View:
January 15, 2020
Yulin Wang
Chief Executive Officer
Kingsoft Cloud Holdings Limited
Kingsoft Tower, No. 33
Xiao Ying West Road, Haidian District
Beijing, 100085, the Peoples Republic of China
Re: Kingsoft Cloud Holdings Limited
Draft Registration Statement on Form F-1
Submitted December 20, 2019
CIK No. 0001795589
Dear Mr. Wang:
We have reviewed your draft registration statement and have the
following comments. In
some of our comments, we may ask you to provide us with information so we may
better
understand your disclosure.
Please respond to this letter by providing the requested information and
either submitting
an amended draft registration statement or publicly filing your registration
statement on
EDGAR. If you do not believe our comments apply to your facts and circumstances
or do not
believe an amendment is appropriate, please tell us why in your response.
After reviewing the information you provide in response to these comments
and your
amended draft registration statement or filed registration statement, we may
have additional
comments.
Draft Registration Statement on Form F-1
Cover Page
1. It appears that you will qualify as a controlled company under the NYSE
or Nasdaq
corporate governance rules following this offering. Please disclose such
fact, and provide
a cross-reference to a risk factor discussing the implications of
controlled company status
and indicating whether you intend to take advantage of any exemptions
from the corporate
governance rules that are available to a controlled company. In this
regard, we note that
Kingsoft Group and Xiaomi currently beneficially own 57.8% and 17.0% of
your
outstanding capital stock, respectively, and appear to be under common
control.
Yulin Wang
FirstName LastNameYulin Wang
Kingsoft Cloud Holdings Limited
Comapany NameKingsoft Cloud Holdings Limited
January 15, 2020
Page 2
January 15, 2020 Page 2
FirstName LastName
Prospectus Summary
Our Business, page 1
2. You state that, according to Frost & Sullivan, you are the largest
independent cloud
service provider in China; are among the top three internet cloud
service providers in
China in terms of revenue from IaaS and PaaS public cloud services in
2018; and are
among the top ten cloud service providers globally in terms of revenue
from IaaS public
cloud services in 2018. Please balance this disclosure by specifying
your domestic and
global rankings according to the respective measures; clarifying that
the size of China's
internet cloud market is, and is expected to continue to be,
substantially smaller than the
size of China's cloud market for traditional enterprises and public
service organizations;
and quantifying your market share in China in terms of revenue from
IaaS and PaaS
public cloud services in 2018. With regard to the market for IaaS and
PaaS public cloud
services in China, we note that Frost & Sullivan found that your share
of such market was
5.4% and that the aggregate market share of the top five players was
76.7%. Please
provide us with a copy of the Frost & Sullivan report for our review,
and clearly mark the
specific language in the report that supports each statement in the
prospectus. Finally, we
note that your first reference to the report should indicate that it
was commissioned by
you.
3. You disclose revenues and the percentage increase in revenues for each
period presented
without providing comparable information regarding your net loss,
which has been
increasing over the periods presented. Please revise. In this regard,
you also should
highlight that you have been operating at a gross loss.
Corporate History and Structure, page 3
4. Please enhance the diagram illustrating your corporate structure by
also providing a
breakdown of the post-offering ownership of your company.
Additionally, tell us the
business reasons for having duplicate contractual arrangements between
the company and
your VIEs and your WFOE and your VIEs.
Risk Factors
We receive a substantial portion of our revenues from a limited number . . .,
page 18
5. You disclose that the aggregate revenues generated from your three
largest customers
accounted for approximately 56%, 50%, and 59% of your total revenues
in 2017, 2018,
and the nine months ended September 30, 2019, respectively. Please
clarify the extent to
which you are dependent on each of these customers rather than
providing an aggregate
percentage. Also, with regard to the second risk factor on page 41,
please disclose, if true,
that the risk posed by your dependence on Kingsoft Group and Xiaomi
for a portion of
your revenues is heightened by the fact that those companies are under
common control.
Yulin Wang
FirstName LastNameYulin Wang
Kingsoft Cloud Holdings Limited
Comapany NameKingsoft Cloud Holdings Limited
January 15, 2020
Page 3
January 15, 2020 Page 3
FirstName LastName
We are in the process of expanding our international operations . . ., page 31
6. We note your disclosure that you will focus your international
expansion efforts on
countries that are within the scope of the Chinese government's Belt
and Road initiative.
Please briefly explain the nature and scope of this initiative and the
risks and limitations
related to the plan to align your international expansion strategy
with such initiative.
Risks Relating to Our Relationships with Kingsoft Group and Xiaomi, page 41
7. Provide a risk factor addressing the risk posed by the substantial
influence that certain
existing investors, including Kingsoft Group, Xiaomi and Mr. Jun Lei,
will have over your
business and affairs following the offering. In this regard, you
should highlight that
Kingsoft Group and Xiaomi are your affiliates; explain that they are
deemed to be your
affiliates by virtue of not only significant ownership of your
ordinary shares but also
overlapping key management personnel; and disclose the combined
beneficial ownership
of the executive officers, directors, and persons holding more than
five percent of your
ordinary shares.
Non-GAAP Financial Measure, page 83
8. Please reconcile Adjusted EBITDA from net income (loss), its most
comparable GAAP
measure. We refer to questions 102.10 and 103.02 of the SEC Staff's
Compliance and
Disclosure Interpretations on Non-GAAP Financial Measures, updated
April 4, 2018.
9. We note your presentation of Adjusted EBITDA margin. Please include a
presentation of
the most comparable GAAP measure, net income margin, with equal or
greater
prominence. We refer to question 102.10 of the SEC Staff's Compliance
and Disclosure
Interpretations on Non-GAAP Financial Measures, updated April 4, 2018.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Key Factors Affecting Our Results of Operations, page 86
10. You refer to the increasing penetration of cloud services into
traditional industries and
public service organizations in China as a key market opportunity that
you are well
positioned to capture. To the extent material, please discuss any
known trends and
uncertainties related to your pursuit of such opportunity that are
reasonably likely to have
an effect on your financial condition or results of operations,
including profitability. In
this regard, we note that the significant increase in revenues
generated from enterprise
cloud services for the period ended September 30, 2019 was accompanied
by a significant
increase in the other costs component of your cost of revenues. Refer
to Item 5.D of Form
20-F and Section III.B of SEC Release No. 33-8350.
Yulin Wang
FirstName LastNameYulin Wang
Kingsoft Cloud Holdings Limited
Comapany NameKingsoft Cloud Holdings Limited
January 15, 2020
January 15, 2020 Page 4
Page 4
FirstName LastName
Results of Operations
Nine Months Ended September 30, 2019 Compared to Nine Months Ended September
30, 2018,
page 97
11. You attribute the increase in revenues generated from public cloud
services and enterprise
cloud services to an increase in average revenues per Premium Customer
as well as an
increase in the number of Premium Customers. Please quantify the
extent to which each
factor contributed to an increase in both types of revenues. Refer to
Section III.D of SEC
Release No. 33-6835.
Liquidity and Capital Resources, page 102
12. Please disclose the jurisdiction(s) as to where your cash and cash
equivalents are located.
Related Party Transactions, page 162
13. You disclose on page 184 that certain holders of your ordinary shares
or their transferees
will be entitled to request that you register their shares under the
Securities Act of 1933
following the expiration of lock-up agreements. As it appears that
certain related parties
possess these registration rights, please provide a cross-reference to
such disclosure in this
section of the prospectus and identify the individuals or entities
that qualify as related
parties. Refer to Item 7.B of Form 20-F. Also, enhance the discussion
of the registration
rights by describing their terms and conditions. In this regard, we
note related disclosure
on pages F-39 and F-73. Finally, disclose the aggregate number of
ordinary shares held
by the shareholders that possess these rights.
Other Related Party Transactions, page 163
14. Please disclose the basis on which Cheetah Group is a related party.
In this regard, we
note disclosure on pages F-46 and F-76 that Kingsoft Group exercises
significant
influence over such entity.
15. Please identify the senior executives to whom you have extended
interest-bearing loans.
Also, please tell us whether the loans will be repaid in full prior to
the date on which you
publicly file the registration statement. Refer to Section 13(k)(1) of
the Securities
Exchange Act of 1934.
Underwriting
Directed Share Program, page 193
16. Disclose whether any shares that are sold under the directed share
program will be subject
to a lock-up agreement.
Yulin Wang
FirstName LastNameYulin Wang
Kingsoft Cloud Holdings Limited
Comapany NameKingsoft Cloud Holdings Limited
January 15, 2020
Page 5
January 15, 2020 Page 5
FirstName LastName
Financial Statements
1. Organization and Basis of Presentation, page F-10
17. On page F-16, you state, "The Company did not provide or intend to
provide financial or
other supports not previously contractually required to the VIEs
during the years
presented." However, on page F-13, you also state, "Pursuant to the
financial support
undertaking letter, the Company is obligated and hereby undertakes to
provide unlimited
financial support to the VIEs." These two statements appear to
contradict each other.
Please clarify.
18. We note on page 78 that under the shareholder voting right trust
agreement, Ms. Weiqin
Qiu and Kingsoft Digital agreed to entrust a person designated by
Beijing Kingsoft Cloud,
your subsidiary, to exercise all the shareholder rights. However, the
organization chart on
page 4 indicates contractual arrangements between the parent Kingsoft
Cloud Holdings
Limited (Cayman) and the VIEs. Please clarify the entities subject to
the contractual
arrangements and explain to us how you determined under ASC 810 that
the related party
tiebreaker should be applied.
19. We note on page F-13 that the shareholder voting right trust
agreements are valid as long
as the Nominee Shareholders remain the shareholders of the VIEs.
Please describe to us
the risks that the Nominee Shareholders will not remain the
shareholders of the VIEs and
tell us where you disclose these risks.
2. Summary of Significant Accounting Policies
Revenue recognition, page F-22
20. For your public cloud services, please clarify your policy disclosure
as to your measure of
progress and whether consideration is fixed.
21. For enterprise cloud services, please clarify if revenue for upgrades
is recognized at a
point in time or over time. We note your disclosure on F-22 indicates
upgrade revenue is
recognized at a point in time; however, your disclosure on page 92
indicates that it is
recognized both at a point in time and over time.
10. Long-term Bank Loan, page F-32
22. Please clarify here and on page F-68 whether your loan is with
Kingsoft Group, your
parent company, or only guaranteed by Kingsoft Group. We note
disclosure on pages
162 and F-76 discusses interest expense on a loan due to Kingsoft
Group.
Exhibits
23. Please file your share incentive plans as exhibits to the registration
statement pursuant to
Item 601(b)(10)(iii)(A) of Regulation S-K.
Yulin Wang
Kingsoft Cloud Holdings Limited
January 15, 2020
Page 6
General
24. Please supplementally provide us with copies of all written
communications, as defined in
Rule 405 under the Securities Act, that you, or anyone authorized to do
so on your behalf,
present to potential investors in reliance on Section 5(d) of the
Securities Act, whether or
not they retain copies of the communications.
25. Please supplementally provide us with copies of any graphical materials
or artwork you
intend to use in your prospectus. Upon review of such materials, we may
have further
comments. For guidance, refer to Question 101.02 of our Securities Act
Forms
Compliance and Disclosure Interpretations.
You may contact Inessa Kessman, Staff Accountant, at (202) 551-3371 or
Robert
Littlepage, Accounting Branch Chief, at (202) 551-3361 if you have questions
regarding
comments on the financial statements and related matters. Please contact
Bernard Nolan,
Attorney-Adviser, at (202) 551-6515 or, in his absence, Larry Spirgel, Office
Chief, at (202)
551-3815 with any other questions.
Sincerely,
FirstName LastNameYulin Wang
Division of
Corporation Finance
Comapany NameKingsoft Cloud Holdings Limited
Office of
Technology
January 15, 2020 Page 6
cc: Li He, Esq.
FirstName LastName