tm2221644-6_424b3 - none - 20.4688509s
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 Filed Pursuant to Rule 424(b)(3)
 Registration No. 333-260181
PROSPECTUS SUPPLEMENT
(To Prospectus dated October 12, 2021)
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Kingsoft Cloud Holdings Limited
Ordinary Shares
Kingsoft Corporation Limited, one of our principal shareholders, is lending to the Designated Dealer (as defined in “Description of Liquidity Arrangements”) up to 190,264,240 of our ordinary shares, US$0.001 per share, or approximately 5.0% of our total ordinary shares issued and outstanding as of December 15, 2022, to facilitate the proposed listing of our ordinary shares on the Main Board of The Stock Exchange of Hong Kong Limited, or the Hong Kong Stock Exchange, by way of introduction, or the Listing. Our ordinary shares will be traded on the Hong Kong Stock Exchange under the stock code “3896.”
The ordinary shares being lent by Kingsoft Corporation Limited will be used by the designated dealers to create additional liquidity of our ordinary shares on the Hong Kong Stock Exchange through sales at market prices during a period of 90 calendar days from and including the listing date of our ordinary shares on the Hong Kong Stock Exchange, which is expected to be on or about December 30, 2022, or the Listing Date (the “the Designated Period”). See “Description of Liquidity Arrangements.” The ordinary shares are being registered hereby in connection with the sale of such shares to the extent that they are sold to U.S. persons, as defined under Regulation S, or for the account or benefit of U.S. persons.
Neither we nor Kingsoft Corporation Limited will receive any proceeds from the lending of the ordinary shares being registered hereby, which will be sold at prevailing market prices at the time of sale in liquidity trades on the Hong Kong Stock Exchange during the Designated Period with delivery expected to occur from time to time in accordance with the rules of the Hong Kong Stock Exchange.
Our ADSs are listed on the Nasdaq Global Select Market, or Nasdaq, under the symbol “KC.” Each ADS represents fifteen ordinary shares of Kingsoft Cloud Holdings Limited. On December 28, 2022, the last reported sale price of the ADSs on Nasdaq was US$3.40 per ADS.
Investing in the ADSs involves a high degree of risk. See “Risk Factors” beginning on page S-28 of this prospectus supplement and in any documents incorporated by reference into this prospectus supplement for a discussion of certain risks that should be considered in connection with an investment in our ordinary shares.
Kingsoft Cloud Holdings Limited is a Cayman Islands holding company with no business operations. It conducts its operations in China through its PRC subsidiaries and variable interest entities, or the VIEs, and their subsidiaries. However, we and our shareholders do not and are not legally permitted to have any equity interests in the VIEs as current PRC laws and regulations restrict foreign investment in companies that engage in value-added telecommunication services. As a result, we operate relevant businesses in China through certain contractual arrangements with the VIEs. Kingsoft Cloud Holdings Limited is obligated to absorb losses of the variable interest entities that could potentially be significant to the variable interest entities through providing unlimited financial support to the variable interest entities or is entitled to receive economic benefits from the variable interest entities that could potentially be significant to the variable interest entities through the exclusive technology consulting and service fees. As a result of these contractual arrangements, Kingsoft Cloud Holdings Limited is determined to be the primary beneficiary of these variable interest entities only for accounting purposes and we consolidate these variable interest entities under U.S. GAAP. This structure also provides contractual exposure to foreign investment in such companies. As of the date of this prospectus supplement, to the best of our knowledge, our directors and management, the VIE agreements have not been tested in a court of law in the PRC. The VIEs are owned by certain nominee shareholders, not us. Investors in our ADSs are purchasing equity securities of a Cayman Islands holding company rather than equity securities issued by our subsidiaries and the VIEs. Investors who are non-PRC residents may never directly hold equity interests in the VIEs under current PRC laws and regulations. As used in this prospectus supplement, “we,”

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“us,” “our company,” the “Company,” and “our” refer to Kingsoft Cloud Holdings Limited, a Cayman Islands company and its subsidiaries. We refer to Zhuhai Kingsoft Cloud and Kingsoft Cloud Information as the VIEs in the context of describing their activities and contractual arrangements with us.
Our corporate structure involves unique risks to investors in the ADSs. In 2019, 2020 and 2021, the amount of revenues generated by the VIEs and the subsidiaries of the VIEs accounted for 98%, 97% and 88%, respectively, of our total net revenues. As of December 31, 2019, 2020 and 2021, total assets of the VIEs and the subsidiaries of the VIEs, excluding amounts due from other companies in the Group, equaled to 69%, 55% and 44% of our consolidated total assets as of the same dates, respectively. If the PRC government deems that our contractual arrangements with the VIEs do not comply with PRC regulatory restrictions on foreign investment in the relevant industries, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to material penalties or be forced to relinquish our interests in those operations or otherwise significantly change our corporate structure. We and our investors face significant uncertainty about potential future actions by the PRC government that could affect the legality and enforceability of the contractual arrangements with the VIEs and, consequently, significantly affect the financial performance of our company as a whole. Our ADSs may decline in value or become worthless, if we are unable to claim our contractual control rights over the assets of the VIEs that conduct substantially all of our operations in China. See “Item 3. Key Information — 3.D. Risk Factors — Risks Relating to Our Corporate Structure and the Contractual Arrangements” in the 2021 Form 20-F and “Risk Factors — Risks Related to Our Corporate Structure” in Exhibit 99.1 to our current report on Form 6-K furnished to the SEC on December 23, 2022, or the Supplemental 6-K, both of which documents are incorporated herein by reference.
We face various legal and operational risks and uncertainties as a company based in and primarily operating in China. The PRC government may intervene or influence our operations at any time, or may exert more control over offerings conducted overseas and/or foreign investment in China-based issuers, which could result in a material change in our operations and/or the value of the securities we are registering for sale. Any actions by the Chinese government to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless. For example, we face risks associated with regulatory approvals, filings or reporting procedures of offshore offerings, anti-monopoly regulatory actions, and cybersecurity and data privacy. The PRC government may also intervene with or influence our operations as the government deems appropriate to further regulatory, political and societal goals. Any actions by the Chinese government to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless. For a detailed description of risks relating to doing business in China, please refer to “Item 3. Key Information — 3.D. Risk Factors — Risks Relating to Doing Business in China” in the 2021 Form 20-F, and “Risk Factors — Risks Relating to Doing Business in China” in Exhibit 99.1 to the Supplemental 6-K.
The Holding Foreign Companies Accountable Act, or the HFCAA, was enacted on December 18, 2020. The HFCAA states that if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspection by the PCAOB for three consecutive years, or two consecutive years if the Accelerating Holding Foreign Companies Accountable Act is enacted, beginning in 2021, the SEC shall prohibit our shares or ADSs from being traded on a national securities exchange or in the over-the-counter trading market in the United States. On December 15, 2022, the PCAOB released a statement confirming it has secured complete access to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong, and it issued the 2022 HFCAA Determination Report to vacate its previous determinations to the contrary. Accordingly, our auditor is no longer identified as one of the registered public accounting firms that the PCAOB is unable to inspect or investigate completely. The PCAOB is continuing to demand complete access, and it will act immediately to reconsider such determinations should China obstruct, or otherwise fail to facilitate the PCAOB’s access, at any time. Therefore, there is no guarantee that our auditor would not be identified again by the PCAOB in the future as a registered public accounting firm that the PCAOB is unable to inspect or investigate completely. In such event, we would again be subject to the trading prohibition under the HFCAA if we were so identified by the SEC for three consecutive years, or two consecutive years if the Accelerating Holding Foreign Companies Accountable Act is enacted. For the details of the risks associated with the enactment of the HFCAA, see “Risk Factors — Risks Relating to Doing Business in China — Our ADSs may be delisted and our ADSs and shares prohibited from trading on a national securities exchange or through any other method that is within the jurisdiction of the SEC to regulate, including through over-the-counter trading under the Holding Foreign Companies Accountable Act, or the HFCAA, if the PCAOB is unable to inspect or fully investigate auditors

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located in China. The delisting of our ADSs, or the threat of their being delisted, may materially and adversely affect the value of your investment” and “Risk Factors — Risks Relating to Doing Business in China — The potential enactment of the Accelerating Holding Foreign Companies Accountable Act would decrease the number of non-inspection years from three years to two years, thus reducing the time period before our ADSs may be delisted or prohibited from over-the-counter trading. If this bill were enacted, our ADS could be delisted from the exchange and prohibited from over-the-counter trading in the U.S. in two consecutive non-inspection years” in this prospectus supplement.
Neither the United States Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities, or determined if this prospectus supplement or the accompanying prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus supplement is December 29, 2022.

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ABOUT THIS PROSPECTUS SUPPLEMENT
This document is in two parts. The first part is this prospectus supplement, which describes the registration of certain ordinary shares under the liquidity arrangements as described under “Description of Liquidity Arrangements” and also adds to and updates information contained in the accompanying prospectus and the documents incorporated by reference in this prospectus supplement and the accompanying prospectus. The second part is the accompanying prospectus dated October 12, 2021, included in the registration statement on Form F-3 (No. 333-260181), which provides more general information.
You should read this prospectus supplement along with the accompanying prospectus. Both parts of the document contain information you should consider when making your investment decision. You should rely only on the information included or documents incorporated by reference in this prospectus supplement and the accompanying prospectus. Neither we nor Kingsoft Corporation Limited has authorized anyone else to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on such different or inconsistent information. The ordinary shares registered hereby will be offered only in jurisdictions where it is lawful to do so. The information contained in this prospectus supplement, the accompanying prospectus and the documents incorporated herein by reference is current only as of the date of the document containing such information. Our business, financial condition, results of operations and prospects may have changed since those dates. Neither this prospectus supplement nor the accompanying prospectus constitutes an offer, or an invitation on our behalf or the lending shareholders’ behalf, to subscribe for and purchase, any of our ADSs or ordinary shares and may not be used for or in connection with an offer or solicitation by anyone, in any jurisdiction in which such an offer or solicitation is not authorized or to any person to whom it is unlawful to make such an offer or solicitation.
To the extent there is a conflict between the information contained in this prospectus supplement, on the one hand, and the information contained in the accompanying prospectus or any document incorporated by reference in this prospectus supplement or the accompanying prospectus, on the other hand, you should rely on the information in this prospectus supplement.
In this prospectus supplement, unless otherwise indicated or unless the context otherwise requires:

“ADSs” refers to the American depositary shares, each representing 15 ordinary shares;

“China” or “PRC” refers to the People’s Republic of China and only in the context of describing PRC laws, regulations and other legal or tax matters in this prospectus supplement, excluding Taiwan, Hong Kong, and Macau;

“Enterprise Cloud Service Premium Customer” refers to a customer with annual revenues of over RMB700,000 generated from enterprise cloud services for a historical year;

“GPU” refers to graphics processing unit;

“Hong Kong” or “HK” refers to the Hong Kong Special Administrative Region of the PRC;

“IaaS” refers to Infrastructure as a Service, a category of cloud services that provides high-level application programming interface used to dereference various low-level details of underlying network infrastructure like physical computing resources, location, data partitioning, scaling, security, backup, etc.;

“independent cloud service providers” refers to cloud service providers that are not belonging to any large-scale conglomerates that are involved in a wide range of businesses where they could potentially compete with their customers;

“Kingsoft Cloud Information” refers to Kingsoft Cloud (Beijing) Information Technology Co., Ltd., a VIE;

“Nanjing Qianyi” refers to Nanjing Qianyi Shixun Information Technology Co., Ltd., one of the VIEs;

“net dollar retention rate of Public Cloud Service Premium Customers” is calculated by dividing the revenues from our Public Cloud Service Premium Customers, who were also our Public Cloud Service Premium Customers in the previous year, in the indicated period by the revenues from all of our Public Cloud Service Premium Customers in the previous corresponding period;

“ordinary share” refers to our ordinary shares, par value US$0.001 per share;
 
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“PaaS” refers to Platform as a Service, a category of cloud services that provides a platform allowing customers to develop, run, and manage applications without the complexity of building and maintaining the infrastructure typically associated with developing and launching an app;

“Premium Customer” refers to a customer with annual revenues of over RMB700,000 for a historical year;

“Public Cloud Service Premium Customer” refers to a customer with annual revenues of over RMB700,000 generated from public cloud services for a historical year;

“RMB” or “Renminbi” refers to the legal currency of the People’s Republic of China;

“SaaS” refers to Software as a Service, a category of cloud services that provides a software licensing and delivery model in which software is licensed on a subscription basis and is centrally hosted;

“Shanghai Jinxun Ruibo” refers to Shanghai Jinxun Ruibo Network Technology Co., Ltd., one of the VIEs;

“US$,” “dollars” or “U.S. dollars” refers to the legal currency of the United States;

“variable interest entities” or “VIEs” refers to Zhuhai Kingsoft Cloud and Kingsoft Cloud Information, unless the context otherwise requires;

“VAT License” refers to the business operation license for value-added telecommunication services;

“we,” “us,” “our company,” the “Company,” and “our” refer to Kingsoft Cloud Holdings Limited, a Cayman Islands company and its subsidiaries;

“Wuhan Kingsoft Cloud” refers to Wuhan Kingsoft Cloud Information Technology Co., Ltd., one of the VIEs;

“Xiaomi” refers to Xiaomi Corporation (HKEX: 1810), its subsidiaries and consolidated affiliated entities, one of our shareholders; and

“Zhuhai Kingsoft Cloud” refers to Zhuhai Kingsoft Cloud Technology Co., Ltd., a VIE.
Capitalized terms used in this prospectus supplement but not defined herein are defined in the accompanying prospectus, in the 2021 Form 20-F that is incorporated herein by reference or in the Supplemental 6-K that is incorporated herein by reference.
Substantially all of our operations and the operations of the VIEs are conducted in China and substantially all of our revenues is denominated in Renminbi. Our reporting currency is the Renminbi. This prospectus supplement contains translations of certain foreign currency amounts into U.S. dollars for the convenience of the reader. Unless otherwise stated, all translations from Renminbi to U.S. dollars were made at RMB6.6981 to US$1.00, the noon buying rate on June 30, 2022 set forth in the H.10 statistical release of the U.S. Federal Reserve Board. In addition, unless otherwise noted, all translations from Hong Kong dollars to U.S. dollars and from U.S. dollars to Hong Kong dollars in this prospectus supplement were made at a rate of HK$7.8472 to US$1.00, the exchange rate set forth in the H.10 statistical release of the Federal Reserve Board on June 30, 2022. All translations of financial data as of and for the nine months ended September 30, 2022 from Renminbi into U.S. dollars were made at the rate of RMB7.1135 to US$1.00, the exchange rate on September 30, 2022 set forth in the H.10 statistical release of The Board of Governors of the Federal Reserve Board. We make no representation that the Renminbi or U.S. dollar amounts referred to in this prospectus supplement could have been or could be converted into U.S. dollars or Renminbi, as the case may be, at any particular rate or at all.
All discrepancies in any table between the amounts identified as total amounts and the sum of the amounts listed therein are due to rounding.
 
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WHERE YOU CAN FIND MORE INFORMATION ABOUT US
We are subject to the reporting requirements of the Exchange Act that are applicable to a foreign private issuer. We file reports, including annual reports on Form 20-F, and other information with the SEC pursuant to the rules and regulations of the SEC that apply to foreign private issuers. Our SEC filings are also available over the internet at the SEC’s website at www.sec.gov. We also maintain a website at ir.ksyun.com, but information contained on, or linked from, our website is not incorporated by reference in this prospectus supplement. You should not regard any information on our website as a part of this prospectus supplement.
This prospectus supplement is part of a registration statement we filed with the SEC, using a “shelf” registration process under the Securities Act, relating to the securities to be lent by the lending shareholders. This prospectus omits some information contained in the registration statement in accordance with SEC rules and regulations. You should review the information and exhibits in the registration statement for further information on us and the securities the lending shareholders are lending. Statements in this prospectus supplement and the accompanying prospectus concerning any document we filed as an exhibit to the registration statement or that we otherwise filed with the SEC are not intended to be comprehensive and are qualified by reference to these filings. You should review the complete document to evaluate these statements.
 
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INCORPORATION OF DOCUMENTS BY REFERENCE
The SEC allows us to “incorporate by reference” the information that we file with or submit to the SEC, which means that we can disclose important information to you by referring you to those documents that are considered part of this prospectus supplement and the accompanying prospectus. Each document incorporated by reference is current only as of the date of such document, and the incorporation by reference of such documents should not create any implication that there has been no change in our affairs since such date. Information that we file with or submit to the SEC in the future and incorporate by reference will automatically update and supersede the previously filed information. See “Incorporation of Documents by Reference” in the accompanying prospectus for more information. All of the documents incorporated by reference are available at www.sec.gov under Kingsoft Cloud Holdings Limited, CIK number 0001805316.
We incorporate by reference the documents listed below in this prospectus supplement:

our annual report on Form 20-F for the fiscal year ended December 31, 2021 filed with the SEC on May 2, 2022 (File No. 001-39278), or the 2021 Form 20-F;

our current report on Form 6-K furnished to the SEC on December 23, 2022 (File No. 001-39278), or the Supplemental 6-K, including Exhibit 99.1 titled “Kingsoft Cloud Holdings Limited Makes Supplemental and Updated Disclosures;”

our current report on Form 6-K furnished to the SEC on December 23, 2022 (File No. 001-39278), including exhibits thereto that contain financial statements of Kingsoft Cloud Holdings Limited and Camelot Employee Scheme, Inc.;

the description of the securities contained in our registration statement on Form 8-A filed on May 4, 2020 (File No. 001-39278), pursuant to Section 12 of the Exchange Act, together with all amendments and reports filed for the purpose of updating that description; and

with respect to the offering of the securities under this prospectus supplement, all subsequent reports on Form 20-F, and any report on Form 6-K that indicates it (or any applicable portions thereof) is being incorporated by reference that we file with or furnish to the SEC on or after the date hereof and until the termination or completion of the offering by means of this prospectus supplement.
As you read the documents incorporated by reference, you may find inconsistencies in information from one document to another. If you find inconsistencies, you should rely on the statements made in the most recent document.
We will provide a copy of any or all of the information that has been incorporated by reference into the accompanying prospectus, other than exhibits to those documents unless such exhibits are specially incorporated by reference in this prospectus supplement upon written or oral request, to any person, including any beneficial owner of the securities, to whom a copy of this prospectus supplement is delivered, at no cost to such person. You may make such a request by writing or telephoning us at the following mailing address or telephone number:
Kingsoft Cloud Holdings Limited
Building E, Xiaomi Science and Technology Park,
No. 33 Xierqi Middle Road
Haidian District, Beijing, 100085
the People’s Republic of China
+86-10-6292-7777
Attention: Investor Relations
 
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CAUTIONARY NOTES REGARDING FORWARD-LOOKING STATEMENTS
This prospectus supplement, the accompanying prospectus and the documents incorporated by reference herein and therein may contain forward-looking statements that reflect our current or then-current expectations and views of future events. All statements other than statements of historical facts are 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 involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements.
You can identify some of these forward-looking statements by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “likely to”, “could”, “potential” or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements include, but are not limited to, statements about:

our goals and growth strategies;

our future business development, results of operations and financial condition;

relevant government policies and regulations relating to our business and industry;

general economic and business conditions in China; and

assumptions underlying or related to any of the foregoing.
You should read thoroughly this prospectus supplement and the documents that we refer to with the understanding that our actual future results may be materially different from and worse than what we expect. Other sections of this prospectus supplement and the accompanying base prospectus include additional factors which could adversely impact our business and financial performance. Moreover, we operate in an evolving environment. New risk factors and uncertainties emerge from time to time and it is not possible for our management to predict all risk factors and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We qualify all of our forward-looking statements by these cautionary statements.
You should not rely upon forward-looking statements as predictions of future events. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
This prospectus supplement and the accompanying base prospectus also contains statistical data and estimates that we obtained from industry publications and reports generated by third-party providers of market intelligence. These industry publications and reports generally indicate that the information contained therein was obtained from sources believed to be reliable, but do not guarantee the accuracy and completeness of such information. Although we believe that the publications and reports are reliable, we have not independently verified the data.
 
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PROSPECTUS SUPPLEMENT SUMMARY
The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial statements and notes thereto appearing elsewhere in this prospectus supplement, the accompanying prospectus, and the documents incorporated by reference herein and therein. In addition to this summary, we urge you to read the entire prospectus supplement, the accompanying prospectus, and the documents incorporated by reference carefully. Our 2021 Form 20-F which contains our audited consolidated financial statements as of December 31, 2020 and 2021 and for the years ended December 31, 2019, 2020, and 2021, and two Form 6-Ks furnished to the SEC on December 23, 2022 are incorporated by reference in this prospectus supplement and the accompanying prospectus. This prospectus supplement contains information from the independent industry report, commissioned by us and prepared by Frost & Sullivan (Beijing) Inc., Shanghai Branch Co., or Frost & Sullivan, an independent market research and consulting company.
Overview
We offer various cloud services to customers in strategically selected verticals. With extensive cloud infrastructure, advanced cloud products based on our vigorous cloud technology R&D capabilities, industry-specific solutions and end-to-end fulfillment and deployment covering all project stages for customers, we achieved business and financial growth, with a revenue growth CAGR of 51.3% from 2019 to 2021, outpacing the broader industry growth CAGR of 36.4% for China’s cloud service market during the same period.
We have established our market presence by addressing customers’ comprehensive needs. We provide various advanced cloud products primarily consisted of unified IaaS infrastructure and, to a lesser extent, PaaS middleware and SaaS applications which support a wide range of uses that enable our customers’ diverse business objectives. The majority of our revenues are derived from IaaS and, to a lesser extent, from PaaS middleware and SaaS applications. We also offer our solutions in a holistic approach by merging our cloud solutions with dedicated customer services. Our end-to-end customer services cover planning, solution development, fulfillment and deployment, as well as ongoing maintenance and upgrade. The entire process is primarily executed by our in-house professionals, with strict adherence to high standards and full accountability.
We have strategically expanded our footprints into selected verticals and have established a strong market presence and track record in each selected vertical through quality and efficient execution. As we continue to complete featured projects with vertical leaders, we have accumulated proprietary industry know-how and deep understanding of each selected vertical, which enables us to provide high-quality industry-specific cloud solutions. We have also aligned our research and development efforts with our business focuses, which enables us to act swiftly and develop new product modules and features that are specifically tailored to address the ever-growing business needs encountered by our expanding customer base.
Our Competitive Strengths
We believe the following competitive strengths differentiate us from our competitors:

Established Cloud Service Provider

End-to-end Cloud Solution Provider

Vertical Strategy with Proven Track Record

Customer-centric Product Development

Strong Customer Conversion Capabilities and Go-to-market Efficiencies

Experienced Management Team and Strong Synergies with Our Strategic Shareholders
Our Strategies
We plan to execute the following strategies to fulfill our mission:

Strengthen Our Market Position in Strategically Selected Verticals

Enhance Our Presence in New Verticals and Grow Our Customer Base
 
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Enhance Our End-to-end Solution and In-house Fulfillment and Deployment Capabilities

Continue to Invest in Infrastructure and Technology

Capitalize on Scale Advantages and Improve Operational Efficiency

Enhance Our Collaborations with Business Partners
Summary of Risk Factors
We face various legal and operational risks and uncertainties as a company based in and primarily operating in China. The PRC government may intervene or influence our operations at any time, or may exert more control over offerings conducted overseas and/or foreign investment in China-based issuers, which could result in a material change in our operations and/or the value of the securities we are registering for sale. For example, we face risks associated with regulatory approvals, filings or reporting procedures of offshore offerings, anti-monopoly regulatory actions, and cybersecurity and data privacy. The PRC government may also intervene with or influence our operations as the government deems appropriate to further regulatory, political and societal goals. Any actions by the Chinese government to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless.
Permissions Required from the PRC Authorities for Our Operations
Our PRC subsidiaries and the VIEs have obtained all necessary licenses and approvals required for our operations in China, including business licenses and VAT licenses for internet data center services, internet access services, domestic internet protocol virtual private network services, content delivery network services and information services.
Furthermore, in connection with our issuance of securities to foreign investors, under currently effective PRC laws and regulations, as of the date of this prospectus supplement, we are not aware of, after due and careful enquiry, including consultation with our PRC legal counsel, any PRC laws or regulations which explicitly require us, our PRC subsidiaries or the VIEs to obtain any approval or permission from the CSRC, the CAC or any other PRC governmental authorities, nor have we, our PRC subsidiaries and the VIEs received any formal inquiry, notice, warning or sanction from any PRC governmental authorities in connection with requirements of obtaining such approval or permission, under any currently effective PRC laws, regulations and regulatory rules.
Given the uncertainties of interpretation and implementation of relevant laws and regulations and the enforcement practice by relevant government authorities, we may be required to obtain additional licenses, permits, filings, or approvals for our business operations in the future. If our PRC subsidiaries or the VIEs are found to be in violation of any existing or future PRC laws or regulations, or fail to obtain or maintain any of the required permits, approvals or filings, the relevant PRC regulatory authorities would have broad discretion to take action in dealing with such violations or failures. In addition, if we had inadvertently concluded that such approvals, permits, registrations or filings were not required, or if applicable laws, regulations or interpretations change in a way that requires our PRC subsidiaries and the VIEs to obtain such approval, permits, registrations or filings in the future, our PRC subsidiaries and the VIEs may be unable to obtain such necessary approvals, permits, registrations or filings in a timely manner, or at all, and such approvals, permits, registrations or filings may be rescinded even if obtained. Any such circumstance may subject our PRC subsidiaries and the VIEs to fines and other regulatory, civil or criminal liabilities, and our PRC subsidiaries and the VIEs may be ordered by the competent government authorities to suspend relevant operations, which will materially and adversely affect our business operation. Furthermore, our PRC subsidiaries and the VIEs may be subject to regular inspections, examinations, inquiries or audits by regulatory authorities, and an adverse outcome of such inspections, examinations, inquiries or audits may result in the loss or non-renewal of the relevant licenses and approvals. Moreover, the criteria used in reviewing applications for, or renewals of licenses and approvals may change from time to time, and there can be no assurance that our PRC subsidiaries and the VIEs will be able to meet new criteria that may be imposed to obtain or renew the necessary licenses and approvals. Many of such licenses and approvals are material to the operation of our business, and if our
 
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PRC subsidiaries or the VIEs fail to maintain or renew material licenses and approvals, our ability to conduct our business could be materially impaired. Furthermore, if the interpretation or implementation of existing laws and regulations change, or new regulations come into effect, requiring our PRC subsidiaries, the VIEs or parties on whom our PRC subsidiaries and the VIEs rely to obtain any additional permits, licenses or certificates that were previously not required to operate our business, there can be no assurance that our PRC subsidiaries, the VIEs or parties on whom we rely will successfully obtain such permits, licenses or certificates.
Investing in our ordinary shares involves significant risks. You should carefully consider all of the information in this prospectus supplement before making an investment in our ordinary shares. Below please find a summary of the principal risks we face, organized under relevant headings. You should carefully consider the matters discussed under “Item 3. Key Information  —  3.D. Risk factors” in the 2021 Form 20-F, “Risk Factors” in Exhibit 99.1 to the Supplemental 6-K, as well as other documents incorporated by reference in the accompanying prospectus.

We have experienced rapid growth and expect our growth to continue, but if we fail to effectively manage our growth, then our business, results of operations and financial condition could be adversely affected.

We have a history of net loss and we may not be able to achieve or subsequently maintain profitability.

We are continuously optimizing and expanding our infrastructure and investing substantially in our research and development, which may negatively impact our cash flow, and may not generate the results we expect to achieve.

We have recorded negative cash flows from operating activities historically. If we fail to collect accounts receivable from our customers in a timely manner, our business operations and financial results may be materially and adversely affected.

If we do not compete effectively, our business, results of operations and financial condition could be harmed.

The COVID-19 pandemic has disrupted our and our business partners’ operations and it may continue to do so.

Data loss, security incidents and attacks on our platform, products or solutions, or our global network infrastructure could lead to significant costs and disruptions.

Significant impairment of our goodwill and long-lived assets could materially impact our financial position and results of our operations.

There are substantial uncertainties regarding the interpretation and application of current and future PRC laws, regulations, and rules relating to the agreements that establish the Contractual Arrangements for our operations in China, including potential future actions by the PRC government, which could affect the enforceability of our contractual arrangements with the VIEs and, consequently, significantly affect the financial condition and results of operations performance of our Company.
Corporate History and Structure
In January 2012, we incorporated Kingsoft Cloud Holdings Limited under the laws of the Cayman Islands as our offshore holding company. In February 2012, we incorporated Kingsoft Cloud Corporation Limited as Kingsoft Cloud Holdings Limited’s wholly owned subsidiary in Hong Kong.
In April 2012, Kingsoft Cloud Corporation Limited incorporated Beijing Kingsoft Cloud Technology Co., Ltd., or Beijing Kingsoft Cloud, as its wholly owned subsidiary in the PRC. In December 2015, Kingsoft Cloud Corporation Limited incorporated another wholly owned subsidiary, Beijing Yunxiang Zhisheng Technology Co., Ltd., or Yunxiang Zhisheng, in the PRC.
In December 2017, Kingsoft Cloud Corporation Limited incorporated a wholly owned subsidiary, Kingsoft Cloud Inc., in the United States, to operate a cloud service business and conduct research and development on cloud technology and products.
In May 2020, we completed an initial public offering in which we offered and sold an aggregate of 517,500,000 ordinary shares in the form of ADSs. Upon the initial public offering, all of our issued and outstanding
 
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preferred shares were automatically converted into ordinary shares on a one-for-one basis. On May 8, 2020, the ADSs began trading on the Nasdaq under the symbol “KC.”
In September 2020, we completed a public offering in which we offered an aggregate of 9,250,000 ADSs and our selling shareholders sold an aggregate of 8,421,576 ADSs.
In March 2021, we completed the acquisition of 100% equity interest in Shenzhen Yunfan Acceleration Technology Co., Ltd. (currently named as “Kingsoft Cloud (Shenzhen) Edge Computing Technology Co., Ltd”) and its subsidiary (collectively, “Shenzhen Yunfan”). Shenzhen Yunfan is mainly engaged in providing content distribution, acceleration and other cloud-related IaaS and PaaS edge computing solutions, and the acquisition is expected to enhance our expertise in public cloud services.
In September 2021, we acquired controlling interests in Camelot Employee Scheme INC. (“Camelot”) using a combination of cash and our ordinary shares as consideration. In connection with such acquisition, we issued an aggregate of 247,475,446 ordinary shares to certain existing shareholders of Camelot in September 2021. Camelot offers comprehensive and digitalized solutions such as teller or branch systems, anti-money laundering and fraud prevention software services to the financial services industry. By acquiring and integrating with Camelot, we expect to benefit from its (i) core senior management’s rich experience; (ii) large customer based and long-standing client relationships to cross-sell our products and solutions; (iii) deep vertical know-how for developing industry solutions; and (iv) nationwide fulfillment centers across major cities in China for project deployment with lower costs with enhanced efficacy and increased customer stickiness
In December 2021, we increased our authorized share capital from US$4,000,000.00 divided into 4,000,000,000 ordinary shares with par value of US$0.001 each to US$40,000,000.00 divided into 40,000,000,000 ordinary shares with par value of US$0.001 each by creation of an additional 36,000,000,000 authorized but unissued ordinary shares with par value of US$0.001 each.
Beijing Kingsoft Cloud entered into a series of contractual arrangements, as amended and restated, with Zhuhai Kingsoft Cloud and its registered shareholders, through which we obtained control over Zhuhai Kingsoft Cloud. In addition, Yunxiang Zhisheng entered into a series of contractual arrangements with Kingsoft Cloud Information and its registered shareholders, which enable us to obtain control over the Kingsoft Cloud Information to operate value-added telecommunication services. The Company is obligated to absorb losses of the variable interest entities that could potentially be significant to the variable interest entities through providing unlimited financial support to the variable interest entities or is entitled to receive economic benefits from the variable interest entities that could potentially be significant to the variable interest entities through the exclusive technology consulting and service fees. As a result of these contractual arrangements, the Company is determined to be the primary beneficiary of these variable interest entities only for accounting purposes and we consolidate these variable interest entities under U.S. GAAP. We refer to Beijing Kingsoft Cloud and Yunxiang Zhisheng as our wholly foreign owned entities, or WFOEs, and to Zhuhai Kingsoft Cloud, Kingsoft Cloud Information, or the VIEs, and their subsidiaries, in this prospectus supplement. For more details and risks related to the VIE structure, please see “Item 4. Information on the Company — 4.C. Organizational Structure — Contractual Arrangements with the VIEs and Their Respective Shareholders” and “Item 3. Key Information — 3.D. Risk Factors — Risks Relating to Our Corporate Structure and the Contractual Arrangements” in the 2021 Form 20-F.
The following diagram illustrates our corporate structure, including our principal subsidiaries and the VIEs as of the date of this prospectus supplement:
 
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[MISSING IMAGE: fc_kingsoft-bwlr.jpg]
Notes:
(1)
Xiaomi is controlled by Mr. Lei Jun, the chairman of our Board and our non-executive Director.
(2)
TMF Trust (HK) Limited, as trustee, holding 103,501,929 ordinary shares underlying the share awards granted under the Equity Incentive Plans, representing approximately 2.72% of the issued share capital of the Company as of December 15, 2022. Among the 103,501,929 ordinary shares held by TMF Trust (HK) Limited, 83,279,670 ordinary shares have been transferred to Bank of New York Mellon in preparation for conversion into ADSs upon vesting of certain share awards granted under the Equity Incentive Plans. As at December 15, 2022, no core connected persons are interested in any of the ordinary shares held by TMF Trust (HK) Limited and accordingly all such ordinary shares held by TMF Trust (HK) Limited shall be counted as part of the public float.
(3)
Other Public Shareholders include:
(a)
Celestial Power Limited (“Celestial Power”), a company incorporated under the laws of BVI and one of the investors prior to our listing on the Nasdaq holding 43,153,502 ordinary shares, representing approximately 1.13% of the issued share capital of the Company as of December 15, 2022. Celestial Power is managed by IDG Capital which is a private equity investment institution having developed its venture capital business in China since 1993;
(b)
Mr. Wang Yulin, a former director and CEO of the Company who resigned from his positions in the Group on August 8, 2022 due to personal health reasons, and his controlled entities as of December 15, 2022 include (i) River Jade Holdings Limited, a company incorporated under the laws of the BVI which is ultimately controlled by Mr. Wang Yulin, held 9,600,000 ordinary shares, representing approximately 0.25% of the issued share capital of the Company; and (ii) Autogold Limited (“Autogold”) held 38,729,425 ordinary shares, representing approximately 1.02% of the issued share capital of the Company. Autogold is a company incorporated under the laws of the BVI and wholly-owned by Prosper River Group Limited, which is ultimately controlled by The YTCM Trust. The YTCM Trust is a trust established under the laws of the Republic of Singapore and managed by Vistra Trust (Singapore) Pte. Limited as the trustee. Mr. Wang Yulin, our executive Director and Chief Executive Officer, is the settlor of The YTCM Trust, and Mr. Wang and his family members are the beneficiaries of The YTCM Trust. Prior to Mr. Wang Yulin’s resignation, he served as the director and CEO of our Company as well as the director and general manager of major subsidiaries and operating entities of the Company, namely Zhuhai Kingsoft Cloud, Kingsoft Cloud Network, Nanjing Qianyi, Yunxiang Zhisheng, Kingsoft Cloud Information, Beijing Jinxun Ruibo, Wuhan Kingsoft Cloud, Beijing Kingsoft Cloud, Kingsoft Cloud Tianjin and Kingsoft Cloud Corporation Limited (collectively, the “Major Served Subsidiaries and Operating Entities”). Mr. Wang Yulin also served as the director or general manager of other 17 subsisting subsidiaries and operating entities of the Company (“Other Served Subsisting Subsidiaries and Operating Entities”). In addition, prior to Mr. Wang Yulin’s resignation, he also served in one operating entity which has been deregistered as of the date of this prospectus supplement and one subsidiary which is currently going through internal procedures for its deregistration with such deregistration expected to be fully completed shortly after the Listing. After Mr. Wang Yulin’s resignation, Mr. Zou Tao was re-designated as an executive Director and the acting CEO of the Company and was appointed as or remained to be the director and general manager of the Major Served Subsidiaries and Operating Entities as well as the director or general manager of the Other Served Subsisting Subsidiaries and Operating Entities.
(c)
China Internet Investment Fund (“CIIF”), a limited partnership established under the laws of the PRC and one of the investors prior to our listing on the Nasdaq, holding 55,089,998 ordinary shares, representing approximately 1.45% of the issued share capital of the Company as of December 15, 2022. CIIF is a limited partnership established in the PRC in 2017
 
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with registered capital of RMB30.1 billion. It is a venture capital firm based in Beijing, PRC and principally engaged in investment management and consultation in non-securities business. It focuses on making investments in sectors such as network security, artificial intelligence, big data, cloud computing, and network information services. CIIF is managed by its general partner China Internet Investment Fund Management Co., Ltd. with registered capital of RMB100 million, which in turn is controlled by China Netcom (Beijing) Holding Co., Ltd., a company wholly owned by the National Cyberspace and Information Security Administration Center administered by the Office of the Central Cyberspace Affairs Commission of the PRC, a PRC government authority. CIIF has eight limited partners with the largest limited partner holding approximately 33.22% partnership interest. According to the publicly available information, the planned total fund size of CIIF is RMB100 billion The invested portfolio companies of CIIF include, among others, Kuaishou Technology (Stock Code: 1024), a company listed on the Hong Kong Stock Exchange, SenseTime Group Inc. (Stock Code: 0020), a company listed on the Hong Kong Stock Exchange, and Ximalaya Inc. (NYSE: XIMA), a public company listed on the New York Stock Exchange;
(d)
Mr. Ma Yiming and Ms. Chou Heidi, being the Camelot founders, holding 89,453,974 ordinary shares and 73,034,892 ordinary shares, representing approximately 2.35% and 1.92% of the issued share capital of the Company as of December 15, 2022;
(e)
the non-founder shareholders of Camelot, holding 50,648,715 ordinary shares, representing approximately 1.33% of the issued share capital of the Company as of December 15, 2022; and
(f)
the remaining public shareholders who each holds less than 2% of the issued share capital of the Company as of December 15, 2022.
(4)
Pursuant to the Camelot Merger Agreement, after a series of mergers involving among others, Benefit Overseas Limited and Dreams Power Ltd., Camelot has been merged with and into Iridescence Limited, a company incorporated under the BVI laws and wholly-owned by our Company.
(5)
The remaining equity interests in Camelot Technology Corporation Limited (“Camelot Technology”) were held by Shanghai Jiawo Yunfan Investment Center (Limited Partnership) as to approximately 7.05% and Tongxiang Jiawo Yunfeng Equity Investment Partnership (Limited Partnership) as to approximately 0.72%. All of these minority shareholders of Camelot Technology are Independent Third Parties (apart from being the substantial shareholder of Camelot Technology where applicable).
(6)
Zhuhai Kingsoft Cloud is held as to 79.60% and 20.40% by Beijing Digital Entertainment Technology Co., Ltd. and Ms. Qiu Weiqin as registered shareholders.
(7)
Kingsoft Cloud Information is held as to 80% and 20% by Ms. Qiu Weiqin and Mr. Zou Tao, our executive Director and acting CEO, respectively, as registered shareholders.
(8)
Each of the following project entities, namely Rizhao Kingsoft Cloud Network Technology Co., Ltd., Kingsoft Cloud Network Technology (Jiangsu) Co., Ltd., Kingsoft Cloud (Qingyang) Data Information Technology Co., Ltd., Kingsoft Cloud Intelligent City Technology (Guizhou) Co., Ltd. and Kingsoft Cloud Perception City Technology (Anhui) Co., Ltd. and its subsidiary, Changjiang Digital Technology (Anhui) Co., Ltd., is a subsidiary of Kingsoft Cloud Network.
(9)
Shanghai Jinxun Ruibo, being a licensed entity, is a wholly-owned subsidiary of Kingsoft Cloud Network.
(10)
Each of Chibi Kingsoft Cloud Network Technology Co., Ltd., being a project entity, and Shenzhen Yunfan, being a licensed entity is a subsidiary of Wuhan Kingsoft Cloud.
Impacts of COVID-19
On March 11, 2020, the World Health Organization declared the global COVID-19 outbreak a pandemic. Since then, there continues to be significant uncertainties associated with the COVID-19 pandemic, including with respect to the spread and mutation of the virus, the severity of the disease, the possibility of successive waves of outbreaks, actions taken by government authorities, and the scope and length of the resulting economic disruption, among others.
As a result of the balance of our businesses with exposure to different verticals and revenue models, impacts of the COVID-19 pandemic are mixed in direction. On the one hand, the pandemic has gradually propelled cloud adoption as (i) with restrictive measures imposed on transportation in response to the pandemic, people increasingly leverage the internet to fulfill daily activities from work, shopping, education to entertainment, which are increasingly supported by cloud infrastructure, (ii) the healthcare industry in China increasingly tap into cloud technology to meet the challenges of public health events; and (iii) enterprises and organizations experiencing business or operation fluctuations in the pandemic may consider cloud services to obtain better agility and cost control in the mid-to-long run. As a result, our public cloud services have experienced rapid revenue growth from 2019 to 2021, with a year-on-year growth rate of 49.4% from 2019 to 2020 and 19.2%, from 2020 to 2021. To embrace these opportunities and mitigate the pandemic’s adverse impact to our business, we have been continuously perfecting our scalable core technologies and products and investing into our solutions of selected verticals, especially in healthcare, financial services and public services, and we expect to bear fruit in the enormous digitalization market in the long run.
 
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On the other hand, (i) travel restriction measures may limit our ability to provide on-site services to customers, and negatively affected project bidding process and deployment completion, and (ii) businesses negatively impacted by the pandemic may cut their procurement budget, including cloud budget.
Furthermore, our business was impacted in 2022 by the resurgence of COVID-19 and the related measures. The market size of cloud service in China experienced a decrease from RMB152.6 billion for the first half of 2021 to RMB150.4 billion for the first half of 2022. As a result, our results of operations were negatively affected by the COVID-19, which is evidenced by the decrease in our revenue from enterprise cloud services, excluding the consolidation of Camelot Group’s revenue contribution, from RMB1,042.2 million in the six months ended June 30, 2021 to RMB271.7 million (US$40.6 million) for the six months ended June 30, 2022. Partially due to the impact of COVID-19, our enterprise cloud service customers (excluding the consolidation of Camelot Group’s customers) were 62 for the six months ended June 30, 2022, compared with 76 for the six months ended June 30, 2021.
Recent Developments
Operational Highlights for the Nine Months Ended September 30, 2022
The following table sets forth our key operating metrics for the period indicated.
For the Nine Months Ended
September 30
2021*
2022
Public Cloud Services
Number of Public Cloud Service Premium Customers
217 204
– Including:
New customers acquired in the period
41 41
Existing customers
176 163
Net dollar retention rate of Public Cloud Service Premium
Customers(1)
113.8% 85.4%
Average revenues per Public Cloud Service Premium Customers (RMB in
million)(3)
20.8 19.4
Enterprise Cloud Services
Number of Enterprise Cloud Service Premium Customers
339 316
– Including:
New customers acquired in the period
300 277
Existing customers
39 39
Average revenues per Enterprise Cloud Services Premium Customers (RMB in million)(3)
5.2 6.3
Total
Number of Premium Customers(2)
554 515
– Including:
New customers acquired in the period
344 318
Existing customers
210 197
Average revenues per Premium Customer (RMB in million)(3)
11.4 11.5
Number of Enterprise Cloud Projects(4)
522 631
Notes:
*
Except for the purpose of calculating the number of Premium Customers as detailed in Note (2) below, revenues for the nine months ended 2021 do not include financial results of Camelot before our acquisition in September 2021.
 
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(1)
Net dollar retention rate of Public Cloud Service Premium Customers for the nine months ended September 30, 2022 is calculated by dividing the revenues from our Public Cloud Service Premium Customers in the nine months ended September 30, 2022, by the revenues from our Public Cloud Service Premium Customers in the nine months ended September 30, 2021.
(2)
The Premium Customers for the nine months ended September 30, 2021 and 2022 refer to customers with revenue of RMB525,000 for the respective period. The number of Premium Customers for the nine months ended September 30, 2021 includes customers of Camelot with revenue of over RMB525,000 in the same period.
(3)
The average revenues per Premium Customer for an interim period are not annualized. The average revenues per Premium Customer for a given period are calculated by dividing the historical revenues from Premium Customers by the number of Premium Customers for the same period.
(4)
The increase in number of enterprise cloud projects in the nine months ended September 30, 2022 was mainly due to our acquisition of Camelot Group.
Financial Results for the Third Quarter of 2022
Unless otherwise stated, all translations of RMB amounts into U.S. dollars in this “Financial Results for the Third Quarter of 2022” section were made at RMB7.1135 to US$1.00, the noon buying rate in effect on September 30, 2022 as certified for customs purposes by the Federal Reserve Bank of New York.
Summary Consolidated Results of Operations
The table below sets forth our summary unaudited condensed consolidated statements of profit or loss in absolute amount and percentage of the total revenues for the periods indicated, which are extracted from the Unaudited Interim Condensed Consolidated Financial Information set out in Exhibit 99.2 entitled “Kingsoft Cloud Holdings Limited Unaudited Interim Condensed Consolidated Financial Statements” to the Form 6-K dated December 23, 2022.
For the Three Months Ended September 30
2021
2022
RMB
RMB
US$
(unaudited)
(unaudited)
(unaudited)
(in thousands)
Revenues:
Public cloud services
1,685,999 69.8% 1,346,038 189,223 68.4%
Enterprise cloud services
726,865 30.1% 621,975 87,436 31.6%
Others
971 0.1% 774 109 0.0%
Total revenues
2,413,835 100.0% 1,968,787 276,768 100.0%
Cost of revenues
(2,325,423) (96.3)% (1,846,368) (259,558) (93.8)%
Gross profit
88,412 3.7% 122,419 17,210 6.2%
Operating expenses:
Selling and marketing expenses
(132,202) (5.5)% (143,363) (20,154) (7.3)%
General and administrative expenses
(156,573) (6.5)% (235,077) (33,047) (11.9)%
Research and development expenses
(268,721) (11.1)% (248,149) (34,884) (12.6)%
Total operating expenses
(557,496) (23.1)% (626,589) (88,085) (31.8)%
Operating loss
(469,084) (19.4)% (504,170) (70,875) (25.6)%
Revenues
Our revenues decreased by 18.4% from RMB2,413.8 million for the third quarter of 2021 to RMB1,968.8 million (US$276.8 million) for the third quarter of 2022, which was primarily attributable to changes of revenues generated from public cloud services and enterprise cloud services over the same periods as discussed below.
Public cloud services
Our revenues generated from public cloud services decreased by 20.2% from RMB1,686.0 million for the third quarter of 2021 to RMB1,346.0 million (US$189.2 million) for the third quarter of 2022. The decrease in our
 
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revenues generated from public cloud services were primarily due to our proactive scale-down of CDN products as evidenced by the decrease of 27.6% in our gross billings of delivery products from the third quarter of 2021 to the third quarter of 2022.
Enterprise cloud services
Our revenues generated from enterprise cloud services decreased by 14.4% from RMB726.9 million in the third quarter of 2021 to RMB622.0 million (US$87.4 million) in the third quarter of 2022. The decrease was primarily attributable to the impact of the resurgence of COVID-19 as well as our more stringent project selection, partially offset by the consolidation of financial results of Camelot.
Cost of Revenues
Our cost of revenues decreased by 20.6% from RMB2,325.4 million in the third quarter of 2021 to RMB1,846.4 million (US$259.6 million) in the third quarter of 2022. The decrease in cost of revenues was primarily attributable to (i) a decrease of RMB432.3 million in fulfillment costs primarily as a result of (a) the decrease of revenues from Kingsoft Cloud enterprise cloud services due to negative impacts of COVID-19, and (b) the decrease of fulfillment costs as percentages of total enterprise cloud services revenue due to our strategic focus on selected high quality projects, (ii) a decrease of RMB332.6 million in IDC costs mainly due to our proactive scale-down of CDN products, and was partially offset by an increase of RMB283.1 million in solution development and services costs mainly due to the consolidation of Camelot.
Gross Profit and Gross Profit Margin
As a result of the foregoing, our gross profit significantly increased by 38.5% from RMB88.4 million in the third quarter of 2021 to RMB122.4 million (US$17.2 million) in the third quarter of 2022. Our gross profit margin increased significantly from 3.7% in the third quarter of 2021 to 6.2% in the third quarter of 2022. The significant increase was primarily attributable to our strategic focus on selected high quality projects as well as efficient cost control measures.
Research and Development Expenses
Our research and development expenses decreased by 7.7% from RMB268.7 million in the third quarter of 2021 to RMB248.1 million (US$34.9 million) in the third quarter of 2022.
Selling and Marketing Expenses
Our selling and marketing expenses increased by 8.5% from RMB132.2 million in the third quarter of 2021 to RMB143.4 million (US$20.2 million) in the third quarter of 2022.
General and Administrative Expenses
Our general and administrative expenses increased from RMB156.6 million in the third quarter of 2021 to RMB235.1 million (US$33.0 million) in the third quarter of 2022, primarily attributable to an increase in credit losses primarily for accounts receivable and contract assets from RMB28.3 million to RMB98.4 million (US$13.8 million) mainly because we made provisions on accounts receivable that may have recoverability issues. These provisions were mainly made for individually impaired amounts receivable and contract assets that are related to specific customers with known collectivity issues, mostly customers whose cash flows were severely affected by the resurgence of COVID-19 and the associated restrictive measures and slowdown of macroeconomics. For details of the recoverability of our accounts receivables and our relevant management policies, see “Financial Information — Discussion of Selected Items From the Consolidated Balance Sheets — Accounts Receivable, Net of Allowance” in Exhibit 99.1 to the Supplemental 6-K.
Operating Loss
As a result of the foregoing, our operating loss increased by 7.5% from RMB469.1 million in the third quarter of 2021 to RMB504.2 million (US$70.9 million) in the third quarter of 2022. Our operating loss margin increased from 19.4% in the third quarter of 2021 to 25.6% in the third quarter of 2022.
 
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Net Current Assets and Liabilities
We recorded net current assets of RMB2,837.6 million (US$398.9 million) as of September 30, 2022. The table below sets forth our current assets and current liabilities as of the dates indicated, and the financial results as of June 30, 2022 and September 30, 2022 are extracted from the Unaudited Interim Condensed Consolidated Financial Information set out in Exhibit 99.1 and Exhibit 99.2 each entitled “Kingsoft Cloud Holdings Limited Unaudited Interim Condensed Consolidated Financial Statements” to the Form 6-K dated December 23, 2022.
As of June 30,
2022
As of September 30, 2022
RMB
RMB
US$
(unaudited)
(unaudited)
(unaudited)
(in thousands)
Current assets:
Cash and cash equivalents
2,732,331 3,163,210 444,677
Restricted cash
44,439 43,144 6,065
Accounts receivable, net
2,872,904 2,566,969 360,859
Short-term investments
2,619,701 2,165,674 304,446
Prepayments and other assets
1,694,048 1,734,108 243,779
Amounts due from related parties
357,853 365,853 51,431
Total current assets
10,321,276 10,038,958 1,411,257
As of June 30,
2022
As of September 30, 2022
RMB
RMB
US$
(unaudited)
(unaudited)
(unaudited)
(in thousands)
Current liabilities:
Short-term bank loans
1,266,270 1,041,045 146,348
Accounts payable
2,409,134 2,454,610 345,064
Accrued expenses and other current liabilities
2,748,407 2,708,447 380,748
Income tax payable
43,163 40,926 5,753
Amounts due to related parties
826,042 851,851 119,751
Current operating lease liabilities
100,620 104,528 14,694
Total current liabilities
7,393,636 7,201,407 1,012,358
Total Net Current Assets
2,927,640 2,837,551 398,899
Cash Flows and Working Capital
In the third quarter of 2022, we generated net cash of RMB100.9 million from operating activities, representing a significant increase from RMB13.9 million in the third quarter of 2021, primarily because of improvement of accounts receivable recoveries and accounts payables. Our recoveries of accounts receivable improved significantly, as demonstrated by (i) the RMB210.4 million decrease of accounts receivable in the third quarter of 2022, and (ii) other than Camelot Group, cash payments from Kingsoft Cloud’s customers amounting to RMB5,439 million and RMB5,355 million for the nine months ended September 30, 2021, and 2022, respectively, representing 87.8% and 123.1% of revenues for the same periods, respectively, demonstrating our improved collection of accounts receivable in 2022. The improvement was mainly due to (i) our enhanced collection efforts, such as adjusting our monthly accounts collection targets as well as promptly following up with collection of accounts receivable; and (ii) our stringent project selection favoring customers with strong liquidity position and low credit risk. In addition, our accounts payable increased by
 
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RMB7.5 million in the third quarter, primarily due to our enhanced payment management, such as adjusting our monthly payment plans and firming our payment approval process.
In the third quarter of 2022, we generated net cash of RMB323.8 million from investing activities, representing a significant increase from RMB99.4 million in the third quarter of 2021, primarily attributable to proceeds from maturities of short-term investments, partially offset by purchases of short-term investments and purchases of property and equipment.
In the third quarter of 2022, we used net cash of RMB130.7 million in financing activities, compared with net cash of RMB526.2 million generated from financing activities in the third quarter of 2021, primarily attributable to our repayment of short-term bank loans and loans due to related parties, partially offset by proceeds from short-term bank loans and loans due to related parties.
As of September 30, 2022, we had RMB5,328.9 million (US$749.1 million) in cash and cash equivalents and short-term investment, which included cash deposits at fixed rates.
Recent PRC Regulatory Development
Overseas Listing
On December 24, 2021, the CSRC published the draft Regulations of the State Council on the Administration of Overseas Issuance and Listing of Securities by Domestic Companies (Draft for Comments) (the “Administrative Provisions”) and the draft Administrative Measures for the Record-Filing of Overseas Issuance and Listing of Securities by Domestic Companies (Draft for Comments) (the “Filing Measures”, together with the Administrative Provision, the “Overseas Listing Regulations”) for public comments till January 23, 2022. Pursuant to these drafts, a filing-based regulatory system will be applied to both “direct overseas offering and listing” and “indirect overseas offering and listing” of PRC domestic companies.
Our Directors are of the view that, after consulting our PRC legal counsel, assuming the draft Overseas Listing Regulations were adopted in the current forms, we and the VIEs would be able to comply with the Overseas Listing Regulations and do not foresee any material legal impediment in completing the filing procedure with the CSRC for the proposed Listing under such new rules, primarily on the basis that we and the VIEs are not aware of any specific circumstance of our Group which falls into the circumstances stipulated in Article 7 of the draft Administrative Provisions that prohibit a domestic company from conducting an overseas listing. We and the VIEs believe that the draft Overseas Listing Regulations would not have a material adverse impact on our business operations, the Contractual Arrangements or the proposed Listing.
Furthermore, in a press conference held by the NDRC on January 18, 2022, a spokesperson made it clear that Article 6 of Interpretation Notes of the Special Management Measures for the Entry of Foreign Investment (Negative List) (2021 version) (“Article 6 of the 2021 Negative List”) shall only apply to the situations where a domestic enterprise seeks a direct overseas listing. Therefore, our Directors are of the view that the requirements stipulated in Article 6 of the 2021 Negative list are currently not applicable to our proposed dual primary listing on the Hong Kong Stock Exchange with the VIE structure.
As of the date this prospectus supplement, we and the VIEs have not received any formal inquiry, notice, warning, sanction, or any regulatory objection to the Listing from the CSRC or any other PRC regulatory agencies that have jurisdiction over our operations.
See also “Item 3. Key Information — 3.D. Risk Factors — Risks Relating to Doing Business in China — The filing, approval or other administrative requirements of the CSRC or other PRC government authorities may be required in connection with the Introduction under PRC law” and “Item 4. Information of the Company — Regulations — M&A Rules and Overseas Listings” in the 2021 Form 20-F.
Cybersecurity Review
On December 28, 2021, the Cyberspace Administration of China, or the CAC, together with several other governmental authorities, jointly released the Cybersecurity Review Measures, which took effect on February 15, 2022. Pursuant to the Cybersecurity Review Measures, the purchase of network products and services by an operator of critical information infrastructure or the data processing activities of a network
 
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platform operator that affect or may affect national security will be subject to a cybersecurity review. In addition, network platform operators with personal information of over one million users shall be subject to cybersecurity review before listing abroad. On November 14, 2021, the CAC published the Administration Regulations on Cyber Data Security (Draft for Comments) (the “Draft Administration Regulations on Cyber Data Security”), which provide the circumstances under which data processors shall apply for cybersecurity review and comprehensive requirements on the full lifecycle of data (including but not limited to personal information) processing within the PRC. As of the date of this prospectus supplement, the Draft Administration Regulations on Cyber Data Security have not been formally adopted. It is uncertain when the final regulations will be issued and take effect, how they will be enacted, interpreted and implemented, and whether or to what extent they will affect us. As of the date of this prospectus supplement, we and the VIEs have not been involved in any material investigations, inquiries, or sanctions in relation to cybersecurity or data security or any cybersecurity review initiated by CAC or any other relevant PRC government authorities.
Considering that (i) the volume of personal information processed by us and the VIEs is far lower than the volume threshold of one million users, (ii) for operations in the PRC, we and the VIEs do not transfer important data and personal information overseas as we and the VIEs only use servers within the PRC to store data and do not allow foreign users to access data stored within the PRC, (iii) for the overseas business operation, we provide the cloud storage services for our customers in a localized approach outside the PRC, and (iv) we and the VIEs have not been informed, approached or designated as an operator of critical information infrastructure under the applicable PRC laws and regulations by any PRC governmental authorities as of the date of this prospectus supplement, we believe that no member of our Group is a critical information infrastructure operator, and the Measures for the Security Assessment of Cross-Border Data Transfer do not apply to our Group at the present stage.
Our Directors are of the view that, after consulting our PRC legal counsel, if the Draft Administration Regulations on Cyber Data Security were implemented in the current form, we and the VIEs would be able to comply with such regulations in all material respects, and such regulations would not have any material adverse effect on the Company’s business operations or the proposed Listing on the basis that: (i) we and the VIEs have implemented necessary measures to ensure user privacy and data security and to comply with applicable cybersecurity and data privacy laws and regulations as disclosed in “Business — Data Privacy and Security” in Exhibit 99.1 to the Supplemental 6-K; (ii) as of the date of this prospectus supplement, we and the VIEs have not been subject to any material investigation, inquiry, or sanction in relation to cybersecurity or data privacy or any cybersecurity review from the CAC or any other relevant PRC government authority; (iii) in 2019, 2020, 2021, the first half of 2022 and up to the date of this prospectus supplement, we and the VIEs have not been subject to any material fines or other material penalties due to non-compliance with cybersecurity or data privacy laws or regulations; and (iv) we and the VIEs will closely monitor and assess further regulatory developments regarding cybersecurity and data privacy laws, including the development of cybersecurity review, and comply with the latest regulatory requirements.
See also “Risk Factors — Risks Relating to Our Business and Industry — We face challenges from the evolving regulatory environment regarding cybersecurity, information security, privacy and data protection, and user attitude toward data privacy and protection. Many of these laws and regulations are subject to change and uncertain interpretation, and any actual or alleged failure to comply with related laws and regulations regarding cybersecurity, information security, data privacy and protection could materially and adversely affect our business and results of operations” and “Regulations — Recent Regulatory Developments — Cybersecurity Review” in the Exhibit 99.1 to the Supplemental 6-K.
Implication of the Holding Foreign Companies Accountable Act
The Holding Foreign Companies Accountable Act, or the HFCAA, was enacted on December 18, 2020. The HFCAA states if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspection by the PCAOB for three consecutive years, or two consecutive years if the Accelerating Holding Foreign Companies Accountable Act is enacted, beginning in 2021, the SEC shall prohibit our shares or ADSs from being traded on a national securities exchange or in the over-the-counter trading market in the United States. On December 15, 2022, the PCAOB released a statement confirming it has secured complete access to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong, and it issued the 2022 HFCAA Determination Report to
 
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vacate its previous determinations to the contrary. Accordingly, our auditor is no longer identified as one of the registered public accounting firms that the PCAOB is unable to inspect or investigate completely. The PCAOB is continuing to demand complete access, and it will act immediately to reconsider such determinations should China obstruct, or otherwise fail to facilitate the PCAOB’s access, at any time. Therefore, there is no guarantee that our auditor would not be identified again by the PCAOB in the future as a registered public accounting firm that the PCAOB is unable to inspect or investigate completely. In such event, we would again be subject to the trading prohibition under the HFCAA if we were so identified by the SEC for three consecutive years, or two consecutive years if the Accelerating Holding Foreign Companies Accountable Act is enacted. For the details of the risks associated with the enactment of the HFCAA, see “Risk Factors — Risks Relating to Doing Business in China — Our ADSs may be delisted and our ADSs and shares prohibited from trading on a national securities exchange or through any other method that is within the jurisdiction of the SEC to regulate, including through over-the-counter trading under the Holding Foreign Companies Accountable Act, or the HFCAA, if the PCAOB is unable to inspect or fully investigate auditors located in China. The delisting of our ADSs, or the threat of their being delisted, may materially and adversely affect the value of your investment” and “Risk Factors — Risks Relating to Doing Business in China — The potential enactment of the Accelerating Holding Foreign Companies Accountable Act would decrease the number of non-inspection years from three years to two years, thus reducing the time period before our ADSs may be delisted or prohibited from over-the-counter trading. If this bill were enacted, our ADS could be delisted from the exchange and prohibited from over-the-counter trading in the U.S. in two consecutive non-inspection years” in this prospectus supplement.
Our Holding Company Structure and the VIE Contractual Arrangements
Kingsoft Cloud Holdings Limited is a holding company with no material operations of its own. We conduct our operations primarily through our PRC subsidiaries, the VIEs and their subsidiaries. As a result, our ability to pay dividends depends upon dividends paid by our subsidiaries. If our subsidiaries or any newly formed subsidiaries incur debt on their own behalf in the future, the instruments governing their debt may restrict their ability to pay dividends to us.
In addition, our subsidiaries in China are permitted to pay dividends to us only out of their retained earnings. In accordance with PRC company laws, the VIEs and their subsidiaries and PRC subsidiaries in China must make appropriations from their after-tax profit to fund certain statutory reserve funds until such reserve funds reach 50% of their respective registered capital. In addition, each of our PRC subsidiaries, the VIEs and their subsidiaries may allocate a portion of its after-tax profits to a discretionary surplus fund at its discretion. Remittance of dividends by our PRC subsidiaries out of China is subject to examination by the banks designated by SAFE.
As an offshore holding company, we are permitted under PRC laws and regulations to provide funding from the proceeds of our offshore fundraising activities to our PRC subsidiaries only through loans or capital contributions, and to the VIEs only through loans, in each case subject to the satisfaction of the applicable government registration and approval requirements. See “Item 3. Key Information — 3.D. Risk Factor — Risks Relating to Doing Business in China — PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may delay us from using the proceeds of our offshore securities offerings to make loans or additional capital contributions to our PRC subsidiaries and from making loans to the VIEs, which could materially and adversely affect our liquidity and our ability to fund and expand our business” in the 2021 Form 20-F. As a result, there is uncertainty with respect to our ability to provide prompt financial support to our PRC subsidiaries, the VIEs and their subsidiaries when needed. Notwithstanding the foregoing, our PRC subsidiaries may use their own retained earnings (rather than Renminbi converted from foreign currency denominated capital) to provide financial support to the VIEs either through entrustment loans from our PRC subsidiaries to the VIEs and their subsidiaries or direct loans to such VIEs’ nominee shareholders, which would be contributed to the consolidated variable entity as capital injections. Such direct loans to the nominee shareholders would be eliminated in our consolidated financial statements against the VIEs’ share capital.
Transfer of Funds and Other Assets
Under relevant PRC laws and regulations, we are permitted to remit funds to the VIEs through loans rather than capital contributions. Translations from Renminbi to U.S. dollars and from U.S. dollars to Renminbi in
 
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this section headed “Transfer of Funds and Other Assets” are made at RMB6.3726 to US$1.00, the exchange rate set forth in the H.10 statistical release of the Federal Reserve Board on December 30, 2021.
As of December 31, 2021, Kingsoft Cloud Holdings Limited had made cumulative capital contributions of RMB5,328 million (US$836 million) to our PRC subsidiaries through intermediate holding company, and were accounted as long-term investments of Kingsoft Cloud Holdings Limited. As of December 31, 2021, the loan balance owed under the VIE agreements was RMB3,385 million (US$531 million). In 2019, 2020 and 2021, the VIEs and their subsidiaries transferred RMB53.4 million, RMB24.9 million and RMB20.2 million (US$ 3.2 million), respectively, to our PRC subsidiaries as payment or prepayment of service fees. Beijing Kingsoft Cloud and Yunxiang Zhisheng, our PRC subsidiaries, provided the VIEs and their subsidiaries with technical support, consulting services and other services related to the business of VIEs and their subsidiaries, including business management, daily operations, strategic planning, among others.
As of December 31, 2020 and 2021, the prepayment of service fees from the VIEs and their subsidiaries to our PRC subsidiaries amounted to nil and nil, respectively. As of December 31, 2020 and 2021, the outstanding balance of service fees owed by the VIEs and their subsidiaries to our PRC subsidiaries amounted to RMB311.0 million and RMB333.8 million (US$52.4 million), respectively. There were no other assets transferred between the VIEs and their subsidiaries and non-VIEs in 2019, 2020 and 2021.
Kingsoft Cloud Holdings Limited has not previously declared or paid any cash dividend or dividend in kind, and has no plan to declare or pay any dividends in the near future on our shares or the ADSs representing our ordinary shares. We currently intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business. See “Item 8. — Financial Information — 8.A. Consolidated Statements and Other Financial Information — Dividend Policy” in the 2021 Form 20-F.
For the purpose of illustration, the below table reflects the hypothetical taxes that might be required to be paid within China, assuming that: (i) we have taxable earnings, and (ii) we determine to pay a dividend in the future:
Taxation Scenario(1) Statutory
Tax and Standard Rates
Hypothetical pre-tax earnings(2)
100%
Tax on earnings at statutory rate of 25%
(25)%
Net earnings available for distribution
75%
Withholding tax at standard rate of 10%(3)
(7.5)%
Net distribution to Parent/Shareholders
67.5%
Notes:
(1)
The tax calculation has been simplified for the purpose of this example. The hypothetical book pre-tax earnings amount, which does not consider timing differences, is assumed to equal the taxable income in the PRC.
(2)
Under the terms of the VIE agreements, sales service fees are charged by our PRC subsidiaries to the VIEs and their subsidiaries. For all the periods presented, these fees are recognized as cost of revenues of the VIEs and their subsidiaries with a corresponding amount as service income by our PRC subsidiaries and eliminated in consolidation. For income tax purposes, our PRC subsidiaries, VIEs and their subsidiaries file income taxes on a separate company basis. The fees paid are recognized as a tax deduction by the VIEs and their subsidiaries and as income by our PRC subsidiaries and are tax neutral. Upon the instance that the VIEs and their subsidiaries reach a cumulative level of profitability, because our PRC subsidiaries occupy certain trademarks and copyrights, the agreements will be updated to reflect charges for such trademarks and copyrights usage on the basis that they will qualify for tax neutral treatment.
(3)
China’s Enterprise Income Tax Law imposes a withholding income tax of 10% on dividends distributed by a Foreign Invested Enterprise (“FIE”) to its immediate holding company outside of China. A lower withholding income tax rate of 5% is applied if the FIE’s immediate holding company is registered in Hong Kong or other jurisdictions that have a tax treaty arrangement with China providing for such lower 5% rate, subject to a qualification review at the time of the distribution. For the purpose of this hypothetical example, this table has been prepared based on a taxation scenario under which the full withholding tax would be applied.
The table above has been prepared under the assumption that all profits of the VIEs and their subsidiaries will be distributed as fees to our PRC subsidiaries under tax neutral contractual arrangements. If in the future, the accumulated earnings of the VIEs and their subsidiaries exceed the fees paid to our PRC subsidiaries, or if the
 
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current and contemplated fee structure between the intercompany entities is determined to be non-substantive and disallowed by Chinese tax authorities, we have other tax-planning strategies that can be deployed on a tax neutral basis.
Should all tax planning strategies fail, the VIEs and their subsidiaries could, as a matter of last resort, make a non-deductible transfer to our PRC subsidiaries for the amounts of the stranded cash in the VIEs and their subsidiaries. This would result in the double taxation of earnings: one at the VIE level (for non-deductible expenses) and one at the PRC subsidiary level (for presumptive earnings on the transfer). Such a transfer and the related tax burdens would reduce our after-tax income to approximately 50.63% of the pre-tax income. Our management is of the view that the likelihood that this scenario would happen is remote.
Condensed Consolidating Schedule
The following tables present the summary statements of operations for Kingsoft Cloud Holdings Limited, its WFOEs, its subsidiaries other than WFOEs, and its VIEs and their subsidiaries for the periods presented.
For the Year Ended December 31, 2019
Kingsoft
Cloud
Holdings
Limited
WFOEs
Subsidiaries
(other
than
WFOEs)
VIEs and
their
subsidiaries
Eliminations
Consolidated
(RMB in thousands)
Third-party revenues
76,463 3,879,890 3,956,353
Intra-Group revenues(1)
53,426 2,462 (55,888)
Total revenues
53,426 76,463 3,882,352 (55,888) 3,956,353
Third-party costs and expenses
(6,734) (352,893) (102,690) (4,637,570) (5,099,887)
Intra-Group costs and expenses(1)
(21,232) (72,520) 93,752
Total costs and expenses
(6,734) (352,893) (123,922) (4,710,090) 93,752 (5,099,887)
Operating loss
(6,734) (299,467) (47,459) (827,738) 37,864 (1,143,534)
Income (loss) from non-operations
40,940 63,118 70,289 (142,606) 594 32,335
Share of loss of subsidiaries
(377,995) 377,995
Contractual interests in VIEs and VIEs’ subsidiaries(3)
(767,410) 767,410
Net loss
(1,111,199) (236,349) 22,830 (970,344) 1,183,863 (1,111,199)
 
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For the Year Ended December 31, 2020
Kingsoft
Cloud
Holdings
Limited
WFOEs
Subsidiaries
(other
than
WFOEs)
VIEs and
their
subsidiaries
Eliminations
Consolidated
(RMB in thousands)
Third-party revenues
378,606 6,198,701 6,577,307
Intra-Group revenues(1)
95,925 178,457 (274,382)
Total revenues
95,925 378,606 6,377,158 (274,382) 6,577,307
Third-party costs and expenses
(27,052) (350,020) (195,238) (7,212,247) (7,784,557)
Intra-Group costs and expenses(1)
(175,218) (95,656) 270,874
Total costs and expenses
(27,052) (350,020) (370,456) (7,307,903) 270,874 (7,784,557)
Operating loss
(27,052) (254,095) 8,150 (930,745) (3,508) (1,207,250)
Income (loss) from non-operations
45,886 92,692 104,497 7,837 (5,860) 245,052
Share of loss of subsidiaries
(171,421) 171,421
Contractual interests in VIEs and VIEs’ subsidiaries(3)
(809,672) 809,672
Net loss
(962,259) (161,403) 112,647 (922,908) 971,725 (962,198)
For the Year Ended December 31, 2021
Kingsoft
Cloud
Holdings
Limited
WFOEs
Subsidiaries
(other
than
WFOEs)
VIEs and
their
subsidiaries
Eliminations
Consolidated
(RMB in thousands)
Third-party revenues
1,304,250 7,756,534 9,060,784
Intra-Group revenues(1)
21,569 30,078 215,609 (267,256)
Total revenues
21,569 1,334,328 7,972,143 (267,256) 9,060,784
Third-party costs and expenses
(40,913) (301,675) (1,104,063) (9,426,525) (10,873,176)
Intra-Group costs and expenses(1)
(7,928) (150,925) (39,773) 198,626
Total costs and expenses
(40,913) (309,603) (1,254,988) (9,466,298) 198,626 (10,873,176)
Operating loss
(40,913) (288,034) 79,340 (1,494,155) (68,630) (1,812,392)
Income (loss) from non-operations
34,343 219,528 40,917 (62,749) (11,403) 220,636
Share of loss of subsidiaries
(121,100) 121,100
Contractual interests in VIEs and VIEs’ subsidiaries(3)
(1,461,042) 1,461,042
Net loss
(1,588,712) (68,506) 120,257 (1,556,904) 1,502,109 (1,591,756)
The following tables present the summary balance sheet data for the Kingsoft Cloud Holdings Limited, its WFOEs, its subsidiaries other than WFOEs, and its VIEs and their subsidiaries as of the dates presented.
As of December 31, 2020
Kingsoft
Cloud
Holdings
Limited
WFOEs
Subsidiaries
(other
than
WFOEs)
VIEs and
their
subsidiaries
Eliminations
Consolidated
(RMB in thousands)
Current Assets:
Cash and cash equivalents
68,012 459,402 1,467,752 1,429,508 3,424,674
Restricted cash
 
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As of December 31, 2020
Kingsoft
Cloud
Holdings
Limited
WFOEs
Subsidiaries
(other
than
WFOEs)
VIEs and
their
subsidiaries
Eliminations
Consolidated
(RMB in thousands)
Accounts receivable, net
76,558 2,258,313 2,334,871
Short-term investments
217,448 2,475,571 2,693,019
Prepayments and other assets
266,280 630,121 (9,315) 887,086
Amounts due from related
parties
715 78 204,275 205,068
Total current assets
551,740 460,117 4,019,959 4,522,217 (9,315) 9,544,718
Non-current assets:
Property and equipment, net
150,865 78,305 1,727,620 1,956,790
Intangible assets, net
1,593 14,980 16,573
Prepayments and other assets
1,846 9,978 11,824
Goodwill
Equity investments
40,332 86,251 126,583
Investments in subsidiaries
Amounts due from related parties
1,046 4,712 5,758
Operating lease right-of-use assets
51,420 5,210 210,338 266,968
Deferred tax assets
Total non-current assets
203,331 127,286 2,053,879 2,384,496
Amounts due from Kingsoft Cloud Holdings Limited
1,686 6 (1,692)
Amounts due from subsidiaries (other than WFOEs)
7,883,060 3,738,875 249,551 (11,871,486)
Amounts due from WFOEs
100,000 843,988 1,382,035 (2,326,023)
Amounts due from VIEs and VIEs’ subsidiaries
5,567,686 2,703,392 (8,271,078)
Amounts due from group
companies
7,983,060 9,308,247 3,547,380 1,631,592 (22,470,279)
Total assets
8,534,800 9,971,695 7,694,625 8,207,688 (22,479,594) 11,929,214
Current Liabilities:
Accounts payable
43,927 2,013,428 2,057,355
Accrued expenses and other liabilities
256,630 31,024 36,413 521,307 845,374
Short-term bank loans
278,488 278,488
Long-term bank loan, current portion
74,351 74,351
Income tax payable
2,524 17,995 45 20,564
Amounts due to related parties
407 55,796 56,795 112,998
Current operating lease liabilities
16,593 3,615 56,261 76,469
Total current liabilities
259,561 103,413 101,950 3,000,675 3,465,599
Non-current Liabilities:
Deferred tax liabilities
29 29
 
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As of December 31, 2020
Kingsoft
Cloud
Holdings
Limited
WFOEs
Subsidiaries
(other
than
WFOEs)
VIEs and
their
subsidiaries
Eliminations
Consolidated
(RMB in thousands)
Other liabilities
33,558 7,020 40,578
Non-current operating lease liabilities
35,118 1,828 146,012 182,958
Amounts due to related parties
Total non-current liabilities
33,558 35,118 1,828 153,061 223,565
Amounts due to Kingsoft Cloud Holdings Limited
100,000 7,883,060 (7,983,060)
Amounts due to subsidiaries (other than WFOEs)
843,988 2,703,460 (3,547,448)
Amounts due to WFOEs
1,686 3,738,875 5,567,686 (9,308,247)
Amounts due to VIEs and VIEs’ subsidiaries
6 1,382,035 249,458 (1,631,499)
Amounts due to group companies
1,692 2,326,023 11,871,393 8,271,146 (22,470,254)
Total liabilities
294,811 2,464,554 11,975,171 11,424,882 (22,470,254) 3,689,164
As of December 31, 2021
Kingsoft
Cloud
Holdings
Limited
WFOEs
Subsidiaries
(other
than
WFOEs)
VIEs and
their
subsidiaries
Eliminations
Consolidated
(RMB in thousands)
Current Assets:
Cash and cash equivalents
69,393 429,543 1,508,945 2,209,647 4,217,528
Restricted cash
149,389 89,704 239,093
Accounts receivable, net
400,115 3,170,860 3,570,975
Short-term investments
1,029,472 1,461,584 2,491,056
Prepayments and other assets
53,618 51,339 674,714 907,350 1,687,021
Amounts due from related
parties
715 22,291 184,137 207,143
Total current assets
1,152,483 481,597 4,217,038 6,561,698 12,412,816
Non-current assets:
Property and equipment, net
103,728 103,282 2,157,093 2,364,103
Intangible assets, net
1,076,105 93,662 1,169,767
Prepayments and other assets
2,030 27,036 29,066
Goodwill
4,561,033 64,082 4,625,115
Equity investments
44,922 162,244 207,166
Investments in subsidiaries(2)
5,328,424 (5,328,424)
Amounts due from related
parties
1,046 4,712 5,758
Operating lease right-of-use assets
42,372 29,171 184,908 256,451
Deferred tax assets
7,798 7,798
 
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As of December 31, 2021
Kingsoft
Cloud
Holdings
Limited
WFOEs
Subsidiaries
(other
than
WFOEs)
VIEs and
their
subsidiaries
Eliminations
Consolidated
(RMB in thousands)
Total non-current assets
5,328,424 147,146 5,824,341 2,693,737 (5,328,424) 8,665,224
Amounts due from Kingsoft Cloud Holdings Limited
4,840 6 (4,846)
Amounts due from subsidiaries (other than WFOEs)
5,408,311 7,749,887 258,796 (13,416,994)
Amounts due from WFOEs
100,000 1,056,356 1,898,626 (3,054,982)
Amounts due from VIEs and VIEs’ subsidiaries
6,696,195 2,388,227 (9,084,422)
Amounts due from group companies
5,508,311 14,450,922 3,444,583 2,157,428 (25,561,244)
Total assets
11,989,218 15,079,665 13,485,962 11,412,863 (30,889,668) 21,078,040
Current Liabilities:
Accounts payable
205,145 2,733,487 2,938,632
Accrued expenses and other liabilities
182,075 42,875 790,022 1,208,868 2,223,840
Short-term bank loans
1,348,166 1,348,166
Long-term bank loan, current portion
Income tax payable
3,307 55,884 1,026 60,217
Amounts due to related
parties
829 37,875 797,731 836,435
Current operating lease
liabilities
22,625 15,293 70,672 108,590
Total current liabilities
186,211 103,375 1,066,344 6,159,950 7,515,880
Non-current Liabilities:
Deferred tax liabilities
205,889 205,889
Other liabilities
1,194,212 31,490 6,975 1,232,677
Non-current operating lease liabilities
26,087 11,145 121,057 158,289
Amounts due to related
parties
472,882 472,882
Total non-current liabilities
1,194,212 26,087 248,524 600,914 2,069,737
Amounts due to Kingsoft Cloud
Holdings Limited
100,000 5,408,311 (5,508,311)
Amounts due to subsidiaries (other than WFOEs)
1,056,356 2,388,276 (3,444,632)
Amounts due to WFOEs
4,840 7,749,887 6,696,195 (14,450,922)
Amounts due to VIEs and VIEs’
subsidiaries
6 1,898,626 258,645 (2,157,277)
Amounts due to group
companies
4,846 3,054,982 13,416,843 9,084,471 (25,561,142)
Total liabilities
1,385,269 3,184,444 14,731,711 15,845,335 (25,561,142) 9,585,617
 
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The following tables present the summary cash flow data for Kingsoft Cloud Holdings Limited, its WFOEs, its subsidiaries other than WFOEs, and its VIEs and their subsidiaries and other entities for the periods presented.
For the Year Ended December 31, 2019
Kingsoft
Cloud
Holdings
Limited
WFOEs
Subsidiaries
(other
than
WFOEs)
VIEs and
their
subsidiaries
Eliminations
Consolidated
(RMB in thousands)
Net cash (used in) generated from operating activities
(2,538,479) 643,030 2,241,695 (785,378) (439,132)
Net cash generated from (used in) investing activities
2,166,312 (697,067) (446,084) (836,981) 697,067 883,247
Net cash generated from (used in) financing activities
370,294 (1,226,822) 1,618,102 (697,067) 64,507
For the Year Ended December 31, 2020
Kingsoft
Cloud
Holdings
Limited
WFOEs
Subsidiaries
(other
than
WFOEs)
VIEs and
their
subsidiaries
Eliminations
Consolidated
(RMB in thousands)
Net cash (used in) generated from operating activities
(6,203,310) 3,034,938 3,711,418 (833,479) (290,433)
Net cash generated from (used in) investing activities
(218,674) (2,623,601) (2,623,692) (1,471,637) 2,623,601 (4,314,003)
Net cash generated from (used in) financing activities
5,945,666 2,802,088 (2,623,601) 6,124,153
For the Year Ended December 31, 2021
Kingsoft
Cloud
Holdings
Limited
WFOEs
Subsidiaries
(other
than
WFOEs)
VIEs and
their
subsidiaries
Eliminations
Consolidated
(RMB in thousands)
Net cash (used in) generated from operating activities
1,178,019 (555,213) (372,927) (958,748) (708,869)
Net cash generated from (used in) investing activities
(1,179,393) (431,000) 645,001 (843,586) 1,387,355 (421,623)
Net cash generated from (used in) financing activities
(815) 956,355 31,739 2,612,563 (1,387,355) 2,212,487
Notes:
(1)
It represents the intra-group transaction charge under a series of commercial agreements among the Company’s WFOEs, subsidiaries, VIEs and VIEs’ subsidiaries.
(2)
It represents the Company’s investments in Camelot, the Company’s subsidiaries.
(3)
It represents the primary beneficiary’s share of loss generated from the VIEs and their subsidiaries.
Restrictions on Foreign Exchange and the Ability to Transfer Cash between Entities, Across Borders and to U.S. Investors
Kingsoft Cloud Holdings Limited’s ability to pay dividends, if any, to its shareholders and ADS holders and to service any debt it may incur will depend upon dividends paid by our PRC subsidiaries. Under PRC laws and regulations, our PRC subsidiaries are subject to certain restrictions with respect to paying dividends or otherwise transferring any of their net assets offshore to Kingsoft Cloud Holdings Limited. In particular, under the current effective PRC laws and regulations, dividends may be paid only out of distributable profits.
 
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Distributable profits are the net profit as determined under PRC GAAP, less any recovery of accumulated losses and appropriations to statutory and other reserves required to be made. Each of our PRC subsidiaries is required to set aside at least 10% of its after-tax profits each year, after making up previous years’ accumulated losses, if any, to fund certain statutory reserve funds, until the aggregate amount of such a fund reaches 50% of its registered capital. As a result, our PRC subsidiaries may not have sufficient distributable profits to pay dividends to us in the near future.
Furthermore, if certain procedural requirements are satisfied, the payment of current account items, including profit distributions and trade and service related foreign exchange transactions, can be made in foreign currencies without prior approval from State Administration of Foreign Exchange (the “SAFE”) or its local branches. However, where RMB is to be converted into foreign currency and remitted out of China to pay capital expenses, such as the repayment of loans denominated in foreign currencies, approval from or registration with competent government authorities or its authorized banks is required. The PRC government may take measures at its discretion from time to time to restrict access to foreign currencies for current account or capital account transactions. If the foreign exchange control system prevents us from obtaining sufficient foreign currencies to satisfy our foreign currency demands, we may not be able to pay dividends in foreign currencies to our offshore intermediary holding companies or ultimate parent company, and therefore, our shareholders or investors in our ADSs. Further, we cannot assure you that new regulations or policies will not be promulgated in the future, which may further restrict the remittance of RMB into or out of the PRC. We cannot assure you, in light of the restrictions in place, or any amendment to be made from time to time, that our current or future PRC subsidiaries will be able to satisfy their respective payment obligations that are denominated in foreign currencies, including the remittance of dividends outside of the PRC. If any of our subsidiaries incurs debt on its own behalf in the future, the instruments governing such debt may restrict its ability to pay dividends to Kingsoft Cloud Holdings Limited. In addition, our PRC subsidiaries are required to make appropriations to certain statutory reserve funds, which are not distributable as cash dividends except in the event of a solvent liquidation of the companies.
For PRC and United States federal income tax consideration of an investment in our ordinary shares or ADSs, see “Item 10. Additional Information — 10.E. Taxation” in the 2021 Form 20-F and the section headed “Taxation” in this prospectus supplement.
The Listing
On May 8, 2020, we listed our ADSs on the Nasdaq Global Select Market under the symbol “KC.” We have applied for a listing of our ordinary shares by way of introduction on the Main Board under Chapter 7 (Equity Securities) of the Hong Kong Listing Rules. Dealings in our ordinary shares on the Hong Kong Stock Exchange will be conducted in Hong Kong dollars. Our ordinary shares will be traded on the Hong Kong Stock Exchange in board lots of 2,000 ordinary shares under the stock code “3896.”
Fungibility and Exchanges between ADSs and Ordinary Shares
In connection with the Listing, and to facilitate fungibility and conversion between ADSs and ordinary shares and trading between the Nasdaq and the Hong Kong Stock Exchange, we intend to move all our issued ordinary shares from our Cayman share register to our Hong Kong Share Registrar. Holders of ordinary shares registered on the Hong Kong share register will be able to convert these ordinary shares into ADSs, and vice versa.
Implications of Being a Foreign Private Issuer
We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions of the securities rules and regulations in the United States that are applicable to U.S. domestic issuers. Moreover, the information we are required to file with or furnish to the SEC will be less extensive and less timely compared to that required to be filed with the SEC by U.S. domestic issuers. In addition, as a company incorporated in the Cayman Islands, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from the Nasdaq corporate governance requirements. These practices may afford less protection to shareholders than they would enjoy if we complied fully with the Nasdaq corporate governance requirements.
 
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Corporation Information
Our corporate headquarters is located at Building E, Xiaomi Science and Technology Park, No. 33 Xierqi Middle Road, Haidian District, Beijing, 100085, the People’s Republic of China. Our telephone number at this address is +86-10-6292-7777. Our registered office in the Cayman Islands is located at the office of Conyers Trust Company (Cayman) Limited, Cricket Square, Hutchins Drive, PO Box 2681, Grand Cayman, KY1-1111, Cayman Islands. Our agent for service of process in the United States is Cogency Global Inc. located at 122 East 42nd Street, 18th Floor, New York, NY 10168.
You can also find information on ir.ksyun.com. The information contained on our website is not a part of this prospectus supplement. Information appearing on our website is not incorporated by reference into this prospectus supplement or the accompanying prospectus.
 
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RISK FACTORS
An investment in our ordinary shares involves significant risks. You should carefully consider the risks described below together with the risks described in our 2021 Form 20-F, the updated and supplemental risk factors contained in Exhibit 99.1 to the Supplemental 6-K, and the other information contained in this prospectus supplement and the accompanying prospectus, including the documents incorporated by reference. Any of these risks could have a material adverse effect on our business, financial condition, and results of operations. In any such case, the market price of our ordinary shares could decline, and you may lose all or part of your investment.
Please see “Where You Can Find More Information” and “Incorporation of Certain Documents by Reference” for information on where you can find the documents we have filed with or furnished to the SEC and which are incorporated by reference in this prospectus supplement.
Risks Related to Doing Business in China
Our ADSs may be delisted and our ADSs and shares prohibited from trading on a national securities exchange or through any other method that is within the jurisdiction of the SEC to regulate, including through over-the-counter trading under the Holding Foreign Companies Accountable Act, or the HFCAA, if the PCAOB is unable to inspect or fully investigate auditors located in China. The delisting of our ADSs, or the threat of their being delisted, may materially and adversely affect the value of your investment.
As part of a continued regulatory focus in the United States on access to audit and other information currently protected by national law, in particular China’s, the Holding Foreign Companies Accountable Act, or the HFCAA has been signed into law on December 18, 2020. The HFCAA states if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspection for the PCAOB for three consecutive years beginning in 2021, the SEC shall prohibit our shares or ADS from being traded on a national securities exchange or in the over-the counter trading market in the U.S. Accordingly, under the current law this could happen in 2024.
On December 2, 2021, the SEC adopted final amendments to its rules implementing the HFCAA (the “Final Amendments”). The Final Amendments include requirements to disclose information, including the auditor name and location, the percentage of shares of the issuer owned by governmental entities, whether governmental entities in the applicable foreign jurisdiction with respect to the auditor has a controlling financial interest with respect to the issuer, the name of each official of the Chinese Communist Party who is a member of the board of the issuer, and whether the articles of incorporation of the issuer contains any charter of the Chinese Communist Party. The Final Amendments also establish procedures the SEC will follow in identifying issuers and prohibiting trading by certain issuers under the HFCAA.
On December 16, 2021, the PCAOB issued the HFCAA Determination Report to notify the SEC of its determination that the PCAOB is unable to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong. The PCAOB identified our auditor as one of the registered public accounting firms that the PCAOB is unable to inspect or investigate completely. In June 2022, we were conclusively identified by the SEC under the HFCAA as having filed audit reports issued by a registered public accounting firm that cannot be inspected or investigated completely by the PCAOB in connection with our filing of the annual report on Form 20-F for the fiscal year ended December 31, 2021.
On August 26, 2022, the PCAOB signed a Statement of Protocol with the CSRC and the Ministry of Finance of the PRC, which contains provisions that, if abided by, would give the PCAOB access to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong completely. Despite of the detailed and specific requirements as prescribed in the agreement, if the PCAOB were unable to inspect or investigate completely the registered public accounting firms located in foreign jurisdictions, issuers that use those firms for three consecutive years may still face prohibitions on their securities trading in the U.S.. On December 15, 2022, the PCAOB released a statement confirming it has secured complete access to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong, and it issued the 2022 HFCAA Determination Report to vacate its previous determinations to the contrary. Accordingly, our auditor is no longer identified as one of the registered public accounting firms that the PCAOB is unable to inspect or investigate completely. The PCAOB is continuing to demand complete access, and it will act immediately to reconsider such determinations should China obstruct, or otherwise fail to
 
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facilitate the PCAOB’s access, at any time. Therefore, there is no guarantee that our auditor would not be identified again by the PCAOB in the future as a registered public accounting firm that the PCAOB is unable to inspect or investigate completely. In such event, we would again be subject to the trading prohibition under the HFCAA if we were so identified by the SEC for three consecutive years.
The HFCAA or other efforts to increase U.S. regulatory access to audit information could cause investor uncertainty for affected issuers, including us, and the market price of the ADSs could be adversely affected. Additionally, whether the PCAOB will be able to conduct inspections of our auditor is subject to substantial uncertainty and depends on a number of factors out of our control. If we are unable to meet the PCAOB inspection requirement for three consecutive years, we could be delisted from the Nasdaq Stock Market and our ADSs will not be permitted for trading “over-the-counter” either. Such a delisting would substantially impair your ability to sell or purchase our ADSs when you wish to do so, and the risk and uncertainty associated with delisting would have a negative impact on the price of our ordinary shares and the ADSs. Also, such a delisting would significantly affect our ability to raise capital on terms acceptable to us, or at all, which would have a material adverse impact on our business, financial condition, and prospects.
The potential enactment of the