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United States securities and exchange commission logo
September 6, 2022
Haijian He
Chief Financial Officer
Kingsoft Cloud Holdings Limited
Building E, Xiaomi Science and Technology Park
No. 33 Xierqi Middle Road
Haidian District, Beijing, 100085
People s Republic of China
Re: Kingsoft Cloud
Holdings Limited
Form 20-F for the
Fiscal Year Ended December 31, 2021
File No. 001-39278
Dear Mr. He:
We have reviewed your filing and have the following comments. In
some of our
comments, we may ask you to provide us with information so we may better
understand your
disclosure.
Please respond to these comments within ten business days by
providing the requested
information or advise us as soon as possible when you will respond. If
you do not believe our
comments apply to your facts and circumstances, please tell us why in
your response.
After reviewing your
response to these comments, we may have additional comments.
Form 20-F for the Fiscal Year Ended December 31, 2021
Introduction, page i
1. Please revise your
definition of "China" or "PRC" to remove the exclusion of Hong Kong
and Macau.
Item 3 Key Information
3.D. Risk Factors, page 1
2. We note your disclosure
regarding the legal and operational risks associated with being
based in or having your
operations primarily in China. Please also disclose here how
recent statements and
regulatory actions by China s government, such as those related to
the use of variable
interest entities (VIEs) and data security or anti-monopoly concerns,
have or may impact the
company s ability to conduct its business, accept foreign
investments, or list on
a U.S. or other foreign exchange. Specifically disclose in the
Haijian He
Kingsoft Cloud Holdings Limited
September 6, 2022
Page 2
forepart of Item 3 whether your auditor is subject to the
determinations announced by the
PCAOB on December 16, 2021 and whether and how the Holding Foreign
Companies
Accountable Act (HFCAA) and related regulations will affect your
company. Also
disclose that trading in your securities may be prohibited under the
HFCAA if the PCAOB
determines that it cannot inspect or investigate completely your
auditor, and that as a
result an exchange may determine to delist your securities. In
addition, your disclosure
should make clear whether these risks could result in a material
change in your operations
and/or the value of the securities you are registering for sale or
could significantly limit or
completely hinder your ability to offer or continue to offer
securities to investors and
cause the value of such securities to significantly decline or be
worthless.
3. We note the diagram of corporate structure on page 88. At the onset of
Part I, please
provide a diagram of the company s corporate structure, identifying
the person or entity
that owns the equity in each depicted entity. Describe all contracts
and arrangements
through which you claim to have economic rights and exercise control
that results in
consolidation of the VIE s operations and financial results into
your financial statements.
Identify clearly the entity in which investors hold their interest and
the entity(ies) in which
the company s operations are conducted. Describe the relevant
contractual agreements
between the entities and how this type of corporate structure may
affect investors and the
value of their investment, including how and why the contractual
arrangements may be
less effective than equity ownership and that the company may incur
substantial costs to
enforce the terms of the arrangements. Disclose the uncertainties
regarding the status of
the rights of the Cayman Islands holding company with respect to its
contractual
arrangements with the VIE, its founders and owners, and the challenges
the company may
face enforcing these contractual agreements due to legal uncertainties
and jurisdictional
limits.
4. We note your disclosure that the Cayman Islands holding company controls
and receives
the economic benefits of the VIE s business operations through
contractual agreements
between the VIE and your Wholly Foreign-Owned Enterprise (WFOE) and that
those
agreements are designed to provide your WFOE with the power, rights, and
obligations
equivalent in all material respects to those it would possess as the
principal equity holder
of the VIE. We also note your disclosure that the Cayman Islands holding
company is the
primary beneficiary of the VIE. However, neither the investors in the
holding company
nor the holding company itself have an equity ownership in, direct
foreign investment in,
or control of, through such ownership or investment, the VIE.
Accordingly, please refrain
from implying that the contractual agreements are equivalent to equity
ownership in the
FirstName LastNameHaijian He
business of the VIE. Any references to control or benefits that accrue
to you because of
Comapany NameKingsoft
the VIE Cloud to
should be limited Holdings Limited
a clear description of the conditions you
have satisfied for
consolidation of
September 6, 2022 Page 2 the VIE under U.S. GAAP.
FirstName LastName
Haijian He
FirstName LastNameHaijian He
Kingsoft Cloud Holdings Limited
Comapany 6,
September NameKingsoft
2022 Cloud Holdings Limited
September
Page 3 6, 2022 Page 3
FirstName LastName
5. In your summary of risk factors, disclose the risk that the Chinese
government may
intervene or influence your 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 your operations and/or the value
of the securities you
are registering for sale. Acknowledge any risks that 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 your ability to offer or continue to offer securities to
investors and cause the value
of such securities to significantly decline or be worthless.
6. In your summary of risk factors and your risk factors disclosures,
please disclose each
permission or approval that you, your subsidiaries, or the VIEs are
required to obtain from
Chinese authorities to operate your business and to offer the
securities being registered to
foreign investors. State whether you, your subsidiaries, or VIEs are
covered by
permissions requirements from the China Securities Regulatory
Commission (CSRC),
Cyberspace Administration of China (CAC) or any other governmental
agency that is
required to approve the VIE s operations, and state affirmatively
whether you have
received all requisite permissions or approvals and whether any
permissions or approvals
have been denied. Please also describe the consequences to you and
your investors if you,
your subsidiaries, or the VIEs: (i) do not receive or maintain such
permissions or
approvals, (ii) inadvertently conclude that such permissions or
approvals are not required,
or (iii) applicable laws, regulations, or interpretations change and
you are required to
obtain such permissions or approvals in the future.
7. For each summary risk factor related to doing business in China,
provide a specific cross-
reference to the more detailed risk factor discussion.
8. We note your disclosure related to recent events indicating greater
oversight by the
Cyberspace Administration of China (CAC) over data security,
particularly for companies
seeking to list on a foreign exchange. Please revise your disclosure
to explain how this
oversight specifically impacts your business and your offering and to
what extent you
believe that you are compliant with the regulations or policies that
have been issued by the
CAC to date.
9. Please disclose the risks and consequences of being added to the HFCAA
Conclusive List
(for example, specifically disclose that the value of the company s
securities may
significantly decline or become worthless).
Condensed Consolidating Schedule, page 56
10. Please revise your condensed consolidating schedule to present major
line items, such as
revenue and cost of goods/services, and subtotals and disaggregated
intercompany
amounts, such as separate line items for intercompany receivables and
investment in
subsidiary. The schedule should also disaggregate the WFOEs that are
the primary
beneficiary of the VIEs. One of the objectives of this disclosure is
to allow an investor to
Haijian He
Kingsoft Cloud Holdings Limited
September 6, 2022
Page 4
evaluate the nature and amounts associated with intercompany
transactions. Any
intercompany amounts should be presented on a gross basis and when
necessary,
additional disclosure about such amounts should be included in order
to make the
information presented not misleading.
Item 5 Operating and Financial Review and Prospects
Impact of Covid-19, page 93
11. Please disclose (1) whether your business segments, products, lines of
service, projects, or
operations are materially impacted by the pandemic related lockdowns
in China and (2)
the impact of consumer demand declines in China. In addition, discuss
any steps you are
taking to mitigate adverse impacts to your business.
Year Ended December 31, 2021 Compared to Year Ended December 31, 2020
Revenues, page 97
12. You disclose that, "Our revenues generated from public cloud services
increased by
19.2% from RMB5,166.9 million in 2020 to RMB6,159.1 million (US$966.5
million) in
2021, primarily driven by the increase in the number of our Public
Cloud Service
Premium Customers due to our expansion and penetration in selected
vertical, and (ii)
increasing demand for our products and solutions of our Premium
Customers, reflected by
the increase in customer spending of our Public Cloud Service Premium
Customer."
Please quantify how much of the increase was driven by each item
noted. Discuss the
specific verticals you focused on and the underlying reason for the
increase in revenue for
those verticals. Explain the underlying reason for the increased
demand for your products
and solutions from your Premium Customers. Also, discuss how revenue
was impacted
given the decrease, from 146% to 114% from December 31, 2020 to
December 31, 2021,
in net dollar retention rate of public cloud service premium
customers.
13. We note your disclosure that, "Our revenues generated from enterprise
cloud services
increased by 111.1% from RMB1,372.7 million in 2020 to RMB2,897.8
million
(US$454.7 million) in 2021, primarily driven by (i) continued strong
growth momentum
of the overall China non-internet cloud market; (ii) strong demand for
our enterprise cloud
services in the verticals we focus on; (iii) an increase in the number
of our Enterprise
Cloud Service Premium Customers due to our marketing and customer base
expansion
efforts; and (iv) the acquisition of Camelot." In this regard, please
quantify how much of
the increase was driven by each item noted. Also, disclose the
underlying reason for the
continued strong growth momentum in the China non-internet cloud market.
Discuss the
FirstName LastNameHaijian He
underlying reason for the strong demand for your enterprise cloud
services in the verticals
Comapany NameKingsoft
you focused CloudinHoldings
on. Explain Limited
your filing what type of revenue is
included in China non-
internet
September cloud
6, 2022 market
Page 4 and what specific verticals you are focused on.
FirstName LastName
Haijian He
FirstName LastNameHaijian He
Kingsoft Cloud Holdings Limited
Comapany 6,
September NameKingsoft
2022 Cloud Holdings Limited
September
Page 5 6, 2022 Page 5
FirstName LastName
5.B. Liquidity and Capital Resources, page 102
14. At the forefront of you Liquidity and Capital Resources section
provide a clear description
of how cash is transferred through your organization. Disclose your
intentions to distribute
earnings or settle amounts owed under the VIE agreements. Quantify any
cash flows and
transfers of other assets by type that have occurred between the
holding company, its
subsidiaries, and the consolidated VIEs, and direction of transfer.
Quantify any dividends
or distributions that a subsidiary or consolidated VIE have made to
the holding company
and which entity made such transfer, and their tax consequences.
Similarly quantify
dividends or distributions made to U.S. investors, the source, and
their tax consequences.
Your disclosure should make clear if no transfers, dividends, or
distributions have been
made to date. Describe any restrictions on foreign exchange and your
ability to transfer
cash between entities, across borders, and to U.S. investors. Describe
any restrictions and
limitations on your ability to distribute earnings from the company,
including your
subsidiaries and/or the consolidated VIEs, to the parent company and
U.S. investors as
well as the ability to settle amounts owed under the VIE agreements.
15. You state, "Our cash and cash equivalents consist of cash on hand and
time deposits
placed with banks which are unrestricted as to withdrawal or use and
have original
maturities of less than three months." This statement appears to
contradict your disclosure
on page 104 regarding restriction on your ability to pay dividends and
other funding
restrictions. Please revise accordingly.
16. Provide disclosure regarding your ability to generate and obtain
adequate amounts of cash
to meet your cash requirements, and your plans for cash in the
short-term and separately
in the long-term. Also, state whether in your opinion, the working
capital is sufficient for
your present requirements, or, if not, how you propose to provide the
additional working
capital needed. Furthermore, discuss your debt, terms of the debt,
interest rates, and
maturities. We refer to guidance in Item 5B of Form 20-F.
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
1. Organization and Basis of Presentation, page F-15
17. Please disclose all of your subsidiaries, the variable interest
entities, and the variable
interest entities' subsidiaries as shown in your organization
structure chart on page 88.
For example you disclose 14 subsidiaries, variable interest entities,
and variable interest
entities' subsidiaries on page 88 but only 11 on page F-15.
Furthermore, on page F-15
you show Wuhan Kingsoft Cloud Information Technology Co., Ltd. as a
100% equity
owned subsidiary, but it is shown as a variable interest entity
subsidiary on page 88. Also,
the percentage ownership of Camelot Technology Co., Ltd differs
between the two
presentations.
18. We note your disclosure that "a parent-subsidiary relationship exists
between the
Company and the VIEs." Since you do not own equity interest in the
VIEs, please revise
Haijian He
Kingsoft Cloud Holdings Limited
September 6, 2022
Page 6
to remove that statement in order to eliminate any confusion.
Cash and cash equivalents, page F-21
19. Disclose the jurisdiction that holds your cash and cash equivalents
and address:
to what extent financial institutions in those jurisdictions
insure your cash and cash
equivalents;
any restrictions associated with the transfer of cash outside
its current jurisdiction;
how cash is transferred through your organization;
you intentions to distribute earnings or settle amounts owed to
the parent holding
company; and
state whether any transfers, dividends, or distributions have
been made to date
between the holding company, its subsidiaries, consolidated VIEs,
and your
U.S. investors, and quantify the amounts where applicable.
Revenue Recognition, page F-26
20. We note based on your disclosure on page 94 that you offer a prepaid
subscription
package over a fixed subscription period in connection with your
public cloud service
revenue. Please disclose your revenue recognition policy as it relates
to your prepaid
subscription packages.
3. Concentration of Risks
Concentration of credit risk, page F-32
21. We note your statement that "The Group expects that there is no
significant credit risk
associated with cash and cash equivalents, restricted cash and
short-term investments,
which were held by reputable financial institutions in the
jurisdictions where the
Company, its subsidiaries, the VIEs and the subsidiaries of VIEs are
located. The Group
believes that it is not exposed to unusual risks as these financial
institutions have high
credit quality." In this regard, disclose the jurisdictions where your
cash and cash
equivalents, restricted cash, short-term investments are held and
address:
to what extent financial institutions in those jurisdictions
insure your cash and cash
equivalents; and
any restrictions associated with the transfer of cash outside
its current jurisdiction.
Currency convertibility risk, page F-32
22. You state that "Approval of foreign currency payments by the PBOC or
other institutions
FirstName LastNameHaijian He
requires submitting a payment application form together with suppliers
invoices, shipping
Comapany NameKingsoft
documents Cloud
and signed HoldingsInLimited
contracts." this regard, disclose to what
extent you have made
foreign
September currency
6, 2022 Pagepayments.
6
FirstName LastName
Haijian He
FirstName LastNameHaijian He
Kingsoft Cloud Holdings Limited
Comapany 6,
September NameKingsoft
2022 Cloud Holdings Limited
September
Page 7 6, 2022 Page 7
FirstName LastName
4. Business Combination
Acquisition of Camelot, page F-34
23. You disclose that the actual results of operation after the
acquisition date and pro forma
results of operations for the acquisitions have not been presented
because
the effects were not material. This statement appears inconsistent
with your disclosure
throughout your operating results discussion where you note the impact
of the Camelot
acquisition on specific income statement line items. We also note that
your purchase price
was approximately 44% of total assets as of December 31, 2020. Please
tell us why you
believe the Camelot acquisition is not material as it relates to the
disclosure requirements
in ASC 805 or revise accordingly.
13. Bank Loans, page F-42
24. Please disclose all your debt in one comprehensive footnote, including
loans entered in
2021 with related parties as noted in footnote 20. Your footnote
should provide all
disclosure as required by ASC 470-10-50-1 through ASC 470-10-50-5, ASC
860-30-50-
1A and Rule 5-02 of Regulation S-X
17. Restricted Net Assets, page F-51
25. Please disclose restricted paid-in capital and statutory reserves
funds as separate line items
in your Consolidated Balance Sheets and Consolidated Statement of
Changes in
Stockholders (Deficit) Equity. We refer you to Rule 5-02.30(a)(2)
and (3) of Regulation
S-X.
24. Condensed Financial Information of the Parent Company, page F-56
26. We note your line items "amounts due from subsidiaries," "investments
in subsidiaries,"
and "share of losses of subsidiaries and the VIEs" include amounts
related to both equity
owned subsidiaries and VIE subsidiaries. Please revise to separately
show amounts
related to equity owned subsidiaries versus VIE subsidiaries.
General
27. Please revise to refrain from using terms such as we or our
when describing activities
or functions of the VIEs. In this regard, we note that you should
revise your definition of
we, us, our company, the Company, and our
to remove the VIE from this
definition. Additionally, we note the first full risk factor on page
32 and any other similar
disclosures.
Haijian He
FirstName LastNameHaijian He
Kingsoft Cloud Holdings Limited
Comapany 6,
September NameKingsoft
2022 Cloud Holdings Limited
September
Page 8 6, 2022 Page 8
FirstName LastName
We remind you that the company and its management are responsible for
the accuracy
and adequacy of their disclosures, notwithstanding any review, comments, action
or absence of
action by the staff.
You may contact Inessa Kessman, Senior Staff Accountant, at (202)
551-3371 or Robert
Littlepage, Accounting Branch Chief, at (202) 551-3361 if you have questions
regarding
comments on the financial statements and related matters. Please contact
Alexandra Barone,
Staff Attorney, at (202) 551-8816 or Mitchell Austin, Staff Attorney, at (202)
551-3574 with any
other questions.
Sincerely,
Division of
Corporation Finance
Office of Technology
cc: Ran Li, Esq.