Dynamic Limited, Shenzhen Qianhai Banyan Capital Investment & Management Co., Ltd and Hangzhou Yutao Capital Co., Ltd (collectively, the “Buyer Consortium”), proposing to acquire all outstanding ADS of the Company not already owned by the Buyer Consortium in a going-private transaction for $2.00 in cash per ADS (the “Proposal”). Trade in Service Innovation Investment Fund was added to the Buyer Consortium on May 15, 2020. The Buyer Consortium, as currently proposed, owns 35.5% of the outstanding common shares and 70.4% of the voting power. Source: Company management, public filings, Capital IQ. 1. As of 7/7/2020. Preliminary and Confidential | Subject to Further Review and Revision 4
Executive Summary Preliminary Proposal Overview Preliminary Implied Premiums to Historical Unaffected ADS Trading Prices Preliminary Summary of Proposal Value (dollars, RMB and ADS in millions, except per ADS values) (dollars per ADS in actuals) Implied Premium of Per ADS Proposal Consideration over Average Closing / Closing ADS Price Per ADS Proposal Consideration ADS Equivalents Outstanding Dilutive ADS Equivalents [1] Fully Diluted ADS Equivalents Outstanding Implied Preliminary Proposal Equity Value (USD) USD to RMB Exchange Rate as of 7/7/2020 Implied Preliminary Proposal Equity Value (RMB) Cash, Cash Equivalents and Restricted Cash as of 6/1/2020 Investment in Associates as of 6/1/2020 Total Debt & Accrued Interest as of 6/1/2020 [2] Non-Controlling Interests as of 3/31/2020 Implied Preliminary Proposal Enterprise Value (RMB) $2.00 34.7 2.5 Unaffected Trading Period As of 4/30/20 Average Closing / Closing ADS Price [4] 37.2 $74.3 7.0 5-Day Average Closing $0.61 227.4% ¥521.4 (14.9) (5.0) 544.5 9.4 1-Month Average Closing $0.51 290.0% ¥1,055.4 6-Month Average Closing $1.25 59.6% Corresponding Base Amount Revenue, Net LTM 3/31/2020 CY 2020E CY 2020E Adjusted [3] CY 2021E CY 2022E Implied Multiples ¥333.2 ¥271.4 ¥201.6 ¥218.0 ¥251.8 3.17x 3.89x 5.24x 4.84x 4.19x 52-Week High Closing - 5/7/2019 $3.75 (46.7%) Source: Public filings, Capital IQ, Company management. 1. Represents the net dilutive impact of an ADS equivalent of 2.9 million outstanding Company stock options outstanding based on the treasury method and an ADS equivalent of 1.6 million restricted stock units outstanding, per Company management. Does not consider ~4.3 million outstanding warrants, including 0.7 million Class B ordinary shares underlying the warrants that are not issuable due to a “beneficial ownership limitation” included in the warrants, and potential dilution from the convertible notes as both securities are out-of-the-money at exercise prices of $4.0261/share and $6.50/share, respectively. 2. Represents per Company management as of 6/1/2020, (i) ¥205.7 million ($29.3 million) short-term bank loan, long-term borrowing and corporate bond, (ii) ¥337.7 million ($48.2 million) convertible note including accrued interest and extension fees and (iii) ¥1.1 million ($0.2 million) of additional accrued interest. 3. In 2H 2019 following receipt of the 2019 Proposal, the Company entered into certain contracts for its IIoT and legal and audit segments predicated on the Company being taken private by Chinese domiciled buyers. The contracts entered into are voidable if the Company is not taken private, as Gridsum and these customers would be in violation of the recently implemented Chinese regulations on foreign-owned businesses providing software solutions to domestic Chinese companies. In the financial projections provided by Company management, which assume the Company remains publicly listed, revenue from these contracts are assumed to continue in CY 2020E but are lost entirely in CY 2021E and thereafter due to stipulations in the contracts and recent regulation. Company management indicated that expected Legal & Audit and IIoT revenue would decrease by more than 50% in CY 2020E if these contracts did not exist in CY 2020 similar to the rest of the forecast. As such and for conservative purposes, a 50% reduction was applied to Legal & Audit and IIoT revenue in CY 2020E for total adjusted CY 2020E revenue of ¥201.6 million ($28.7 million). 4. Per Capital IQ. Preliminary and Confidential | Subject to Further Review and Revision 5 52-Week Low Closing - 3/18/2020$0.35471.4% 1-Year Average Closing$1.933.9% Implied Proposal Multiples 3-Month Average Closing$0.76161.9% 10-Day Average Closing$0.54271.8% 1-Day Closing$0.63217.5% Preliminary Selected Proposal Information
Executive Summary Selected Historical Annual Financial Information (RMB in millions) Annual Revenue Annual Net Loss 2013 2014 2015 2016 2017 2018 2019 ¥470 (¥30) (¥37) ¥431 (¥62) (¥521) (¥537) 2013 2014 2015 2016 2017 2018 2019 Cash, Cash Equivalents & Restricted Cash Total Debt1 ¥524 ¥434 ¥65 2013 2014 2015 2016 2017 2018 2019 2013 2014 2015 2016 2017 2018 2019 Source: Public filings. 1. Debt balances do not include accrued interest. Preliminary and Confidential | Subject to Further Review and Revision 6 ¥248 ¥94 ¥0¥4¥0 ¥199 ¥412 ¥94 ¥78¥62 ¥27 ¥364 ¥327 ¥232 ¥125 ¥63 (¥99) (¥199)
Executive Summary Selected Historical Quarterly Financial Information (RMB in millions) Quarterly Revenue Quarterly Current Ratio In addition to the seasonality of Q4 historically being the most profitable calendar quarter, Q4 2019 benefitted from new IIoT and Legal and Audit contracts that were entered into following the 2019 Proposal. The contracts are voidable if the Company is not taken private due to recent legislation in China preventing certain companies from purchasing software solutions from foreign-owned businesses. Company management expects these contracts to be cancelled by its customers by 2021 if the Company is not taken private. ¥160 2.4x 2.0x 2.0x 1.9x ¥138 ¥132 0.9x 0.8x 0.8x ¥65 0.7x 0.5x 0.4x Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19 Q4'19 Q1'20 Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19 Q4'19 Q1'20 Quarterly Net Losses Quarterly Net Debt ¥408 ¥408 ¥390 Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19 Q4'19 Q1'20 ¥32) (¥34) (¥57) (¥63) ¥73) (¥75) (¥124) (¥127) (¥126) (¥132) (¥133) (¥251) (¥278) (¥295) (¥318) (¥161) Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19 Q4'19 Q1'20 (¥194) Debt1 ¥164 ¥256 NA NA ¥259 ¥432 ¥436 Cash2 ¥442 ¥508 NA NA ¥40 ¥43 ¥28 Source: Public filings, Company management. Note: The Company did not disclose statements of cash flow or balance sheets in certain of its quarterly filings. 1. Debt balances do not include accrued interest. 2. Represents cash, cash equivalents and restricted cash. Preliminary and Confidential | Subject to Further Review and Revision 7 ¥434 ¥27 ¥414 ¥67 ¥248 ¥94 ¥359 ¥210 ¥94 ¥412 ¥193 ¥488 ( ( ¥347 ¥219 ¥148¥154 NANA ¥130 ¥103 ¥76 ¥112¥106 ¥80¥70 ¥59¥60 1.5x NA NA
Executive Summary Selected Financial Considerations rate of the note to 24% per year effective from 1/1/2020. Source: Public filings, Capital IQ, Company management. 1. RMB/USD conversions utilizing exchange rate as of 7/7/2020 per Capital IQ. Preliminary and Confidential | Subject to Further Review and Revision 8 The selected considerations detailed below summarize the Company’s current financial condition. The Company has incurred operating losses, has raised expensive short-term financing and expects to continue to operate at a loss for the next three years before it becomes cash flow positive. The Company’s auditor has raised concern as to the Company’s ability to continue as a going concern. Selected Commentary in 2019 20-F (filed on 6/2/20) “Our independent registered public accounting firm has issued an opinion on our consolidated financial statements, which states that the consolidated financial statements have been prepared assuming we will continue as a going concern. The opinion also states that we have suffered substantial losses from operations in previous years, have a working capital deficiency, and that substantial doubt exists about our ability to continue as a going concern.” “Based on cash flow projections from operating and financing activities and existing balance of cash and cash equivalents, our management believes that there is substantial doubt as to whether existing cash and cash equivalents will be sufficient to fund our operations within one year from the date of this annual report.” “Following the outbreak of COVID-19, we have seen particular and immediate impacts in our 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.” “In 2019, due to the uncertainty of collecting a significant amount of accounts receivable that became overdue, we had to make full allowance of such overdue receivable even though we may still be able to collect a portion of such receivable in the future. This has significantly increased our allowance for doubtful accounts to ¥146.5 million (US$20.7 million1), or 43.4% of total accounts receivable before allowance for doubtful accounts, as of December 31, 2019.” FutureX Convertible Note In May 2018, the Company issued $40 million of convertible notes to FutureX Capital Limited (“FutureX”) that became due on November 5, 2019 (conversion price of $6.50/ADS). The Company failed to pay the principal amount and accrued interest of ~$42.0 million (¥296.5 million1) on November 2019. On March 3, 2020 the Company entered into an agreement with FutureX to extend the maturity date to May 31, 2020 and increase the interest On May 31, 2020, the Company became overdue on ~$48 million (~¥338 million1) related to the convertible note. Holders of the FutureX convertible note have the right to require the Company to repurchase for cash the entire note at a repurchase price equal to 100% of the principal amount plus accrued and unpaid interest upon the occurrence of certain fundamental changes of the Company, including an acquisition. However, we understand that FutureX is working with the Company on another extension of the maturity date under the expectation that the Company will be taken private this year. Other Recent Debt Financing Transactions In 2018 and 2019, the Company entered into several short-term guaranteed loan agreements. Each of the loan agreements provides for a RMB revolving credit facility with a maturity term within three months or twelve months guaranteed by Mr. Qi or Gridsum PRC Holding. In May 2019, a consolidated affiliate of the Company borrowed ¥120 million ($17 million1) from an affiliate of Hammer Capital at an annual interest rate of 4% and a term of 24 months. The loan is guaranteed by certain consolidated affiliates and is secured by a pledge of intellectual properties. In July 2019, issued ¥20 million ($3 million1) corporate bond bearing interest at 6.5% per annum and having a term of 36 months. The bond is counter-guaranteed by Guosheng Qi, Guofa Yu and Michael Yang Xu.
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Preliminary Financial Analyses Summary Preliminary Implied Per ADS Value Reference Ranges (dollars per ADS in actuals) Terminal Multiple: $0.00 $0.25 $0.50 $0.75 $1.00 $1.25 $1.50 $1.75 $2.00 $2.25 Source: Company management, public filings, Bloomberg, Capital IQ. Note: No particular weight was attributed to any single analysis. Note: Based on (i) 34.7 million ADS equivalents outstanding, (ii) the net dilutive impact of an ADS equivalent of 2.9 million outstanding Company stock options outstanding based on the treasury method and (iii) an ADS equivalent of 1.6 million restricted stock units outstanding, per Company management. Does not consider ~4.3 million outstanding warrants, including 0.7 million Class B ordinary shares underlying the warrants that are not issuable due to a “beneficial ownership limitation” included in the warrants, and potential dilution from the convertible notes as both securities are out-of-the-money at exercise prices of $4.0261/share and $6.50/share, respectively. 1. In 2H 2019 following receipt of the 2019 Proposal, the Company entered into certain contracts for its IIoT and legal and audit segments predicated on the Company being taken private by Chinese domiciled buyers. The contracts entered into are voidable if the Company is not taken private, as Gridsum and these customers would be in violation of the recently implemented Chinese regulations on foreign-owned businesses providing software solutions to domestic Chinese companies. In the financial projections provided by Company management, which assume the Company remains publicly listed, revenue from these contracts are assumed to continue in CY 2020E but are lost entirely in CY 2021E and thereafter due to stipulations in the contracts and recent regulation. Company management indicated that expected Legal & Audit and IIoT revenue would decrease by more than 50% in CY 2020E if these contracts did not exist in CY 2020 similar to the rest of the forecast. As such and for conservative purposes, a 50% reduction was applied to Legal & Audit and IIoT revenue in CY 2020E for total adjusted CY 2020E revenue of ¥201.6 million ($28.7 million). Preliminary and Confidential | Subject to Further Review and Revision 10 Preliminary Discounted Cash Flow Analysis Preliminary Selected Companies Analysis LTM (3/31/2020) Total Revenues, Net 1.00x – 3.00x $0.00 $1.79 CY 2020E Total Revenues, Net 1.00x – 3.00x $0.00 $1.08 CY 2020E Adjusted Total Revenues, Net1 1.00x – 3.00x $0.00 $0.28 CY 2021E Total Revenues, Net 1.00x – 3.00x $0.00 $0.47 CY 2022E Total Revenues, Net 0.50x – 2.50x $0.00 $0.37 $0.00 Discount Rate: 16.0% – 20.0% 1.00x – 3.00x
Preliminary Financial Analyses Summary (cont.) Preliminary Implied Per ADS Value Reference Ranges (RMB, dollars and ADS in millions, except per ADS values) LTM 3/31/2020 Revenues, Net CY 2020E Revenues, Net CY 2020E Adjusted Revenues, Net [1] CY 2021E Revenues, Net CY 2022E Revenues, Net Terminal Multiple 1.00x - 3.00x Discount Rate 16.0% - 20.0% Corresponding Base Amount ¥333.2 ¥271.4 ¥201.6 ¥218.0 ¥251.8 Selected Multiples Range 1.00x --3.00x 1.00x --3.00x 1.00x --3.00x 1.00x --3.00x 0.50x --2.50x Preliminary Implied Enterprise Value Reference Range ¥333.2 --¥999.5 ¥271.4 --¥814.1 ¥201.6 --¥604.8 ¥218.0 --¥654.0 ¥125.9 --¥629.5 (¥216.8) --¥152.0 Cash, Cash Equivalents & Restricted Cash as of 6/1/2020 [2] 14.9 --14.9 14.9 --14.9 14.9 --14.9 14.9 --14.9 14.9 --14.9 14.9 --14.9 Investment in Associates as of 6/1/2020 [2] 5.0 --5.0 5.0 --5.0 5.0 --5.0 5.0 --5.0 5.0 --5.0 5.0 --5.0 Preliminary Implied Total Enterprise Value Reference Range ¥353.1 --¥1,019.4 ¥291.3 --¥834.0 ¥221.5 --¥624.7 ¥237.9 --¥673.9 ¥145.8 --¥649.3 (¥197.0) --¥171.9 Total Debt & Accrued Interest as of 6/1/2020 [3] (544.5) --(544.5) (544.5) --(544.5) (544.5) --(544.5) (544.5) --(544.5) (544.5) --(544.5) (544.5) --(544.5) Non-Controlling Interests as of 3/31/2020 (9.4) --(9.4) (9.4) --(9.4) (9.4) --(9.4) (9.4) --(9.4) (9.4) --(9.4) (9.4) --(9.4) Preliminary Implied Total Equity Value Reference Range (RMB) ¥0.0 --¥465.5 ¥0.0 --¥280.1 ¥0.0 --¥70.8 ¥0.0 --¥120.0 ¥0.0 --¥95.4 ¥0.0 --¥0.0 USD to RMB Exchange Rate on 7/7/2020 7.0 --7.0 7.0 --7.0 7.0 --7.0 7.0 --7.0 7.0 --7.0 7.0 --7.0 Preliminary Implied Total Equity Value Reference Range (USD) $0.0 --$66.4 $0.0 --$39.9 $0.0 --$10.1 $0.0 --$17.1 $0.0 --$13.6 $0.0 --$0.0 ADS Equivalents Outstanding [4] 36.3 --37.1 36.3 --37.0 36.3 --36.3 36.3 --36.4 36.3 --36.3 36.3 --36.3 Preliminary Implied Per ADS Value Reference Range $0.00 --$1.79 $0.00 --$1.08 $0.00 --$0.28 $0.00 --$0.47 $0.00 --$0.37 $0.00 --$0.00 Source: Company management, Capital IQ, Bloomberg and public filings. Note: No particular weight was attributed to any single analysis. 1. In 2H 2019 following receipt of the 2019 Proposal, the Company entered into certain contracts for its IIoT and legal and audit segments predicated on the Company being taken private by Chinese domiciled buyers. The contracts entered into are voidable if the Company is not taken private, as Gridsum and these customers would be in violation of the recently implemented Chinese regulations on foreign-owned businesses providing software solutions to domestic Chinese companies. In the financial projections provided by Company management, which assume the Company remains publicly listed, revenue from these contracts are assumed to continue in CY 2020E but are lost entirely in CY 2021E and thereafter due to stipulations in the contracts and recent regulation. Company management indicated that expected Legal & Audit and IIoT revenue would decrease by more than 50% in CY 2020E if these contracts did not exist in CY 2020 similar to the rest of the forecast. As such and for conservative purposes, a 50% reduction was applied to Legal & Audit and IIoT revenue in CY 2020E for total adjusted CY 2020E revenue of ¥201.6 million ($28.7 million). 2. Cash, Cash Equivalents & Restricted Cash and book value of Investment in Associates per Company management as of June 1, 2020. 3. Represents per Company management as of 6/1/2020, (i) ¥205.7 million ($29.3 million) short-term bank loan, long-term borrowing and corporate bond, (ii) ¥337.7 million ($48.2 million) convertible note including accrued interest and extension fees and (iii) ¥1.1 million ($0.2 million) of additional accrued interest. 4. Based on (i) 34.7 million ADS equivalents outstanding, (ii) the net dilutive impact of an ADS equivalent of 2.9 million outstanding Company stock options outstanding based on the treasury method and (iii) an ADS equivalent of 1.6 million restricted stock units outstanding, per Company management. Does not consider ~4.3 million outstanding warrants, including 0.7 million Class B ordinary shares underlying the warrants that are not issuable due to a “beneficial ownership limitation” included in the warrants, and potential dilution from the convertible notes as both securities are out-of-the-money at exercise prices of $4.0261/share and $6.50/share, respectively. Preliminary and Confidential | Subject to Further Review and Revision 11 Preliminary Discounted Cash Flow Analysis Preliminary Selected Companies Analysis Preliminary Selected Companies Analysis Preliminary Selected Companies Analysis Preliminary Selected Companies Analysis Preliminary Selected Companies Analysis
Selected Historical & Projected Financial Information (RMB in millions) Fiscal Year Ended December 31, LT M Ended 3/31/2020 Fiscal Year Ending December 31, CAGR 2019 to 2025E CAGR 2020E to 2025E 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E Enterprise Revenue [1] e-Government and Other Revenue [2] Less: Business Tax and Surcharges [3] ¥377.0 102.2 (9.7) ¥387.6 53.1 (9.4) ¥258.9 71.8 (4.1) ¥249.3 87.7 (3.8) ¥115.9 161.0 (5.5) ¥128.0 94.4 (4.4) ¥153.8 103.1 (5.1) ¥183.4 111.7 (5.9) ¥218.9 120.9 (6.8) ¥261.4 130.4 (7.8) 0.2% 10.5% 17.7% -4.1% Growth % Cost of Revenues Gross Profit Margin % 29.1% (94.6) -8.2% (100.9) -24.3% (77.4) -16.9% (52.6) -19.7% (40.0) 15.5% (46.2) 14.9% (53.1) 15.1% (61.2) 15.3% (70.5) (73.0) ¥374.9 79.8% ¥330.4 76.6% ¥249.2 76.3% ¥260.1 78.1% ¥218.8 80.6% ¥178.0 81.6% ¥205.5 81.6% ¥236.1 81.6% ¥271.9 81.6% ¥313.4 81.6% 3.9% 7.5% Sales and Marketing Expenses Research and Development Expenses [4] General and Administrative Expenses [5] Depreciation and Amortization [6] (192.4) (257.9) (143.7) 31.5 (166.2) (533.6) (182.3) 34.7 (144.4) (320.4) (319.7) 35.3 (132.5) (276.7) (304.1) 34.4 (114.6) (307.3) (213.7) 34.1 (89.4) (159.8) (85.5) 13.7 (64.4) (95.9) (72.7) 15.4 (73.4) (91.1) (61.8) 17.1 (82.9) (104.7) (52.5) 19.0 (92.9) (120.5) (44.6) 21.1 -7.1% -15.0% -28.0% -4.1% -17.1% -26.9% Margin % Growth % -40.0% -119.9% NMF -153.1% NMF -125.7% -141.1% NMF -65.6% NMF -4.8% NMF 9.3% -323.8% 15.2% 88.1% 19.9% 51.1% Depreciation and Amortization [6] (31.5) (34.7) (35.3) (34.4) (34.1) (13.7) (15.4) (17.1) (19.0) (21.1) Margin % -46.7% -127.9% -163.9% -136.0% -153.6% -71.9% -10.9% 3.4% 9.5% 14.4% Additional Financial Information Change in Net Working Capital Capital Expenditures ¥230.2 ¥52.3 ¥156.6 ¥23.4 ¥55.2 ¥19.0 (¥8.4) ¥15.3 ¥7.0 ¥17.6 ¥15.6 ¥20.2 ¥14.9 ¥23.3 (¥4.4) ¥26.9 ¥23.0 Source: Company management and public filings. Note: Company management has indicated that operating expenses are expected to decrease significantly in the projection period due to, among other reasons, the (i) Company’s restructuring efforts, including reduced headcount, (ii) reduced need for R&D spend as much of these costs were front loaded in the past three years for the Company’s newly developed products and (iii) increased focus on the Company’s spending levels to focus on profitable and growing services. 1. Enterprise Revenue decreased in 2019 and is expected to further decrease in 2020 primarily due to shift in strategy away from SEM segment due to cash constraints and market dynamics. 2. Increased e-Government and Other Revenue segment in 2020 is due to certain IIoT and Legal and Audit contacts entered into in late 2019 predicated on the Company being taken private and owned by Chinese nationals to comply with new regulations. The financial projections, which is based on the Company remaining a public company, assume these contracts would be voided by customers due to the Company’s U.S. listing status. 3. Business Tax and Surcharges represents a 6% fee applied to revenue derived from provisions of certain modern services within the People's Republic of China. 4. Research and development expenses increased in 2018 due to substantial front-end load investment in development of the Industrial Internet of Things (IIoT) solutions business. 5. General and administrative expenses increased in 2019 due to an ¥121.3 million ($17.3 million) increase in allowance for doubtful accounts, related to COVID-19 adverse impact on customers businesses. 6. Company management indicated that historical and CY 2020E depreciation and amortization figures include decoration expense, which is related to the Company’s move to a new office location. Thereafter, the Company does not expect to incur any decoration expenses and the figures provided solely consist of depreciation and amortization on fixed and intangible assets. Preliminary and Confidential | Subject to Further Review and Revision 12 NMF NMF EBIT (¥219.2) (¥551.7) (¥535.3) (¥453.2) (¥416.9) (¥156.7) (¥27.4) ¥9.9 ¥31.7 ¥55.4 NMF NMF EBITDA (¥187.7) (¥517.0) (¥500.0) (¥418.9) (¥382.9) (¥143.0) (¥12.0) ¥26.9 ¥50.7 ¥76.5 7.2% 2.7% Revenues, Net ¥469.5 ¥431.2 ¥326.6 ¥333.2 ¥271.4 ¥218.0 ¥251.8 ¥289.3 ¥333.0 ¥383.9
Preliminary Selected Data Analytics Companies Analysis (dollars in millions, except per share / ADS values) Share / ADS Price [2] Equity Market Value [2,3] Enterprise Value [2,3] Enterprise Value [1] to Revenue Data Analytics Country Exchange LT M CY 2020E [4] CY 2021E [4] CY 2022E [4] Domo, Inc. United States Nasdaq $36.55 1,217.0 1,231.0 6.79x 6.30x 5.69x 4.86x Teradata Corporation United States New York Stock Exchange $19.52 2,218.8 2,432.8 1.30x 1.36x 1.33x 1.25x Veritone, Inc. United States Nasdaq $12.38 337.7 288.5 5.84x 5.72x 4.91x 3.39x Source: Bloomberg, Public filings and Capital IQ. Note: No company used in this analysis for comparative purposes is identical to the Company. 1. Enterprise value equals equity market value + debt outstanding + preferred stock + minority interests – cash and cash equivalents. 2. Based on closing prices as of 7/7/2020. 3. Based on diluted shares. 4. Multiples based on forward looking financial information may have been calendarized to the Company’s fiscal year end of December 31st. Preliminary and Confidential | Subject to Further Review and Revision 13 Gridsum (Unaffected as of 4/30/2020) China Nasdaq $0.63 $22.4 $78.2 1.88x NA NA NA Gridsum (Current as of 7/7/2020) China Nasdaq $0.78 $27.5 $94.7 2.03x NA NA NA Low 1.27x 1.29x 1.33x 1.25x High 10.23x 7.71x 6.29x 5.36x Median 5.12x 5.02x 4.91x 3.68x Mean 4.97x 4.45x 4.43x 3.71x TRS Information Technology Co., Ltd. China Shenzhen Stock Exchange $1.86 1,334.2 1,313.7 10.23x 7.71x 6.29x 5.36x MicroStrategy Incorporated United States Nasdaq $118.09 1,153.0 613.8 1.27x 1.29x NA NA Cloudera, Inc. United States New York Stock Exchange $11.85 $4,012.7 $3,600.7 4.41x 4.31x 3.95x 3.68x
Preliminary Selected Companies U.S. & China-Listed Low Growth Software Analysis (dollars in millions, except per share / ADS values) U.S. and China-Listed Low Grow th Softw are Share Price [2] Equity Market Value [2,3] Enterprise Value [2,3] Enterprise Value [1] to Revenue Country Exchange LT M CY 2020E [4] CY 2021E [4] CY 2022E [4] Benefitfocus, Inc. United States Nasdaq $10.95 372.8 459.0 1.56x 1.77x 1.60x 1.37x eGain Corporation United States Nasdaq $11.04 358.6 317.9 4.51x 4.26x 3.80x NA NA Net Element, Inc. United States Nasdaq $10.50 47.2 55.6 0.85x 1.02x 0.82x NA NA NA Pareteum Corporation United States Nasdaq $0.57 79.1 98.5 0.97x Qiming Information Technology Co.,Ltd United States Shenzhen Stock Exchange $1.46 597.1 488.0 2.50x NA NA NA Synchronoss Technologies, Inc. United States Nasdaq $3.22 161.6 362.7 1.22x 1.18x 1.11x NA Source: Bloomberg, Public filings and Capital IQ. Note: No company used for comparative purposes is identical to the Company. 1. Enterprise value equals equity market value + debt outstanding + preferred stock + minority interests – cash and cash equivalents. 2. Based on closing prices as of 7/7/2020. 3. Based on diluted shares. 4. Multiples based on forward looking financial information may have been calendarized to the Company’s fiscal year end of December 31st. Preliminary and Confidential | Subject to Further Review and Revision 14 Gridsum (Unaffected as of 4/30/2020) China Nasdaq $0.63 $22.4 $78.2 1.88x NA NA NA Gridsum (Current as of 7/7/2020) China Nasdaq $0.78 $27.5 $94.7 2.03x NA NA NA Low 0.35x 0.45x 0.40x 0.38x High 4.51x 4.26x 3.80x 2.86x Median 1.53x 1.69x 1.60x 1.37x Mean 1.85x 1.92x 1.70x 1.54x Synacor, Inc. United States Nasdaq $1.11 44.7 38.6 0.35x 0.45x 0.40x 0.38x QAD Inc. United States Nasdaq $40.07 868.1 740.7 2.41x 3.24x 2.59x 2.86x NetSol Technologies, Inc. United States Nasdaq $2.64 31.1 30.8 0.51x 0.53x 0.49x NA MobileIron, Inc. China Nasdaq $5.24 721.8 623.3 3.01x 3.13x 2.90x NA Digiwin Software Co.,Ltd. United States Shenzhen Stock Exchange $2.41 636.0 575.7 2.80x NA NA NA Asure Software, Inc. United States Nasdaq $6.49 $102.6 $107.1 1.49x 1.69x 1.60x NA The U.S & China-Listed Low Growth Software companies represent software companies listed in the U.S. and China that are financially similar to the Company in terms of size, historical and projected revenue growth and EBITDA margins.
Preliminary Discounted Cash Flow Analysis (RMB in millions) Projected Fiscal Year Ending December 31, Revenues, Net Growth % ¥159.6 -16.9% ¥218.0 -19.7% ¥251.8 15.5% ¥289.3 14.9% ¥333.0 15.1% ¥383.9 15.3% Discount Rate 1.00x -11.18% -10.50% -9.83% -9.15% -8.48% 2.00x 0.61% 1.42% 2.23% 3.04% 3.84% 3.00x 5.26% 6.13% 6.99% 7.86% 8.72% 16.00% 17.00% 18.00% 19.00% 20.00% Cost of Revenues Sales and Marketing Expenses Research and Development Expenses General and Administrative Expenses EBIT Taxes [2] Unlevered Earnings Depreciation and Amortization Capital Expenditures Change in Net Working Capital Unlevered Free Cash Flow s (30.3) (69.5) (198.2) (130.2) (40.0) (89.4) (159.8) (85.5) (46.2) (64.4) (95.9) (72.7) (53.1) (73.4) (91.1) (61.8) (61.2) (82.9) (104.7) (52.5) (70.5) (92.9) (120.5) (44.6) (¥268.6) 0.0 (¥156.7) 0.0 (¥27.4) 0.0 ¥9.9 0.0 ¥31.7 0.0 ¥55.4 0.0 (¥268.6) 20.2 (11.1) (6.6) (¥156.7) 13.7 (15.3) (8.4) (¥27.4) 15.4 (17.6) 7.0 ¥9.9 17.1 (20.2) 15.6 ¥31.7 19.0 (23.3) 14.9 ¥55.4 21.1 (26.9) (4.4) Discount Rate 1.00x 5.0x 5.0x 5.0x 5.0x 5.0x 2.00x 10.0x 10.0x 10.0x 10.0x 10.0x 3.00x 15.0x 15.0x 15.0x 15.0x 15.0x 16.00% 17.00% 18.00% 19.00% 20.00% (¥266.1) (¥166.7) (¥22.7) ¥22.3 ¥42.2 ¥45.3 Discount Rate 1.00x ¥170.1 ¥162.3 ¥154.9 ¥147.9 ¥141.2 2.00x ¥340.2 ¥324.5 ¥309.7 ¥295.7 ¥282.5 3.00x ¥510.3 ¥486.8 ¥464.6 ¥443.6 ¥423.7 1.00x (¥188.2) (¥196.1) (¥203.4) (¥210.3) (¥216.8) 2.00x (¥18.1) (¥33.8) (¥48.6) (¥62.5) (¥75.6) 3.00x ¥152.0 ¥128.5 ¥106.3 ¥85.4 ¥65.6 16.00% 17.00% 18.00% 19.00% 20.00% (¥358.3) (¥358.3) (¥358.3) (¥358.2) (¥358.1) + = Source: Company management. Note: Present values as of 7/7/2020; mid-year convention applied. 1. Represents a 7.0-month stub period. 2. Per Company management, the Company is not expected to be a cash taxpayer in any year from 2020-2025 due to current and expected future generated net operating loss carryforwards. 3. Implied from corresponding discount rate and 2025E Revenues, Net multiple. Preliminary and Confidential | Subject to Further Review and Revision 15 Implied Enterprise Value PV of T erminal Value as a Multiple of 2025 Revenues, Net Present Value of Cash Flow s (2020 - 2025) Implied 2025E EBIT DA T erminal Multiple [3] Implied Perpetual Grow th Rate [3] 2020E [1] 2021E 2022E 2023E 2024E 2025E
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Page 3 9 16 17 26 35 38 40 1. 2. 3. Executive Summary Preliminary Financial Analyses Appendices Selected Benchmarking Information Selected Public Market Observations Illustrative Prelim. Financial Information - Go Private Case Glossary Disclaimer 4.
Selected Benchmarking Market Capitalization1 Information Market Capitalization1 – Data Analytics (dollars in millions) 2 Mean $4,013 Median 2 $1,712 $1,276 $27 Cloudera Teradata TRS Information Technology Domo MicroStrategy Veritone Gridsum Market Capitalization1 – U.S. & China-Listed Low Growth Software (dollars in millions) Mean 2 2 Median $868 $722 $636 $597 $373 $359 $335 $260 $162 $103 $79 $47 $45 $31 $27 QAD MobileIronDigiwinQimingBenefitfocus Software eGain Synchronoss Asure Pareteum Net Element Synacor NetSol Gridsum Sources: Capital IQ, Bloomberg and public filings. Note: No company used for comparative purposes is identical to the Company. 1. Per Capital IQ as of 7/7/2020. 2. Mean and Median calculations exclude Gridsum. Preliminary and Confidential | Subject to Further Review and Revision 18 $2,219 $1,334 $1,217$1,153 $338
Selected Benchmarking LTM Revenue Information LTM Revenue – Data Analytics (dollars in millions) $1,865 Mean1 dian1 $587 $332 $49 $48 Teradata Cloudera MicroStrategy Domo TRS Information Technology Veritone Gridsum LTM Revenue – U.S. & China-Listed Low Growth Software (dollars in millions) Mean 1 Median1 $307 $298 $294 $207 $206 $195 $165 $153 $111 $101 $72 $71 $66 $60 $48 QAD Synchronoss Benefitfocus MobileIron Digiwin Software Qiming Synacor Pareteum Asure eGain Net Element NetSol Gridsum Sources: Capital IQ, Bloomberg and public filings. Note: No company used for comparative purposes is identical to the Company. 1. Mean and Median calculations exclude Gridsum. Preliminary and Confidential | Subject to Further Review and Revision 19 Me $817 $482 $181$128
Selected Benchmarking Information MRQ Total Debt to Total Capitalization1 MRQ Total Debt to Total Capitalization1 – Data Analytics Mean 2 Median2 73.9% 4.9% 0.0% Gridsum3 Cloudera MicroStrategy Veritone TRS Information Technology Domo Teradata MRQ Total Debt to Total Capitalization1 – U.S. & China-Listed Low Growth Software 2 Mean 73.9% Median2 16.4% 5.9% 10.6% 11.4% 8.2% 2.6% 1.4% 0.0% 0.0% 0.0% Benefitfocus Gridsum3 MobileIron Qiming eGain QAD Synchronoss Synacor Digiwin Software Net Element Asure Pareteum NetSol Sources: Capital IQ, Bloomberg and public filings. Note: No company used for comparative purposes is identical to the Company. 1. Calculated as Total Debt/(Total Debt + Market Capitalization) as of 7/7/2020. 2. Mean and Median calculations exclude Gridsum. 3. Total Debt includes accrued interest and extension fees. Preliminary and Confidential | Subject to Further Review and Revision 20 35.0% 19.8%22.3%22.6% 21.5% 7.7% 0.0%0.0%0.0%0.0%
Selected Benchmarking MRQ Current Ratio1 Information MRQ Current Ratio1 – Data Analytics Mean 2 Median 2 2.7x 1.3x 1.3x MicroStrategy TRS Information Technology Veritone Cloudera Teradata Domo Gridsum MRQ Current Ratio1 – U.S. & China-Listed Low Growth Software 2 Mean 3.5x Median2 2.6x 2.5x 1.5x 1.3x 1.4x 1.6x 1.4x 1.5x 1.2x 1.1x 1.0x 1.1x 0.7x 0.4x Qiming NetSolBenefitfocusQAD eGain DigiwinMobileIron Software Pareteum Asure Synacor SynchronossNet Element Gridsum Sources: Capital IQ, Bloomberg and public filings. Note: No company used for comparative purposes is identical to the Company. 1. Calculated as Current Assets/Current Liabilities. 2. Mean and Median calculations exclude Gridsum. Preliminary and Confidential | Subject to Further Review and Revision 21 1.5x 1.3x1.2x1.1x 1.0x 0.4x
Selected Benchmarking Information CY 2018 – CY 2019 Revenue Growth CY 2018 to CY 2019 Revenue Growth – Data Analytics Mean1 1 Median 83.6% 9.8% 19.3% 12.1% 14.4% (2.3%) (24.3%) Gridsum Veritone Domo TRS Information Technology Cloudera MicroStrategy Teradata CY 2018 to CY 2019 Revenue Growth – U.S. & China-Listed Low Growth Software Mean1 Median1 15.0% 14.3% 9.3% 8.3% 6.2% NA 1.7% (1.2%) (1.2%) (3.4%) (4.2%) (5.2%) (5.5%) (15.3%) (24.3%) Gridsum Asure BenefitfocusDigiwin Software eGain MobileIron Net Element NetSol Qiming Synchronoss QAD Synacor Pareteum Sources: Capital IQ, Bloomberg and public filings. Note: No company used for comparative purposes is identical to the Company. 1. Mean and Median calculations exclude Gridsum. Preliminary and Confidential | Subject to Further Review and Revision 22 22.3% (12.2%)
Selected Benchmarking Information CY 2019 – CY 2021E Projected Revenue CAGR CY 2019 to CY 2021E Projected Revenue CAGR – Data Analytics Mean1 Median1 23.1% 10.0% 8.8% (18.3%) TRS Information Technology Domo Veritone Cloudera Teradata Gridsum MicroStrategy CY 2019 to CY 2021E Projected Revenue CAGR – U.S. & China-Listed Low Growth Software Mean1 Median1 9.6% 2.7% 2.3% 2.3% 0.5% 0.5% (0.5%) NA NA NA (1.6%) (4.2%) (4.3%) (11.5%) (18.3%) Gridsum eGain Synchronoss Net Element MobileIron NetSol Benefitfocus Asure QAD Synacor Pareteum Digiwin Software Qiming Sources: Capital IQ, Bloomberg and public filings. Note: No company used for comparative purposes is identical to the Company. 1. Mean and Median calculations exclude Gridsum. Preliminary and Confidential | Subject to Further Review and Revision 23 12.5% 8.8%7.5% NA (1.8%)
Selected Benchmarking Information LTM Adjusted EBITDA Margin LTM Adjusted EBITDA Margin – Data Analytics Mean1 Median1 21.4% (9.5%) (24.9%) (125.7%) Gridsum TRS Information Technology Teradata MicroStrategy Cloudera Domo Veritone LTM Adjusted EBITDA Margin – U.S. & China-Listed Low Growth Software Mean1 Median1 9.6% 9.3% 8.9% 7.2% 4.9% 1.0% 0.8% 0.9% (0.9%) (125.7%) Digiwin Software Qiming eGainNetSol Synacor QAD Benefitfocus Net Element Asure Synchronoss Pareteum MobileIron Gridsum Sources: Capital IQ, Bloomberg and public filings. Note: No company used for comparative purposes is identical to the Company. 1. Mean and Median calculations exclude Gridsum. Preliminary and Confidential | Subject to Further Review and Revision 24 (4.2%)(6.2%)(9.7%)(14.3%)(17.5%) 9.4%5.6% (24.5%) (53.9%) (107.3%)
Selected Benchmarking Information CY 2020E Adjusted EBITDA Margin CY 2020E Adjusted EBITDA Margin – Data Analytics Mean1 1 Median 25.5% 17.3% 17.2% (3.5%) (3.5%) (141.1%) Gridsum TRS Information Technology Cloudera Teradata Domo Veritone MicroStrategy CY 2020E Adjusted EBITDA Margin – U.S. & China-Listed Low Growth Software Mean1 Median1 8.5% 11.2% 10.8%10.2% 8.5% 8.2% 6.5% 3.9% NA NA NA NA NA 8.5% (141.1%) Gridsum Net Element Asure BenefitfocusNetSoleGainSynchronoss QAD Synacor Digiwin Software Pareteum MobileIron Qiming Sources: Capital IQ, Bloomberg and public filings. Note: No company used for comparative purposes is identical to the Company. 1. Mean and Median calculations exclude Gridsum. Preliminary and Confidential | Subject to Further Review and Revision 25 NA (24.7%) (52.6%)
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Selected Public Market Observations Trading Snapshot Market Trading Overview (RMB, dollars and ADS in millions, except per ADS values and where otherwise noted) Current ADS Price as of 7/7/20 Unaffected ADS Price as of 4/30/20 Current As of 7/7/20 Unaffected As of 4/30/20 Public Market Enterprise Value Price Per ADS [3] Closing ADS Price ADS Equivalents Outstanding [1] Dilutive ADS Equivalents [1] Fully Diluted ADS Equivalents Outstanding Market Value of Equity (USD) USD to RMB Exchange Rate Market Value of Equity (RMB) Cash, Cash Equivalents and Restricted Cash [2] Investments in Associates [2] Non-Controlling Interests [2] Total Debt [2] Public Market Enterprise Value (RMB) $0.78 34.6 0.8 $0.63 34.5 1.1 10-Day Average 1-Month Average 3-Month Average 6-Month Average 52-Week High 52-Week Low $0.72 $0.80 $0.74 $0.86 $3.06 $0.35 $0.54 $0.51 $0.76 $1.25 $3.75 $0.35 35.4 $27.5 7.0 35.6 $22.4 7.1 ¥192.6 (26.6) (5.0) 9.4 493.5 ¥158.4 (42.7) (5.0) 9.4 432.5 ¥663.9 ¥552.6 Current ADS Price as of 7/7/20 Unaffected ADS Price as of 4/30/20 Other Market Information [3] Implied Multiples 90-Day Average Daily Trading Value % of Market Value of Equity 90-Day Average Daily Trading Volume (in thousands) % of ADS Equivalents Outstanding % of Public Float $0.6 2.06% 568.5 1.64% 2.59% $0.1 0.34% 106.8 0.31% 0.44% Enterprise Value / Revenue LTM [2] 2.03x 1.88x Total Public Float [4] % of Total ADSs Outstanding 21.9 63.5% Source: Public filings, Capital IQ, Bloomberg. Note: The above information reflects the most recent publicly available information. 1. Based on publicly available information as of each date. For indications based on ADS price as of 7/7/2020, represents ADS outstanding and dilutive ADS as of 12/31/2019 per the Company’s Form 20-F filed on 6/2/2020. For indications based on ADS price as of 4/30/2020, represents ADS outstanding as of 9/30/2019 per the Company’s 6-K filed on 12/23/2019 and dilutive ADS as of 12/31/2018 per the Company’s 20-F filed 4/24/2019. 2. Per public filings’ income statements and balance sheets as of 12/31/2019 for ADS price as of 7/7/2020 and as of 9/30/2019 for unaffected ADS price as of 4/30/2020. 3. Per Capital IQ as of 7/7/2020 and 4/30/2020, respectively. 4. Total public float represents Total ADSs Outstanding less the Buyer Group and other Inside Shareholders. Preliminary and Confidential | Subject to Further Review and Revision 27
Selected Public Market Observations Relative Total Shareholder Return Relative Total Shareholder Returns Prior to Proposal Since Proposal (5/1/20 – 7/7/20) 75% 50% 25% 12.4% 0% 50.5% 44.4% -25% -50% -75% (21.6)% -100% Apr-18 Jun-18 Aug-18 Oct-18 Dec-18 Feb-19 Apr-19 Jun-19 Aug-19 Oct-19 Dec-19 Feb-20 Apr-20 Jun-20 Gridsum Index Data Analytics Index U.S. & China Listed-Low Growth Software Index MSCI World Index Source: Bloomberg as of 7/7/2020. Preliminary and Confidential | Subject to Further Review and Revision 28 1-Year 2-Year Total Return Total Return 4/30/19 - 4/30/20 4/30/18 - 4/30/20 Gridsum Index (82.9%) (87.5%) Data Analytics Index (18.9%) (26.3%) U.S. & China-Listed Low Growth Software Index (32.8%) (36.5%) MSCI World Index (3.5%) 3.4%
Selected Public Market Observations ADS Price and Earnings Performance (dollars in millions, except ADS price and per ADS data) 1 FutureX Proposal 2019 Proposal Proposal $14.00 11/28/17: Reported $12.00 $10.00 $8.00 $6.00 $4.00 $2.00 and 1H18 results 1Q19 Earnings $0.00 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19 Mar-20 Jun-20 Trading Price Earnings Release Dates Sources: Capital IQ as of 7/7/2020, public filings. 1. Represents proposal from FutureX received on 5/8/2018 for $8.70/ADS. Preliminary and Confidential | Subject to Further Review and Revision 29 Earnings Release Date 8/24/1711/28/171/7/194/24/196/24/199/9/1912/23/19 Results as of Date 6/30/20179/30/20176/30/201812/31/20183/31/20196/30/20199/30/2019 Reported LTM Revenue $69.9$79.1$62.7$53.3$53.3$45.2$40.6 Reported LTM EBIT ($12.5)($15.0)($80.2)($96.1)($96.1)($97.4)($81.3) Reported Cash Balance $34.4$38.8$9.1$13.5$5.8$9.5$6.0 VWAP – 15 Days Prior to Announcement $7.68$9.50$2.52$3.28$3.14$2.10$1.96 VWAP – 15 days Post Announcement $9.44$8.62$1.74$3.62$2.82$1.81$1.41 3Q17 earnings 8/21/17: Reported 2Q17 earnings 4/24/19: Reported FY18 Results 1/7/19: Reported FY176/24/19: Reported 9/9/19: Reported12/23/19: 2Q19 EarningsReported 3Q19 Earnings
Selected Public Market Observations Timeline and ADS Trading History Closing ADS Price (US $) Daily Volume (MMs) Failed to report quarterly or annual results for the period from Q4 2017 through Q4 $14.00 $12.00 $10.00 $8.00 $6.00 $4.00 $2.00 $0.00 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 reporting controls sing K M Jul-17 Oct-17 Jan-18 Apr-18 Jul-18Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19 Mar-20 Jun-20 Daily Trading Volume Trading Price Unaffected Closing ADS price as of 4/30/2020 Selected Events featuring Tencent as a key speaker to demonstrate the close relationship estimate of ($0.13) develop an IIoT cloud platform in Shandong Province estimate of (0.08) promote transformation and digitalization of industrial enterprises services to help Lululemon expand its online presence and its business in China FutureX Innovation SPC with a principal value of US$40 million from FutureX proposing to acquire all outstanding shares of the Company for Sources: Public information, Capital IQ. 1. Per Capital IQ as of 7/7/2020. Preliminary and Confidential | Subject to Further Review and Revision 30 Event Date Comment A 8/7/17 Held partner conference to enhance its legal and e-government solutions between the two companies and plans for further cooperation going forward B 8/24/17 Reported Q2 2017 earnings of ($0.14) per ADS, missing consensus mean C 11/15/17 Announced strategic cooperation agreement with Tencent Cloud to jointly D 11/28/17 Reported Q3 2017 earnings of ($0.15) per ADS, missing consensus mean E 1/3/18 Signed Lululemon as a new client, providing AI-driven marketing automation F 5/1/18 Reported that it had entered into a convertible note purchase agreement with G 5/8/18 Announced that its Board had received a preliminary non-binding proposal letter $8.70 per share Event Date Comment H 10/29/18 Received letter from Nasdaq notifying the Company that it remains delinquent in filing its 20-F for CY 2017 and had missed the 10/29/2018 deadline for its previously granted extension to file I 12/17/18 The Company’s Audit Committee investigation spurred on by concerns raised by former auditor PwC was unable to reach conclusions on issues relating to documentation issues for certain expense items. J 1/7/19 Filed annual report for FY17 and interim report for 1H18, reporting earnings of per ADS of ($0.89) in 1H18 compared to ($0.58) in the comparable period of 2017 K 2/13/19 Announced strategic partnership with New H3C Group to build a platform to L 7/16/19 Received a non binding proposal from select management members and Hammer Capital to acquire the outstanding shares of the Company for $3.80 per share M 5/1/20 Received a revised non-binding proposal from a consortium comprised of select management members, Shenzhen Qianhai Banyan Capital Investment & Management Co. Ltd, and Hangzhou Yutao Capital Co., Ltd to acquire the outstanding shares of the Company for $2.00 per share BD AC E 2018 until filing on 1/7/19 due to m weakness in internal financial G aterial Unaffected Clo ADS Price = $0. 631 FH J L I
Selected Public Market Observations Selected Historical Trading Activity Historical VWAP (Prior to Proposal (5/1/2020))1 (dollars per share) 1-Day 10-Day 20-Day 30-Day 3-Month 6-Month 9-Month 12-Month Twelve Months Prior to Proposal (5/1/2020) Nine Months Prior to Proposal (5/1/2020) 100.0% 100.0% 80.0% 80.0% 60.0% 60.0% 40.0% 40.0% 20.3% 20.0% 20.0% 0.0% 0.0% $0.00 - $0.99 $1.00 - $1.99 $2.00 - $2.99 $3.00 - $3.99 $0.00 - $0.99 $1.00 - $1.99 $2.00 - $2.99 $3.00 - $3.99 Six Months Prior to Proposal (5/1/2020) Three Months Prior to Proposal (5/1/2020) 100.0% 100.0% 96.1% 80.0% 80.0% 60.0% 60.0% 40.0% 40.0% 20.0% 20.0% 3.9% 0.0% 0.0% 0.0% 0.0% $0.00 - $0.99 $1.00 - $1.99 $2.00 - $2.99 $3.00 - $3.99 $0.00 - $0.99 $1.00 - $1.99 $2.00 - $2.99 $3.00 - $3.99 Source: Bloomberg as of 7/7/2020. 1. Based on VWAP over specified period (1-Day, 10-Day, 20-Day, 30-Day, three months, six months, nine months, or twelve months). Reference to “Day” is based on trading days and reference to “Month” is based on calendar months. Preliminary and Confidential | Subject to Further Review and Revision 31 67.8% 25.8% 6.5% 0.0% Total Volume: 7.9 million Average VWAP1: $0.59 Total Volume: 11.1 million Average VWAP1: $0.91 57.9% 27.0% 15.1% 0.0% 43.5% 27.8% 8.4% Total Volume: 13.1 million Average VWAP1: $1.08 Total Volume: 17.4 million Average VWAP1: $1.56 $0.64$0.54$0.50$0.51$0.59$0.91$1.08$1.56
Selected Public Market Observations Trading Volume and Float Data Public Float / Shares Outstanding 98.8% 94.2% 87.0% 78.8% 76.5% 76.6% 72.8% 63.5% 90 – Day Average Daily Value Traded (dollars in millions) $81.3 $28.4 $23.0 $19.9 $13.0 $12.5 $11.0 $10.6 $8.7 $7.5 $6.3 $0.6 Source: Capital IQ as of 7/7/2020. Preliminary and Confidential | Subject to Further Review and Revision 32 $9.6 $1.3 $1.7$4.4$0.1$1.7$2.2$0.2$1.9 Data Analytics U.S. & China-Listed Low Growth Software 89.2% 79.1% 71.1% 78.7% 74.9% 80.4%76.6% 61.2% 46.1%49.4% 70.8% 54.9% 42.2% Data Analytics U.S. & China-Listed Low Growth Software
Selected Public Market Observations Trading Volume and Float Data (cont.) 90 – Day Average Daily Volume / Shares Outstanding 31.8% 3.3% 2.0% 1.9% 1.5% 1.6% 1.6% 0.4% 0.3% 0.3% 90 – Day Average Daily Volume / Public Float 36.5% 4.5% 4.1% 3.7% 3.5% 2.8% 2.6% 2.2% 2.0% 1.8% 0.5% 0.5% 0.4% Source: Capital IQ as of 7/7/2020. 1. Net Element’s volume traded reflects heightened activity following its announcement on 6/15/20 that it had entered into a letter of intent to merge with Mullen Technologies. Preliminary and Confidential | Subject to Further Review and Revision 33 4.5%5.3% 1.0%1.2%1.6%2.2%1.2%1.1% Data Analytics U.S. & China-Listed Low Growth Software 2.5%3.3%4.3% 0.8%1.2%1.7%1.3%1.8%2.2%0.6%0.8% Data Analytics U.S. & China-Listed Low Growth Software
Selected Public Market Ownership Summary Observations (shares and ADS in millions) Economic Ownership % Voting Ownership % Other Public Holdings 17.6% Other Directors and Insiders 0.4% Nokia Growth Partners II 1.4% Quantum Strategic Partners 2.7% Goldman Sachs 2.9% Buyer Consortium 35.5% Other Public Holdings 38.3% Buyer Consortium 70.4% Other Directors and Insiders 0.9% Steamboat Venture Asia 10.0% Goldman Sachs 6.4% Nokia Growth Partners II 3.0% Quantum Strategic Partners 5.8% Steamboat Venture Asia 4.6% Source: Capital IQ as of 7/7/2020, public filings, Company management. 1. Class A shares are convertible 1:1 to Class B shares; as such, economic ownership % is calculated based on total shares held by each party. 2. Class A shares are entitled to 10 votes and Class B shares are entitled to one vote. 3. Each ADS is equivalent to 1 Class B share, per Company management and public filings. 4. Represents shares owned by Mr. Qi and through his affiliates, Generation Gospel Limited and Fairy Spirit Limited. 5. Represents shares owned by Mr. Guofa and his affiliate, Garden Enterprises Limited. 6. Does not include 4.3 million Class B ordinary shares that Hammer Capital Private Investments is entitled to acquire upon exercise of the warrants to purchase ordinary shares, including 0.7 million Class B ordinary shares underlying the warrants that are not issuable due to a “beneficial ownership limitation” included in the warrants. 7. Based on ordinary share count as of 3/31/2020 per Company management. Preliminary and Confidential | Subject to Further Review and Revision 34 + = Buyer Consortium Chairman [4] 4.5 3.3 7.8 7.8 22.5% 64.4% COO [5] --1.4 1.4 1.4 4.0% 1.8% Hammer Capital Private Investments [6] --3.1 3.1 3.1 9.0% 4.1% Buyer Consortium Holdings 4.5 7.8 12.3 12.3 35.5% 70.4% Other Directors and Insiders --0.3 0.3 0.3 0.9% 0.4% Buyer Consortium & Other Directors and Insiders 4.5 8.1 12.6 12.6 Other Holdings 36.4% 70.8% Steamboat Venture Asia --3.5 3.5 3.5 10.0% 4.6% 15.8% Goldman Sachs --2.2 2.2 2.2 6.4% 2.9% 10.0% Quantum Strategic Partners --2.0 2.0 2.0 5.8% 2.7% 9.2% Nokia Growth Partners II --1.0 1.0 1.0 3.0% 1.4% 4.7% Other Public Holdings --13.3 13.3 13.3 38.3% 17.6% 60.3% Total Ordinary Shares/ADS [7] 4.5 30.1 34.7 34.7 100.0% 100.0% 100.0% Unaffiliated Ownership Voting Ownership [2] Economic Ownership [1] Total ADS Shares Equiv [3] Class B Shares [1][2] Class A Shares
Page 3 9 16 17 26 35 38 40 1. 2. 3. Executive Summary Preliminary Financial Analyses Appendices Selected Benchmarking Information Selected Public Market Observations Illustrative Prelim. Financial Information - Go Private Case Glossary Disclaimer 4.
Illustrative Selected Projected Financial Information Projections Comparison: Remain Public vs Go Private (RMB in millions) Enterprise Revenue e-Government & Other Revenue If the Company is taken private, it will not be restrained from growing its IIoT and Legal & Audit business as it will not be prohibited by recent Chinese regulations. The Company secured certain contracts in 2H 2019 based on this assumption and Company management indicated that the Company will lose these contracts if it remains public. ¥436 ¥261 ¥261 ¥659 ¥534 ¥358 ¥256 ¥161 ¥161 2020E 2021E 2022E 2023E 2024E 2025E 2020E 2021E 2022E 2023E 2024E 2025E Financial Projections Go Private Case Financial Projections Go Private Case Total Revenue1 EBITDA See e-Government & Other Revenue note. As a result of the Company’s liquidity concerns and expected inability to generate positive cash flows over the next few years, Company management estimates the Company will have a negative cash balance throughout the entire forecast period in both cases. ¥902 ¥738 ¥204 ¥155 ¥607 ¥99 ¥77 ¥51 ¥27 ¥27 ¥502 ¥376 (¥372) (¥383) 2020E 2021E 2022E 2023E 2024E 2025E 2020E 2021E 2022E 2023E 2024E 2025E Financial Projections Go Private Case Financial Projections Go Private Case Source: Company management. 1. Total Revenue is the sum of Enterprise and e-Government & Other Revenue, less business tax and surcharges. 2. Represents expected cash, cash equivalents and restricted cash as of December 31 of each respective year per Company management. Preliminary and Confidential | Subject to Further Review and Revision 36 Projected Cash Balance2 (¥336.4) (¥433.6) (¥532.4) (¥526.9) (¥558.8)(¥479.2) (¥496.1)(¥283.5) (¥425.3) (¥63.9) (¥530.1) (¥346.9) (¥12) (¥143) (¥144) ¥384 ¥333 ¥289 ¥252 ¥271 ¥271¥218 ¥130 ¥121 ¥112 ¥103 ¥94 ¥219 ¥219 ¥183 ¥183 ¥154 ¥154 ¥116 ¥116¥128 ¥128 Company management believes the best way to monetize its existing data analytics IP is to try to capture market share in its IIoT and Legal & Audit segments, which Chinese regulatory authorities have essentially deemed off-limits to foreign companies such as Gridsum. Company management has developed two sets of financial projections based on a scenario where the Company remains public, the “Financial Projections”, and a “Go Private” scenario. In the Financial Projections, the Company is severely limited from growing its e-Government and Other business; while in the “Go Private” scenario, the Company is able to grow its e-Government and Other business through expansion of existing relationships and new customers. However, Company management has asserted that the financial projections based on the “Go Private” scenario are not achievable if the Company remains public, given the aforementioned regulatory issue. A comparison of the two projections scenarios are shown below.
Illustrative Selected Historical & Projected Financial Go Private Case Information (RMB in millions) Fiscal Year Ended December 31, LTM Ended 3/31/2020 Fiscal Year Ending December 31, CAGR 2019 to 2025E CAGR 2020E to 2025E 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E Enterprise Revenue [1] e-Government and Other Revenue Less: Business Tax and Surcharges [2] ¥377.0 102.2 (9.7) ¥387.6 53.1 (9.4) ¥258.9 71.8 (4.1) ¥249.3 87.7 (3.8) ¥115.9 161.0 (5.5) ¥128.0 256.1 (7.7) ¥153.8 358.4 (10.2) ¥183.4 436.2 (12.4) ¥218.9 534.4 (15.1) ¥261.4 658.9 (18.4) 0.2% 44.7% 17.7% 32.6% Growth % Cost of Revenues Gross Profit Margin % 29.1% (94.6) -8.2% (100.9) -24.3% (77.4) -16.9% (51.2) 38.7% (58.4) 33.3% (70.7) 21.0% (83.7) 21.6% (99.4) 22.2% (118.7) (73.0) ¥374.9 79.8% ¥330.4 76.6% ¥249.2 76.3% ¥260.1 78.1% ¥220.1 81.1% ¥318.1 84.5% ¥431.3 85.9% ¥523.6 86.2% ¥638.8 86.5% ¥783.1 86.8% 21.0% 28.9% Sales and Marketing Expenses Research and Development Expenses [3] General and Administrative Expenses [4] Depreciation and Amortization [5] (192.4) (257.9) (143.7) 31.5 (166.2) (533.6) (182.3) 34.7 (144.4) (320.4) (319.7) 35.3 (132.5) (276.7) (304.1) 34.4 (113.0) (304.2) (208.7) 34.1 (127.7) (206.9) (151.2) 23.7 (152.5) (173.8) (108.9) 30.6 (179.9) (187.7) (92.6) 35.8 (215.8) (227.1) (83.3) 42.1 (260.3) (277.0) (91.6) 49.6 10.3% -2.4% -18.8% 18.2% -1.9% -15.2% Margin % Growth % Depreciation and Amortization [5] -40.0% -119.9% NMF (34.7) -153.1% NMF (35.3) -125.7% -137.0% NMF (34.1) -38.2% NMF (23.7) 5.3% NMF (30.6) 16.4% 271.1% (35.8) 21.0% 55.7% (42.1) 22.6% 31.8% (49.6) (31.5) (34.4) Margin % -46.7% -127.9% -163.9% -136.0% -149.5% -44.5% -0.8% 10.5% 15.3% 17.1% Additional Financial Information Change in Net Working Capital Capital Expenditures ¥230.2 ¥52.3 ¥156.6 ¥23.4 (¥51.8) ¥19.0 ¥68.5 ¥26.4 ¥15.9 ¥35.1 ¥70.6 ¥42.5 (¥67.6) ¥51.7 ¥42.5 ¥63.1 ¥23.0 Source: Company management. 1. Enterprise Revenue decreased in 2019 and is expected to further decrease in 2020 primarily due to shift in strategy away from SEM segment due to cash constraints and market dynamics. 2. Business Tax and Surcharges represents a 6% fee applied to revenue derived from provisions of certain modern services within the People's Republic of China. 3. Research and development expenses increased in 2018 due to substantial front-end load investment in development of the Industrial Internet of Things (IIoT) solutions business. 4. General and administrative expenses increased in 2019 due to an ¥121.3 million ($17.3 million) increase in allowance for doubtful accounts, related to COVID-19 adverse impact on customers businesses. 5. Company management indicated that historical and CY 2020E depreciation and amortization figures include decoration expense, which is related to the Company’s move to a new office location. Thereafter, the Company does not expect to incur any decoration expenses and the figures provided solely consist of depreciation and amortization on fixed and intangible assets. Preliminary and Confidential | Subject to Further Review and Revision 37 NMF NMF EBIT (¥219.2) (¥551.7) (¥535.3) (¥453.2) (¥405.8) (¥167.7) (¥3.9) ¥63.5 ¥112.6 ¥154.2 NMF NMF EBITDA (¥187.7) (¥517.0) (¥500.0) (¥418.9) (¥371.7) (¥144.0) ¥26.8 ¥99.3 ¥154.7 ¥203.8 27.1% 18.4% Revenues, Net ¥469.5 ¥431.2 ¥326.6 ¥333.2 ¥271.4 ¥376.5 ¥502.0 ¥607.2 ¥738.3 ¥901.9
Page 3 9 16 17 26 35 38 40 1. 2. 3. Executive Summary Preliminary Financial Analyses Appendices Selected Benchmarking Information Selected Public Market Observations Illustrative Prelim. Financial Information - Go Private Case Glossary Disclaimer 4.
Glossary of Terms Definition Description ADS American Depository Shares CY Calendar Year EBIT Earnings Before Interest and Taxes FY Fiscal Year IIoT Industrial Internet of Things case of the Selected Companies MRQ Most Recent Quarter NMF Not Meaningful Figure PRC People's Republic of China R&D Research and Development SEM Search Engine Marketing USD United States Dollar 39 Preliminary and Confidential | Subject to Further Review and Revision VWAPVolume-Weighted Average Price SPCSegregated Portfolio Company RMBChinese Yuan (Renminbi) QQuarter PVPresent Value NANot Available LTMLatest Twelve Months or the Most Recently Completed 12-Month Period for which Financial Information has been Made Public in the HHalf EBITDAEarnings Before Interest, Taxes, Depreciation and Amortization EEstimated CAGRCompound Annual Growth Rate Adjusted EBITDAEarnings Before Interest, Taxes, Depreciation and Amortization, adjusted for certain other non-recurring items
Page 3 9 16 40 1. 2. 3. 4. Executive Summary Preliminary Financial Analyses Appendices Disclaimer
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