Chindata Group(CD) - 2021 Q4 - Annual Report

PART I ITEM 3. KEY INFORMATION Outlines Chindata's VIE-based holding structure for China operations, presenting consolidated financial data and key risks like HFCAA and client concentration Holding Company Structure and Contractual Arrangements Details Chindata's Cayman Islands holding structure operating in China via VIEs due to PRC restrictions, outlining control, cash flows, dividend limits, and HFCAA delisting risks - Chindata operates in China via a VIE structure due to PRC foreign ownership restrictions, with VIEs contributing 93.1% of total revenues in 2021, up from 93.2% in 2020[16] - The company faces significant risks from the Holding Foreign Companies Accountable Act (HFCAA), potentially leading to delisting of ADSs as early as 2024 due to non-inspection of its China-based auditor by the PCAOB[37][39][284] Cash Flows Between WFOEs and VIEs | Year | Net Service Fees Paid by VIEs to WFOEs (RMB million) | | :--- | :--- | | 2019 | 254.2 | | 2020 | 1,256.3 | | 2021 | 1,801.8 | - As of December 31, 2021, net assets of PRC subsidiaries and VIEs subject to dividend restrictions totaled RMB 3,837.9 million[30] Financial Information Related to Our VIEs Provides condensed consolidating financial schedules for the parent, subsidiaries, and VIEs for 2019-2021, showing financial position, operations, and cash flows, with VIEs generating RMB 2,656.0 million in 2021 revenue Condensed Consolidating Balance Sheet Data as of Dec 31, 2021 (RMB '000) | Account | Chindata Group Holdings Limited | Subsidiaries | VIEs and Their Subsidiaries | Consolidated Totals | | :--- | :--- | :--- | :--- | :--- | | Total Assets | 10,187,556 | 18,773,999 | 2,536,014 | 18,681,951 | | Total Liabilities | 72,924 | 15,222,809 | 2,422,668 | 8,567,319 | Condensed Consolidating Statement of Operations Data for the Year Ended Dec 31, 2021 (RMB '000) | Account | Chindata Group Holdings Limited | Subsidiaries | VIEs and Their Subsidiaries | Consolidated Totals | | :--- | :--- | :--- | :--- | :--- | | Third-party revenue | - | 196,272 | 2,656,005 | 2,852,277 | | Net income | 316,420 | 318,481 | 2,942 | 316,420 | Condensed Consolidating Cash Flow Data for the Year Ended Dec 31, 2021 (RMB '000) | Account | Chindata Group Holdings Limited | Subsidiaries | VIEs and Their Subsidiaries | Consolidated Totals | | :--- | :--- | :--- | :--- | :--- | | Net cash from operating activities | (6,049) | 610,878 | 460,676 | 1,065,505 | | Net cash used in investing activities | (2,887,209) | (3,755,022) | (133,441) | (3,952,971) | | Net cash from financing activities | (4,285) | 4,121,118 | (1,071) | 1,293,061 | Risk Factors Outlines principal risks including high client concentration, capital-intensive operations, VIE structure uncertainties, evolving PRC regulations, and potential HFCAA delisting - The company has high revenue dependency on a limited number of clients, with ByteDance accounting for 83.2% of total revenues in 2021[71] - The company's China-based auditor is not inspected by the PCAOB, potentially leading to ADS delisting by 2024 under the Holding Foreign Companies Accountable Act (HFCAA)[277][278][279] - The dual-class share structure grants Class B shares 15 votes per share, with Bain Capital Entities and Mr. Jing Ju holding 93.6% of aggregate voting power as of March 31, 2022[296][297] - Significant risks arise from evolving PRC cybersecurity and data protection regulations, including the Data Security Law and Revised Cybersecurity Review Measures, potentially impacting operations and requiring costly compliance[191][192][193] ITEM 4. INFORMATION ON THE COMPANY Provides a comprehensive overview of Chindata Group, detailing its history, business operations, organizational structure, and physical assets, including its formation and market position History and Development of the Company Details Chindata Group's 2019 formation via a Bain Capital-led merger, its Cayman Islands incorporation, and its September 2020 Nasdaq IPO raising US$711.8 million - The company was formed in 2019 through the combination of Chindata's China business and Bridge Data Centres' operations, led by Bain Capital[350][352] - The company's ADSs began trading on Nasdaq on September 30, 2020, with the IPO and private placements raising approximately US$711.8 million in net proceeds[356] Business Overview Chindata is a leading hyperscale data center provider in Asia-Pacific, operating 440 MW in service as of 2021, emphasizing full-stack solutions, strategic site selection, and a commitment to 100% renewable energy - As of December 31, 2021, the company operated 14 hyperscale data centers with 440 MW capacity in service, of which 87% was contractually committed[359][363][372] Data Center Capacity (MW) as of December 31 | Status | 2019 | 2020 | 2021 | | :--- | :--- | :--- | :--- | | In Service | 193 | 291 | 440 | | Under Construction | N/A | N/A | 233 | - The largest client, ByteDance, accounted for 83.2% of total revenues in 2021 and typically signs ten-year service contracts[407] - The company's growth plan aligns with China's "East Data West Computing" policy, leveraging large-scale campuses in national computing hubs[417][426] - Chindata is committed to sustainability, targeting 100% clean and renewable energy for its data centers, a first for a China-headquartered operator[422] Organizational Structure Details Chindata's Cayman Islands holding company structure operating in China via VIEs to comply with foreign ownership restrictions, outlining key contractual agreements for control and financial consolidation - The company uses a VIE structure in China to comply with foreign ownership restrictions, with VIEs contributing 93.1% of total revenue in 2021[574][16] - Control over VIEs is maintained through four key contractual agreements: Powers of Attorney, Equity Pledge, Exclusive Business Cooperation, and Purchase Option Agreements[575][576][579] ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS Analyzes Chindata's 2021 financial performance, showing 55.8% revenue growth to RMB 2,852.3 million, a turnaround to RMB 316.4 million net income, and robust Adjusted EBITDA, alongside liquidity and capital resources Operating Results Reviews 2021 operating results, highlighting 55.8% revenue growth to RMB 2,852.3 million, a shift to RMB 316.4 million net income, and 66.5% Adjusted EBITDA growth to RMB 1,418.9 million Financial Performance Summary (2020 vs. 2021) | Metric | 2020 (RMB million) | 2021 (RMB million) | 2021 (US$ million) | YoY Change | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | 1,831.1 | 2,852.3 | 447.6 | +55.8% | | Gross Profit | 732.8 | 1,199.6 | 188.2 | +63.7% | | Net (Loss) Income | (283.3) | 316.4 | 49.7 | N/A | | Adjusted EBITDA | 852.2 | 1,418.9 | 222.7 | +66.5% | - Total revenues increased primarily due to robust growth in colocation services, rising from RMB 1.7 billion in 2020 to RMB 2.6 billion in 2021[638] - Operating expenses decreased from RMB 704.6 million in 2020 to RMB 524.5 million in 2021, mainly due to reduced share-based compensation and one-off IPO-related consulting fees[641][643] Liquidity and Capital Resources Details liquidity and capital resources, with RMB 4,390.3 million cash as of 2021, RMB 1,065.5 million net operating cash flow, and RMB 3,616.9 million capital expenditures, supported by bank loans Key Liquidity and Cash Flow Data (RMB million) | Metric | 2020 | 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | 6,705.6 | 4,390.3 | | Net cash from operating activities | 664.9 | 1,065.5 | | Net cash used in investing activities | (2,769.3) | (3,953.0) | | Net cash from financing activities | 8,188.8 | 1,293.1 | - Capital expenditures for 2021 totaled RMB 3,616.9 million (US$567.6 million), primarily for data center property, equipment, and land use rights[672] - As of December 31, 2021, total bank loans were RMB 5.5 billion, with capital expenditure commitments of RMB 841.6 million[673][1145] ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES Details leadership, compensation, board structure, and employee base, noting Huapeng Wu's CEO appointment, RMB 8.5 million executive compensation in 2021, 1,315 employees, and Bain Capital's 85.6% voting control - Huapeng Wu was appointed Director and CEO in February 2022, succeeding founder Jing Ju, who became Non-Executive Vice Chairman[722][727] - In 2021, aggregate cash and benefits paid to executive officers totaled RMB 8.5 million (US$1.3 million), with non-executive directors receiving US$260,000 in cash[735] - As of December 31, 2021, the company had 1,315 employees, with 1,209 primarily based in China[780][783] Major Shareholder Voting Power (as of March 31, 2022) | Shareholder | % of Aggregate Voting Power | | :--- | :--- | | Bain Capital Entities | 85.6% | | Jing Ju (via Abiding Joy Limited) | 8.0% | ITEM 8. FINANCIAL INFORMATION Confirms inclusion of consolidated financial statements, discloses an arbitration proceeding in India not expected to be material, and states no plans for future cash dividends - The company has no plans to pay cash dividends in the foreseeable future, intending to retain earnings for business expansion[796] - An Indian subsidiary is in arbitration with a local contractor, but management does not expect a material adverse effect on financial position[794] ITEM 10. ADDITIONAL INFORMATION Details corporate governance, including dual-class share structure, material contracts, Chinese exchange controls, and taxation considerations, noting the company's non-PFIC status in 2021 - The company has a dual-class share structure, with Class B ordinary shares holding 15 votes per share compared to Class A's one vote[800] - A registration rights agreement grants major shareholders, including Bain Investors, demand and piggyback registration rights for their shares[847][850][851] - The company does not believe it was a Passive Foreign Investment Company (PFIC) for the year ended December 31, 2021, nor does it expect to be one in the foreseeable future[879] ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Details market risk exposures, including significant client concentration (83.2% of 2021 revenue), interest rate risk (1% change impacts RMB 51.7 million), and foreign exchange rate risk from RMB fluctuations - The company faces significant customer concentration risk, with its top client accounting for 83.2% of total revenues in 2021[900] - The company is exposed to interest rate risk; a hypothetical 1% change in annual interest rates would impact total interest expense by approximately RMB 51.7 million[901] - The company faces foreign currency exchange rate risk, primarily from RMB fluctuations against the U.S. dollar, as most business is transacted in RMB[903][904] PART II ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS Reports on the use of US$711.8 million net proceeds from the September 2020 IPO, with approximately US$485.5 million used for business expansion and general corporate purposes by December 31, 2021 - The company raised approximately US$711.8 million in net proceeds from its September 2020 IPO and concurrent private placements[918] - As of December 31, 2021, approximately US$485.5 million of IPO net proceeds were used for business expansion and general corporate purposes[919] ITEM 15. CONTROLS AND PROCEDURES Addresses internal controls, confirming effective disclosure controls and remediation of a material weakness in internal control over financial reporting as of December 31, 2021 - Management concluded the company's disclosure controls and procedures were effective as of December 31, 2021[921] - A previously identified material weakness regarding insufficient accounting personnel with U.S. GAAP and SEC experience was remediated as of December 31, 2021[924][925] - Management concluded internal control over financial reporting was effective as of December 31, 2021, with an unqualified opinion from the independent auditor[923][926] ITEM 16G. CORPORATE GOVERNANCE Details corporate governance practices as a foreign private issuer and "controlled company," following Cayman Islands home country practices in lieu of certain Nasdaq requirements - As a foreign private issuer, the company follows Cayman Islands home country practices, exempting it from certain Nasdaq corporate governance standards[935] - As a "controlled company" under Nasdaq rules, it relies on exemptions from requirements for a majority-independent board and fully independent committees[935] PART III ITEM 18. FINANCIAL STATEMENTS Contains audited consolidated financial statements for 2019-2021, prepared under U.S. GAAP, with an unqualified opinion from Ernst & Young Hua Ming LLP on both financial statements and internal controls Consolidated Balance Sheet Highlights (as of Dec 31, 2021) | Account | Amount (RMB thousands) | Amount (US$ thousands) | | :--- | :--- | :--- | | Total Assets | 18,681,951 | 2,931,605 | | Total Liabilities | 8,567,319 | 1,344,399 | | Total Shareholders' Equity | 10,114,632 | 1,587,206 | Consolidated Statement of Comprehensive Income Highlights (Year ended Dec 31, 2021) | Account | Amount (RMB thousands) | Amount (US$ thousands) | | :--- | :--- | :--- | | Total Revenue | 2,852,277 | 447,584 | | Gross Profit | 1,199,613 | 188,245 | | Net Income | 316,420 | 49,653 | | Basic Earnings Per Share | 0.44 | 0.07 | Consolidated Statement of Cash Flows Highlights (Year ended Dec 31, 2021) | Account | Amount (RMB thousands) | Amount (US$ thousands) | | :--- | :--- | :--- | | Net cash from operating activities | 1,065,505 | 167,202 | | Net cash used in investing activities | (3,952,971) | (620,307) | | Net cash from financing activities | 1,293,061 | 202,909 |