United States securities and exchange commission logo
January 7, 2021
Peng Shen
Chief Executive Officer
Waterdrop Inc.
Block C, Wangjing Science and Technology Park
No. 2 Lize Zhonger Road, Chaoyang District, Beijing
People s Republic of China
Re: Waterdrop Inc.
Draft Registration
Statement on Form F-1
Submitted December
11, 2020
CIK No. 0001823986
Dear Mr. Shen:
We have reviewed your draft registration statement and have the
following comments. In
some of our comments, we may ask you to provide us with information so
we may better
understand your disclosure.
Please respond to this letter by providing the requested
information and either submitting
an amended draft registration statement or publicly filing your
registration statement on
EDGAR. If you do not believe our comments apply to your facts and
circumstances or do not
believe an amendment is appropriate, please tell us why in your
response.
After reviewing the information you provide in response to these
comments and your
amended draft registration statement or filed registration statement, we
may have additional
comments.
Draft Registration Statement on Form F-1 submitted December 11, 2020
Prospectus Summary, page 1
1. Please indicate whether
you or any of your related parties have any relationships with
iResearch Consulting
Group.
2. We note your disclosure
that you are the largest independent third-party platform in terms
of gross written
premiums in the first half of 2020. Please clarify the geographic market
for which you are
measuring yourself within. We also note your mission as aspiring to
bringing insurance and
healthcare services to billions through technology. Please balance
this statement by
indicating the number of customers you currently have.
Peng Shen
FirstName
Waterdrop LastNamePeng Shen
Inc.
Comapany
January NameWaterdrop Inc.
7, 2021
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3. In one of the opening paragraphs, please include your revenues and net
loss for the most
recent ended fiscal year, and the most recent interim period, as
applicable.
The Offering, page 12
4. Please revise this section to include disclosure that will show the
percentage of your
common stock represented by ADSs that will be held by public
shareholders immediately
after the offering, or advise. Please also show the ownership
percentages in a diagram
similar to the one on page 9, after the offering.
Our Waterdrop Insurance Marketplace business may be negatively affected...,
page 22
5. Please identify the insurance carrier that contribution aggregately
43.4% and 44.2% of our
total operating revenue in 2018 and 2019. Also identify any other
insurance carrier that
contributed at least 10% of your total operating revenues in 2018
and/or 2019.
Some of our shareholders offer similar products or services competing with
ours, page 25
6. Please indicate the percentage of ownership each of your shareholders
that offer products
and services that compete with yours currently hold now and will hold
following the
completion of your offering.
Risk Factors
Your rights to pursue claims against the depositary as a holder of the ADSs,
page 59
7. We note your disclosure regarding waiver of a jury trial. Please also
add disclosure to
state that investors cannot waive compliance with the securities laws
and the rules and
regulations promulgated thereunder.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations
Sales and Marketing Expenses, page 85
8. Please disaggregate and present in a table format, sales and marketing
expenses for the
periods presented, consistent with categories you describe on page 84.
Critical Accounting Policies
Fair Value of Common Share, page 94
9. Once you have an estimated offering price or range, please explain to
us how you
determined the fair value of the ordinary shares underlying your
equity issuances and the
reasons for any differences between the recent valuations of your
ordinary shares leading
up to your initial public offering and the estimated offering price.
This information will
help facilitate our review of your accounting for equity issuances
including stock
compensation and beneficial conversion features.
Peng Shen
FirstName
Waterdrop LastNamePeng Shen
Inc.
Comapany
January NameWaterdrop Inc.
7, 2021
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Business
Medical Crowdfunding and Mutual Aid, page 109
10. We note your disclosure that the medical crowdfunding aspect of your
business does not
generate revenue. Please revise your disclosure to provide more
quantifiable detail
regarding your expenses and any income that you do receive related to
these two portions
of your integrated business model. In regards to your Mutual Aid
business, please further
explain how participants pay into the mutual aid. Please also include
any risk factor
disclosure, if applicable, if there is a risk that there may be a
shortfall of funds if
participants are not able to continuing paying into the mutual aid
collective, and how that
might affect your business.
Insurance Marketplace, page 109
11. Please provide more detail regarding the 61 insurance carriers and 169
health and life
insurance products you offer. Please identify the three insurance
companies that represent
the highest percentages of your business. Provide examples of what
these products are and
how these products are able to contribute to the your Waterdrop
Insurance Marketplace
income.
Business
Our Competitive Strenghts, page 112
12. You disclose that you leverage social network for user acquisition and
engagement and
that you are at the forefront of embedding advanced technologies
throughout insurance
value chain, including user acquisition and engagement. You also
disclose that 1.9%,
34.8% and 43.8% of first year premiums (FYP) were sourced from
third-party traffic
channels for 2018, 2019 and the first three quarters of 2020,
respectively, that you have a
huge and growing consumer base on your Waterdrop Insurance Marketplace
and that as of
September 30, 2020, the cumulative number of insurance consumers you
served was
approximately 71.5 million, including 16.7 million paying insurance
consumers. Please
disclose in table format for the years presented, the sources of FYPs,
including year-over-
year retention of third-party traffic channels for the periods
presented.
Index to Consolidated Financial Statements, page F-1
13. Please tell us when you reasonably expect your proposed offering to
become effective. If
prior to April 1, 2021, revise your first live-filing to provide
interim financial information
through at least June 30, 2020 and either:
Have that interim information audited as stipulated in Item 8.A.4.
of Form 20-F; or
Provide the exhibit with the appropriate representation as
stipulated in Instruction 2
to Item 8.A.4. of Form 20-F.
If on or after April 1, 2021 please provide either unaudited interim
information through at
least June 30, 2020 or audited full-year 2020 information in the first
live-filing of your
registration statement. Also see Question 101.04 of the Compliance and
Disclosure
Peng Shen
FirstName
Waterdrop LastNamePeng Shen
Inc.
Comapany
January NameWaterdrop Inc.
7, 2021
January
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Interpretations for Securities Act Forms.
Notes to the Consolidated Financial Statements
Note 2: Summary of Significant Accounting Policies
(s) Revenue recognition
Insurance Brokerage Services, page F-20
14. You disclose that certain of your contracts with insurance companies
include a promise to
provide certain services to the insurance company, such as information
gathering,
payment collection, and policyholder inquiries handling. You also
disclose that you
determined these services to be immaterial in the context of the
contract and that you
accrue the costs of providing these services at the effective date of
the policy. Please
address the following (referencing where appropriate the authoritative
literature you rely
upon to support your conclusion):
Provide us your analysis supporting your conclusion that these
services are
immaterial in the context of the contract. In your response tell
us the time period
over which you are obligated to provide each of these services for
each significant
type of policy sold. In this regard, we note that some of the
long-term policies you
sell have terms up to 30 years and explain how a potential 30-year
obligation can be
immaterial;
Tell us whether the RMB 26.9 million liability at December 31,
2019 for "payable
related to service fee" as disclosed in Note 11 on page F-33
represents your accrual
for the costs of providing these services. If not, tell us where
you have recorded the
accrual for these costs and the amount of such accrual at both
December 31, 2019 and
2018; and
Tell us the time period over which you accrued these costs for
each service and type
of policy sold and how that compares to the time period of your
obligation identified
in the first bullet above.
Deferred Revenue, page F-22
15. Please revise your disclosure to specifically provide the amount of
revenue recognized in
the reporting period that was included in your deferred revenue
balance at the beginning
of each period as required by ASC 606-10-50-8b.
Contract assets, page F-23
16. Please address the following and reference for us, where appropriate,
the authoritative
literature you rely upon to support your position:
Tell us separately how much of the RMB 617.7 million contract
asset balance at
December 31, 2019 relates to expected commission to be received
on short-term
products sold versus long-term products sold.
Of the amounts identified in the preceding bullet, tell us how
much of each amount
represents:
o Anticipated commission to be collected for monthly premiums
within the
Peng Shen
FirstName
Waterdrop LastNamePeng Shen
Inc.
Comapany
January NameWaterdrop Inc.
7, 2021
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current policy year as of December 31, 2019;
o Anticipated commission to be collected for monthly or annual
premiums in
succeeding policy years as of December 31, 2019;
o The average length of time represented by the estimated
commission in the
preceding two sub-bullets; and
o Anticipated performance bonuses on long-term products sold;
and
Tell us why it is appropriate to recognize in the current year
the commissions
identified in the preceding bullets for policy years extending
beyond the current
policy year. In your response tell us the renewal terms of these
policies, including:
o Whether they automatically renew or whether they must be
re-underwritten; and
o Whether you are either explicitly obligated to re-sell or
otherwise participate in
the renewal process or whether you are required to do so by
law or
expected/implied to do so by customary business practices.
17. Please revise your disclosure to provide the change in estimated
commissions to be
received that represents the adjustment of transaction price for
performance obligations
delivered in prior periods as stipulated in ASC 606-10-50-10b and
50-12A.
(v) Research and Development Expenses, page F-24
18. Please tell us whether the "charges for the usage of the server and
cloud service" and other
related expenses relate only to those activities associated with the
discovery of new
knowledge or the application of new knowledge into new or improved
products or
processes. In your response, confirm that you do not charge server
usage and cloud
service costs and other related expenses to research and development
(R&D) expenses for
your products and applications used in providing services to your
customers and for other
administrative functions. If so, revise your policy disclosure and
that on page 84 to clarify
what server and cloud service and other related expenses are charged
to R&D expenses.
If not, tell us how these costs meet the definition of either research
or development in
ASC 730-10-20 and how they comply with ASC 730-10-25-2a and 25-2e.
Separately, tell
us whether your R&D expenses include the activities outlined in ASC
730-10-55-2a
through 55-2f.
19. You disclose that research and development expenses include payroll
and related expenses
involved in technological support. Tell us how technological support
expenses quality as
research and development. Refer to ASC 730-10-15-4c and 4d and ASC
730-10-55-2d
and 2e.
Note 15: Income Taxes, page F-35
20. Please confirm for us that the deferred tax assets for "deductible
advertising expenses
exceeding the tax limit" and "other deductible expenses exceeding the
tax limit" are
indeed temporary differences. In other words, confirm that these
excess tax deductions
may be carried forward and taken in future periods if they do not then
exceed the tax
limit. Assuming that they may be carried forward, revise your
disclosure to explain
Peng Shen
Waterdrop Inc.
January 7, 2021
Page 6
whether they may be carried forward indefinitely or whether they
expire; to the extend
they expire, disclose when they expire.
21. Please tell us why you have recorded significant valuation allowances
against your
deferred tax assets (DTAs) when you have significant deferred tax
liabilities (DTLs) that
could potentially be offset against your DTAs. Reference for us the
authoritative
literature you rely upon to support your accounting and, in your
response, tell us whether
these DTAs and DTLs are in different jurisdictions.
22. Please revise your disclosure to:
Indicate whether your operating loss carry forwards expire and, if
so, when they
expire as required by ASC 740-10-50-3a; and
Provide a description of the tax years that remain subject to
examination by major tax
jurisdictions as required by ASC 740-10-50-15e.
General
23. Please provide us with supplemental copies of all written
communications, as defined in
Rule 405 under the Securities Act, that you, or anyone authorized to
do so on your behalf
have presented or expect to present to potential investors in reliance
on Section 5(d) of the
Securities Act, whether or not you retained, or intend to retain,
copies of those
communications. Please contact the staff member associated with the
review of this filing
to discuss how to submit such copies.
You may contact Mark Brunhofer at 202-551-3638 or Michelle Miller at
202-551-3368 if
you have questions regarding comments on the financial statements and related
matters. Please
contact Eric Envall at 202-551-3234 or Susan Block at 202-551-3210 with any
other questions.
FirstName LastNamePeng Shen Sincerely,
Comapany NameWaterdrop Inc.
Division of
Corporation Finance
January 7, 2021 Page 6 Office of
Finance
FirstName LastName