Summary
SUMMARY
This summary highlights information contained elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment decision. Before investing in the ADSs, you should carefully read this entire prospectus, including our financial statements and related notes included in this prospectus and the information set forth under the headings "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." In addition, we commissioned iResearch Consulting Group, or iResearch, a market research firm, to prepare a report for the purpose of providing various industry and other information and illustrating our position in the content and application delivery services market in China. Information from the report prepared by iResearch, or the iResearch Report, appears in "Summary," "Industry Background," "Business" and other sections of this prospectus. We have taken such care as we consider reasonable in the reproduction and extraction of information from the iResearch Report and other third-party sources.
We are the leading provider of Internet content and application delivery services in China, accounting for 53% market share in terms of revenue in 2009, according to iResearch. We provide a portfolio of services and solutions to businesses, government agencies and other enterprises to enhance the reliability and scalability of their online services and applications and improve end-user experience. Our nationwide service platform, which consists of our network, servers and intelligent software, is designed to handle planned and unplanned peaks without significant upfront and ongoing capital outlay and other investments on the part of our customers.
We began providing content and application delivery services in China in 2000 and were the first company that is not a telecommunications carrier to obtain from the Ministry of Industry and Information Technology of China a nationwide operating permit to provide content and application delivery services. As an early mover, we have expanded our business alongside the growth of the Internet in China and have acquired extensive local knowledge about the Internet infrastructure and telecommunications environment in China. Substantially all of our business operations are conducted in China and substantially all of our revenues are derived from sales in China. Building on our knowledge and experience, we have developed a portfolio of services and solutions designed to address complex and unique issues arising from China's Internet infrastructure and a wide range of turnkey solutions to meet customer and industry specific needs.
As a carrier-neutral service provider, our network in China is interconnected with networks operated by all telecommunications carriers, major non-carriers and local Internet service providers in China. We deploy servers and nodes across networks throughout China and we use a private transmission backbone that connects our nodes and data centers, thereby optimizing our content and applications delivery performance and reliability. With servers widely deployed at strategic locations, we are able to provide services throughout China. Our wide range of services make us a top choice for customers requiring content and application delivery services to different regions in China. We believe that our robust nationwide service platform, which is the product of major investments in capital, time and human resources, is not easy to replicate and provides us with a competitive advantage.
We have successfully established a strong brand and a reputation for the quality and cost effectiveness of our services, as evidenced by the numerous recognitions and awards we have received, including the "Chinese High-Growth and High-Tech Companies with the Best Investment Values" award granted by the China International Finance Forum in 2009 and the "China Internet Industry Innovator 50" award by the Internet Society of China in 2005. Our brand and reputation are significant assets in a relatively young industry where most of our potential customers are new to the content and application delivery services market and are strongly influenced by other customers' experience in selecting reliable service providers.
We devote our market-oriented research and development efforts to focus on bringing innovative services and solutions to the market quickly. We currently have 5 patents, 20 patent applications and 14 software copyright registrations, all in China and related to different aspects of the content and application delivery technologies. We have established a joint laboratory with Tsinghua University to undertake leading edge research in content and application delivery technologies. We intend to expand our research and development efforts and offer innovative services and solutions to maintain our market leadership and to meet the evolving needs of customers.
We derive substantially all of our revenues from the sale of content and application delivery services. The number of our active customers has grown over the years, increasing from 129 as of December 31, 2007 to 418 as of June 30, 2010. We define active customers as those from whom we generated revenues within 30 days before the applicable period end. Our net revenues were RMB161.0 million, RMB291.4 million and RMB272.4 million (US$39.9 million) in 2007, 2008 and 2009, respectively. We incurred net losses of RMB87.9 million, RMB151.8 million and RMB39.2 million (US$5.7 million), respectively, in the same periods. Our net revenues for the six months ended June 30, 2010 were RMB170.3 million (US$25.1 million), and we incurred a net loss of RMB24.2 million (US$3.6 million) for the same period.
According to Frost & Sullivan, a market research firm, the global content and application delivery services market is steadily growing and is expected to continue to grow in the coming years, primarily driven by increasing broadband penetration and the growing amount of content delivered over the Internet. Revenues from the global content and application delivery services market are estimated to be approximately US$1.3 billion in 2009, representing a compound annual growth rate, or CAGR, of 36.3% from 2007. Frost & Sullivan expects that the market will grow to US$2.8 billion in 2012, representing a CAGR of 28.3% from 2009.
The content and application delivery services market in China began to develop around 2000 and has grown rapidly over the past ten years. According to iResearch, China's content and application delivery services market revenues were estimated to be approximately RMB501.0 million (US$73.4 million) in 2009, representing a CAGR of 58.3% from 2007, and are estimated to grow to RMB3.6 billion (US$520 million) in 2014, representing a CAGR of 48.2% from 2009, a much higher rate than the expected growth of the global market. Multinational companies currently do not have a significant presence in the content and application delivery services market in China, in part due to the regulatory barriers in China's telecommunications sector.
We believe that the following factors have contributed, and are expected to continue to contribute, to the growth of the content and application delivery services market in China:
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- increasing Internet usage and broadband penetration in China;
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- growth of rich media content;
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- growth of the mobile Internet and mobile data services;
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- growth of online game industry;
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- growth of online advertising and e-commerce;
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- growth of Software-as-a-Service and cloud computing; and
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- increasing need for networks with greater interconnectivity and efficiency.
We believe that the following strengths contribute to our success in the content and application delivery services market in China and differentiate us from our competitors:
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- leading position and strong brand in China;
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- wide geographic coverage in China;
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- diversified customer base including market leaders in a variety of industries;
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- extensive local knowledge and expertise in developing customized turnkey solutions;
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- strong research and development capabilities and proprietary technologies; and
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- experienced management team with strong execution capability.
Our goal is to strengthen our position as China's leading content and application delivery service provider by leveraging our nationwide platform and our wide range of services and solutions that are specifically and uniquely designed for China's Internet infrastructure and telecommunications environment. We intend to achieve our goal by pursuing the following strategies:
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- further expand and diversify our customer base and retain existing customers;
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- expand and enhance our service and solution offerings;
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- continue to improve our operating efficiency;
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- continue to focus on market-oriented research and development efforts; and
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- establish new and expand existing strategic relationships and selectively pursue acquisitions.
We expect to face risks and uncertainties, including those relating to the following:
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- our ability to achieve and sustain profitability in the future;
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- the growth of the content and application delivery services market and the continuing market acceptance of content and
application delivery services in China;
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- our ability to sell our services at competitive prices;
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- our ability to control costs and expenses, especially bandwidth costs;
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- our ability to offer content and application delivery services that can successfully compete against in-house
solutions and competitors;
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- our dependence on telecommunications carriers and other third-party providers for bandwidth, network access, optical fiber
cable and other communications capacity;
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- our ability to attract new customers or to retain existing customers;
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- our ability to develop and introduce innovative services and products that meet or exceed our target customers'
expectations, or to adopt new technologies important to our business;
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- our ability to manage future growth effectively; and
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- the regulatory environment in China relevant to our business.
See "Risk Factors" and "Special Note Regarding Forward-Looking Statements" for a discussion of these and other risks and uncertainties associated with our business and investing in our ADSs.
We commenced operations through Beijing Blue I.T. Technologies Co., Ltd., or Beijing Blue I.T., a company incorporated in China in June 1998. In June 2005, we incorporated ChinaCache International Holdings Ltd., or ChinaCache Holdings, under the laws of the Cayman Islands to become our offshore holding company. In August 2005, we established our wholly-owned PRC subsidiary, ChinaCache Network Technology (Beijing) Limited, or ChinaCache Beijing.
In January 2008, we acquired JNet Holdings Limited, or JNet Holdings, a British Virgin Islands company. As an integral part of this transaction, we obtained control over Shanghai JNet Telecom Co., Ltd., or Shanghai JNet, an affiliate of JNet Holdings in China, through a series of contractual arrangements.
In July 2008, we obtained control over Beijing Jingtian Co., Ltd., or Beijing Jingtian, through a series of contractual arrangements.
PRC laws and regulations currently restrict foreign ownership of telecommunications value-added services, including content and application delivery services. Accordingly, we conduct our operations in China through a series of contractual arrangements with Beijing Blue I.T., Beijing Jingtian and Shanghai JNet, and their respective shareholders. As a result of these contractual arrangements, which provide us with the right to control management decisions and the right to obtain substantially all of the economic benefits in these entities, we control Beijing Blue I.T., Beijing Jingtian and Shanghai JNet and, accordingly, under accounting principles generally accepted in the United States of America, or U.S. GAAP, we consolidate Beijing Blue I.T., Beijing Jingtian and Shanghai JNet's results of operations in our consolidated financial statements. For a description of these contractual arrangements, see "Our Corporate History and Structure—Contractual Arrangements with Our Consolidated Variable Interest Entities." For risks associated with these contractual arrangements, see "Risk Factors—Risks Related to Our Corporate Structure."
We currently have branch offices in nine cities in China, namely, Wuhan, Shanghai, Harbin, Shenzhen, Chengdu, Nanjing, Shenyang, Xi'an and Guangzhou. We have two overseas subsidiaries, ChinaCache North America, Inc., established in California in August 2007, and ChinaCache Networks (Hong Kong) Limited, established in Hong Kong in April 2008.
The following diagram illustrates our current corporate structure.
Our principal executive offices are located at 6/F, Block A, Galaxy Plaza, No. 10 Jiuxianqiao Road Middle, Chaoyang District, Beijing 100015, People's of Republic of China. Our telephone number at this address is +(86) 10 6437 3399. Our registered office in the Cayman Islands is located at Offshore Incorporations (Cayman) Limited, Scotia Centre, 4th Floor, P.O. Box 2804, George Town, Grand Cayman, Cayman Islands.
Our website is www.chinacache.com. The information contained on our website is not a part of this prospectus. Our agent for service of process in the U.S. is Law Debenture Corporate Services Inc., located at 400 Madison Avenue, 4th Floor, New York, New York 10017.
In this prospectus, unless otherwise indicated or the context otherwise requires, references to:
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- "ADSs" refers to American depositary shares, each of which
represents ordinary shares;
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- "ChinaCache," "we," "us," "our company," and "our" refer to ChinaCache International Holdings Ltd., its
subsidiaries and its consolidated affiliated entities;
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- "China" or "PRC" refers to the People's Republic of China, excluding for purposes of this prospectus only, Taiwan, Hong
Kong and Macau;
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- "preferred shares" refers to, collectively, our Series A convertible preferred shares, Series B convertible
preferred shares, Series C convertible preferred shares, Series C-1 convertible preferred shares, Series C-2 convertible preferred shares and
Series C-3 convertible preferred shares; and "Series C convertible preferred shares" refers to, collectively, our Series C-1 convertible preferred shares,
Series C-2 convertible preferred shares and Series C-3 convertible preferred shares;
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- "Renminbi" or "RMB" refers to the legal currency of China; and
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- "US$," "dollars" or "U.S. dollars" refers to the legal currency of the United States.
Except as otherwise indicated, all information in this prospectus assumes no exercise by the underwriters of their option to purchase additional ADSs.
THIS IS THE END OF A COMPOSITION COMPONENT TOC_END User-specified TAGGED TABLE end of user-specified TAGGED TABLEThe number of ordinary shares that will be outstanding immediately after this offering:
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- assumes no exercise by the underwriters of their over-allotment option to acquire additional ADSs;
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- assumes the conversion of all outstanding preferred shares into 205,565,425 ordinary shares immediately prior to the
completion of this offering;
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- excludes ordinary shares reserved for future issuances under our stock incentive plans, of which 22,591,260 are issuable
upon the exercise of options outstanding as of the date of this prospectus; and
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- includes ordinary shares to be issued to Sundream Holdings Limited and Smart Asia Holdings Limited, assuming an initial public offering price of US$ per ADS, the midpoint of the estimated range of our initial public offering price.
Our summary consolidated financial data presented below for the years ended December 31, 2007, 2008 and 2009 and our balance sheet data as of December 31, 2008 and 2009 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. Our audited consolidated financial statements are prepared in accordance with U.S. GAAP. The summary consolidated statement of operations data (other than earnings (losses) per ADS data) for the six months ended June 30, 2009 and 2010 and the summary consolidated balance sheet data as of June 30, 2010 have been derived from our unaudited interim condensed consolidated financial statements included elsewhere in this prospectus. We have prepared the unaudited interim condensed consolidated financial information on the same basis as our audited consolidated financial statements. The unaudited financial information includes all adjustments, consisting only of normal and recurring adjustments, that we consider necessary for a fair presentation of our financial position and operating results for the periods presented. You should read the summary consolidated financial information in conjunction with our consolidated financial statements and related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus. Our historical results are not necessarily indicative of our results expected for future periods.
User-specified TAGGED TABLE end of user-specified TAGGED TABLE COMMAND=ADD_LINERULETXT,NOSHADE COLOR="#000000" SIZE="1.0PT" WIDTH="26%" ALIGN="LEFT"- (1)
- Includes share-based compensation expenses as follows:
The following table presents an unaudited non-GAAP financial measure and selected operating data as of and for the dates and periods indicated.
User-specified TAGGED TABLE end of user-specified TAGGED TABLE
- (1)
- In evaluating our business, we consider and use Adjusted EBITDA as a supplemental measure to review and assess our operating performance. We use EBITDA to assist in reconciliation to Adjusted EBITDA. We define EBITDA as net income (loss) before interest expense, interest income, income tax expense, penalty on tax uncertainties, depreciation and amortization. We define Adjusted EBITDA as EBITDA plus share-based compensation expenses and expenses that we do not consider reflective of our ongoing operations. We also believe that the use of Adjusted EBITDA facilitates investors' use of operating performance comparisons from period to period and company to company by backing out potential differences caused by variations in items such as capital structures (affecting relative interest expense and share-based compensation expense), the book amortization of intangibles (affecting relative amortization expense), the age and book value of facilities and equipment (affecting relative depreciation expense) and other non cash expenses. We also present Adjusted EBITDA because we believe it is frequently used by securities analysts, investors and other interested parties as a measure of the financial performance of companies in our industry.
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- EBITDA and Adjusted EBITDA do not reflect our cash expenditures or future requirements for capital expenditures or
contractual commitments;
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- they do not reflect changes in, or cash requirements for, our working capital needs;
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- they do not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on
our debt;
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- they do not reflect income taxes or the cash requirements for any tax payments;
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- although depreciation and amortization are non-cash charges, the assets being depreciated and amortized often
will have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements;
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- while share-based compensation is a component of operating expense, the impact on our financial statements compared to
other companies can vary significantly due to such factors as assumed life of the options and assumed volatility of our ordinary shares; and
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- other companies may calculate EBITDA and Adjusted EBITDA differently than we do, limiting their usefulness as comparative
measures.
The terms EBITDA and Adjusted EBITDA are not defined under U.S. GAAP and are not measures presented in accordance with U.S. GAAP. Our EBITDA and Adjusted EBITDA have limitations as analytical tools, and when assessing our operating performance, you should not consider EBITDA and Adjusted EBITDA in isolation, or as a substitute for net income (loss) or other consolidated income statement data prepared in accordance with U.S. GAAP. Some of these limitations include, but are not limited to:
- (2)
- We calculate Adjusted EBITDA as follows:
- (3)
- We define active customers as those from whom we generated revenues within 30 days before the period end.