Comment Letter King #1 (Loews, Palomar, Gracell, and More)
6 New Interesting Comment Letters
Welcome to Comment Letter King – a free weekly newsletter with new interesting comment letters. If you like this content, please forward this email to others and encourage them to join here.
Comment letters are informal public correspondence between the SEC and public companies about potential disclosure, accounting, or other issues in public filings. There are 100s of letters every month, many of which are not relevant for investors. This newsletter sifts through them all to highlight the ones that deserve extra scrutiny.
Gracell Biotechnologies (NASDAQ: GRCL — $1.71 billion), a recent Chinese biotech IPO, received four detailed comment letters from the SEC (1, 2, 3, 4). In particular, the SEC questioned the potential for Chinese taxes to be imposed on U.S. ADR investors:
“Please revise the summary to include information about… the risk that shareholders may be required to file a return and be taxed by the PRC, and the risks related to the discretion of Chinese governmental authorities to influence your business… Finally, revise the summary to include the risk of being delisted…”
Gracell Biotechnologies also received a staff letter requesting more information about its redacted exhibits:
“You have redacted information from the exhibits identified above asserting that the redacted information is not material and would cause competitive harm if publicly disclosed. For us to assess your compliance with the form requirements, please supplementally provide us, within five business days, with an unredacted paper copy”
Palomar Holdings (NASDAQ: PLMR — $2.55 billion), an insurance company, received a comment letter over improper non-GAAP presentations and improper loss adjustment disclosures. The letter read, in part,
SEC: “Please represent to us that you will not present your non-GAAP performance measure, adjusted net income excluding catastrophe losses, in your future annual or quarterly reports, earnings releases and/or any other material provided on your website or otherwise. In this regard, we note that you are in the business of writing insurance policies that specifically cover the catastrophe losses you remove in this non-GAAP performance measure…”
Palomar: “The Company acknowledges the Staff’s comment and submits that the Company will no longer present the non-GAAP measure adjusted net income excluding catastrophe losses in its future annual or quarterly reports, earnings releases, and/or any other material provided on the Company’s website or otherwise.”
Palomar insiders have sold approximately $20 million in stock over the last 12 months.
RLX Technology (NYSE: RLX — $30.2 billion), a recent Chinese vaping company IPO, received a comment letter about its related party transactions:
“We note your revised disclosure that you sold e-vapor products to a party that is controlled by an individual who has indirectly significant influence on you. Please revise to identify the party, or explain why you do not believe that you are required to do so.”
RLX Technology later added the following to its F-1/A:
“In 2020, we sold e-vapor products to Lhasa Yuanchi Investment Management Co., Ltd., an entity affiliated with Deep Technology Linkage Fund L.P., one of our principal shareholders…”
Loews Corporation (NYSE: L — $12.8 billion), an American conglomerate, sent a 2,586-word comment letter response to the SEC over issues concerning revenue recognition, credit designations, and litigation disclosure issues. The SEC wrote, in part,
“Your policy disclosure for Altium Packaging LLC to recognize revenue in part when “there is persuasive evidence of an arrangement, the sales price is fixed and [sic] determinable and collection is reasonably assured” reflects guidance from SAB 104 that was superseded by ASC 606. Please confirm for us that you recognize your packaging revenue based on the principle outlined in ASC 606-10-25-1 and provide us proposed revised disclosure…”
EnLink Midstream (NYSE: ENLC — $2.12 billion) received two comment letters about its gross margin and cost disclosures that may be inconsistent with GAAP. The SEC wrote, in part,
“We note your disclosures on page 69 are focused on revenues and incomplete measures of cost of sales and gross operating margin by segment. Please revise the presentation to reflect all cost of sales in your gross operating margin…”
EnLink has had three CFOs over the past five years.
Patria Investments (NASDAQ: PAX — $2.67 billion), a Latin American asset manager and recent IPO, received a comment letter about its prospectus cover art:
“Please limit the text preceding the pictures to text used to explain the visual presentation. In that regard, please also clarify what the pictures are attempting to show as it related to your own company, because the pictures appear to show other companies’ products”
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Please note that comment letters are generally made public with a delay of at least one month. As a result, many of the comment letters profiled may appear dated, even though they are recently uploaded.
Until next week,
Comment Letter King
Enlink looking fishyy