April 25, 2019
Alberto Menache
Chief Executive Officer
Linx S.A.
Avenida Doutora Ruth Cardoso, 7,221
S o Paulo -- SP, 05425-902, Brazil
Re: Linx S.A.
Draft Registration Statement on Form F-1
Submitted on March 29, 2019
CIK No. 0001770883
Dear Mr. Menache:
We have reviewed your draft registration statement and have the
following comments. In
some of our comments, we may ask you to provide us with information so we may
better
understand your disclosure.
Please respond to this letter by providing the requested information and
either submitting
an amended draft registration statement or publicly filing your registration
statement on
EDGAR. If you do not believe our comments apply to your facts and circumstances
or do not
believe an amendment is appropriate, please tell us why in your response.
After reviewing the information you provide in response to these comments
and your
amended draft registration statement or filed registration statement, we may
have additional
comments.
Form F-1 submitted on March 29, 2019
Cover Page
1. Please clarify how the ADS offering price will be determined given that
your common
shares are traded in Brazil.
Presentation of Financial and Other Information
Market and Other Information, page iii
2. Your references to the underwriters in the last paragraph, including the
statement that "the
underwriters... make no representation as to the accuracy or
completion," appear to
disclaim the issuer's responsibility for information in the registration
statement. Please
revise or advise.
Alberto Menache
FirstName LastNameAlberto Menache
Linx S.A.
Comapany NameLinx S.A.
April 25, 2019
April 2 2019 Page 2
Page 25,
FirstName LastName
Dilution, page 54
3. Please include a comparison of the public contribution in the proposed
public offering and
the effective cash contributions of directors or senior management, or
affiliated persons,
of equity securities acquired by them in transactions during the past
five years. Refer to
Item 9.E. of Form 20-F.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Overview, page 67
4. You detail your acquisitions and your belief that your acquisition
strategy positively
impacts your results of operation and financial condition. For
balanced disclosure, please
consider addressing any known uncertainties associated with this
strategy and whether
risk factor disclosure is warranted.
Results of Operations, page 72
5. You disclose on page 69 that you increased the prices you charge for
your services in the
year ended December 31, 2018 due to a positive accumulated IGP-M
inflation rate and
you did not increase the prices you charge for your services in the
year ended December
31, 2017 due to a negative accumulated IGP-M inflation rate. Please
revise to quantify
the changes in your subscription revenues each period attributable to
variations in
inflation, if material. Tell us whether you decrease the prices you
charge for your services
when there is a negative accumulated IGP-M inflation rate in the prior
12-month period.
We refer you to Part I, Item 5.A of Form 20-F and Section III.D of SEC
Interpretive
Release 33-6835.
6. There are several instances where two or more sources of a material
change have been
identified, but the dollar amounts and proportionate contribution for
each source are not
disclosed. For instance, you disclose on pages 72 and 75 that the
increase in your
subscription revenue was mainly driven by an increase in your ongoing
cross-selling
efforts to expand additional cloud-based products to existing
customers and the impact of
your acquisitions. Please revise to quantify the amount that each
source contributed to a
material change. As an example, you should quantify the increase in
your fiscal
2018 subscription revenues that is attributable to recent acquisitions
during both fiscal
2018 and 2017. We refer you to Part I, Item 5.A of Form 20-F and
Section III.D of SEC
Interpretive Release 33-6835.
7. On page 75, you state that the increase in your net operating revenues
also reflects the
4.5% increase in the number of your customers from 44.0 thousand for
the year ended
December 31, 2016 to 45.9 thousand for the year ended December 31,
2017. Please tell
us your consideration of disclosing the change in the number of your
customers for the
year ended December 31, 2018. In addition, explain your consideration
of disclosing the
increases in net operating revenues attributable to changes in the
number of your
customers each period. We refer you to Part I, Item 5.A of Form 20-F
and Section III.D
Alberto Menache
FirstName LastNameAlberto Menache
Linx S.A.
Comapany NameLinx S.A.
April 25, 2019
April 3 2019 Page 3
Page 25,
FirstName LastName
of SEC Interpretive Release 33-6835.
8. Please revise to clarify the definition of "annual revenue by cohort"
and "retention" as
used in the table on page 2. For instance, your disclosures should
explain how acquisitions
impact your "annual revenue by cohort" and why "retention" is
calculated using the
annual cohort in the year immediately after the customers were added
to your portfolio of
customers. Finally, please tell us whether you consider "annual
revenue by cohort" and
the "retention" as key performance indicators, and what consideration
you gave to
providing a qualitative discussion of the changes to the measures for
each period
presented. We refer you to Part I, Item 5.A of Form 20-F and Section
III.D of SEC
Interpretive Release 33-6835.
Business
Key Financial and Operating Information, page 97
9. Your disclosures on page 107 indicate that your proximity to your
customers is one of the
main reasons for your high rate of contract renewals. Please tell us
whether you consider
the rate of contract renewals to be a key business metric that you use
to manage the
business. In this regard, indicate why you do not disclose this
retention rate in addition to
the dollar retention rate.
Software, page 108
10. Please tell us the amount of revenues generated from DUO, Linx Gift
Cards and
Advertising. Your disclosure should indicate whether these offerings
generate material
amounts of revenue.
Description of American Depositary Shares
Jury Trial Waiver, page 162
11. Please clarify that, by agreeing to the provision, investors will not
be deemed to have
waived the company's or the depositary's compliance with the U.S.
federal securities laws
and the rules and regulations promulgated thereunder. Your risk factor
disclosure should
be similarly clarified. When a depositary is selected, please ensure
that the deposit
agreement addresses these issues as well.
Taxation, page 165
12. We note that you intend to file the opinion of Pinheiro Neto Advogados
regarding certain
Brazilian tax matters. Please revise to clearly identify each material
tax consequence being
opined upon and identify tax counsel. For guidance, refer to Section
III of Staff Legal
Bulletin No. 19.
Alberto Menache
FirstName LastNameAlberto Menache
Linx S.A.
Comapany NameLinx S.A.
April 25, 2019
April 4 2019 Page 4
Page 25,
FirstName LastName
Consolidated Financial Statements
Note 3. Significant Accounting Policies
Note 3.3 Business combinations, page F-15
13. Please clarify your disclosures that indicate any contingent payments
to be transferred by
the acquiree will be recognized at fair value on the acquisition date.
In this respect, it
appears as though any contingent payments to be transferred by the
acquirer will be
recognized at fair value on the acquisition date.
Note 3.10 Provisions, page F-22
14. Please clarify your disclosures that indicate subsequently, the
contingent liability is
measured at the higher amount that would be recognized according to
the requirements for
the provisions above or the amount initially recognized less
cumulative amortization
recognized under the requirements of the Group's revenue recognition
policy.
Note 3.13 Revenue from contracts with clients, page F-24
15. Your disclosures on page 1 indicate that you are successfully
transferring your legacy on-
premise products to your cloud-based infrastructure. Describe in
greater detail the nature
of your on-premise solutions that you continue to offer. Tell us the
amount revenues
attributable to your on-premise solutions for each period presented.
Clarify how you
recognize revenues attributable to the on-premise software solutions.
16. Please revise your revenue recognition policy to clarify when you
satisfy your
performance obligations and how you recognize subscription and service
revenues. In this
regard, as noted in other sections of your filing, your revised
revenue recognition policy
should explain that your subscription revenue is recognized ratably as
the services are
performed, commencing with the date the service is made available to
customers and all
other revenue recognition criteria have been satisfied. Your revised
revenue recognition
policy should also explain that the fees related to subscription
revenues are non-
refundable and paid monthly. In addition, your revised disclosures
should clarify how
services revenues are recognized. We refer you to paragraphs 110, 119
and 124 of IFRS
15.
17. We note from your disclosures on page 70 that implementation and
customization service
revenues are recognized on your statement of income when delivered. We
further note
from your disclosures on page 113 that for the implementation of the
solutions purchased
by the customer, service hours will be allocated according to the
needs of the project and
will be recognized in your results during the fiscal period in which
they are provided.
Please tell us how you considered the guidance in paragraphs B48
through B51 of IFRS
15.
18. Please clarify your disclosures that indicate services associated with
Linx Digital and Linx
Pay Hub will be provided on an as-incurred basis as a percentage of
the sales through the
Alberto Menache
FirstName LastNameAlberto Menache
Linx S.A.
Comapany NameLinx S.A.
April 25, 2019
April 5 2019 Page 5
Page 25,
FirstName LastName
platform. Indicate whether "as-incurred basis" represents fees earned
upon transaction
processing. Further, clarify whether these fees represents variable
consideration. See
paragraph 85 of IFRS 15. Cite the specific accounting guidance that
you are relying upon
to recognize revenues associated with these transactions. In addition,
tell us your
consideration for disaggregating revenue as outlined in paragraph B89
of IFRS 15.
Note 4. Business combination , page F-34
19. Please revise to disclose the primary reasons for each business
combination and the
percentage of voting equity interests acquired. We refer you to
paragraph B64 of IFRS 3.
Note 6. Financial Assets, page F-45
20. Please revise to clarify the various codes associated with your fixed
income investments
for each period presented. In addition, revise to explain the nature
of your investment
fund with the code "other funds".
Note 11. Property, plant and equipment, page F-49
21. Please revise to disclose the gross carrying amount and the
accumulated amortization at
the beginning and end of each period. We refer you to paragraph 73(d)
of IAS 16.
Note 12. Intangible Assets, page F-50
22. Please revise to disclose the gross carrying amount and the
accumulated amortization at
the beginning and end of each period. We refer you to paragraph 118(c)
of IAS 38.
23. Please clarify the differences between your software, software
development and software
developed intangible assets.
Note 19. Provision for contingencies, page F-65
24. Your disclosures state that there are other lawsuits assessed by your
legal advisors as
being a possible risk of R$10,986 as of December 31, 2018 (R$2,773 and
R$ 2,099 as of
December 31, 2017 and 2016, respectively), for which no provision has
been recognized.
Please reconcile this statement with your disclosures on page 123 that
indicate your
contingencies classified as possible losses (including those of
acquired companies) totaled
approximately R$61.3 million, for which you did not record any
provisions. We refer you
to paragraph 86 of IAS 37.
Note 23. Financial risk management
Note 23.7 Fair value hierarchy, page F-73
25. Please revise to clarify for recurring and non-recurring fair value
measurements, the level
of the fair value hierarchy within which the fair value measurements
are categorized in
their entirety (Level 1, 2 or 3). We refer you to paragraph 93 of IFRS
13.
Alberto Menache
FirstName LastNameAlberto Menache
Linx S.A.
Comapany NameLinx S.A.
April 25, 2019
April 6 2019 Page 6
Page 25,
FirstName LastName
Note 25. Share-based payment, page F-77
26. Your disclosures on page 135 indicate that as of the date of this
prospectus, 2,045,714
restricted shares have been granted but not yet exercised under the
Restricted Shares
Plans. Your disclosures further indicate that you granted deferred
shares in fiscal 2017 and
2018. Please revise to disclose information that will enable users of
the financial
statements to understand the nature and extent of your restricted
share and deferred share
arrangements. We refer you to paragraph 44 of IFRS 2.
27. Please tell us whether you granted any stock options, deferred shares
or restricted shares
subsequent to the year ended December 31, 2018.
28. We note the changes in your stock options and deferred shares for each
period presented.
Please revise your disclosures to comply with each of the applicable
requirements in
paragraph 45 of IFRS 2. In addition, revise to disclose how the
expected volatility was
determined, including an explanation of the extent to which expected
volatility was based
on historical volatility. We refer you to paragraph 47(a) of IFRS 2.
29. Please clarify your disclosures on page F-23 that indicate the cost of
equity settled
transactions is determined by the fair value on the date in which they
were granted and to
determine the fair value, the Group uses an external evaluation
expert, which uses an
appropriate evaluation method. In this regard, explain why you do not
use the market
quoted price to determine the fair value for your shares of common
stock.
Exhibits
30. Please file the controlling block shareholders' agreement and the
founding block
shareholders' agreement as exhibits to the registration statement or
tell us why you
believe they are not material.
General
31. Please supplementally provide us with copies of all written
communications, as defined
Rule 405 under the Securities Act, that you, or anyone authorized to
do so on your behalf,
present to potential investors in reliance on Section 5(d) of the
Securities Act, whether or
not they retain copies of the communications.
32. Please supplementally provide us with copies of any graphical
materials or artwork intend
to use in your prospectus. Upon review of such materials, we may have
further comments.
For guidance, refer to Question 101.02 of our Securities Act Forms
Compliance and
Disclosure Interpretations.
You may contact Morgan Youngwood, Staff Accountant, at 202-551-3479 or
Stephen
Krikorian, Accounting Branch Chief, or other reviewer at 202-551-3488 if you
have questions
regarding comments on the financial statements and related matters. Please
contact Folake
Ayoola, Special Counsel, at 202-551-3673 or Barbara Jacobs, Assistant Director,
at 202-551-
Alberto Menache
Linx S.A.
April 25, 2019
Page 7
3735 with any other questions.
Sincerely,
FirstName LastNameAlberto Menache Division of Corporation Finance
Office of Information Technologies
Comapany NameLinx S.A.
and Services
April 25, 2019 Page 7
cc: John Guzman
FirstName LastName