Waterdrop Inc. (WDH) Earnings Call Transcript & Summary

Good morning. This is Mona, Investor Relations from Waterdrop and I'm happy to welcome everybody to the Waterdrop's fourth quarter and full year 2022 earnings call. [Operator Instructions] Please also note that the discussion today will contain forward-looking statements made under the safe harbor provision of the U.S. Private Securities and the Litigation Reform Act of 1995. Forward-looking statements are subject to risks and opportunities that may cause actual results to differ materially from our current expectations. Additional risk and uncertainties include but are not limited to, those outlining our public filings with SEC. The company does not undertake any obligation to update any forward-looking statements except as required under applicable law. Also, this call includes discussions of certain non-GAAP measures. Please refer to our earnings lease for a reconciliation between non-GAAP and GAAP. Joining us today on the earnings call are Mr. Shen Peng, our Founder, Chairman and CEO; Mr. Yang Guang, Co-Founder, Director; Finance VP and GM of International Business; Mr. Ran Wei, Director, GM of the Insurance Technology Business; Mr. Yao Hu, GM on Crowdfunding and Pharmatech Business, Mr. [indiscernible], Board Secretary and we'll be happy to take your questions in the Mandarin line at the end of the conference call.

[Interpreted] Hello, everyone. Thank you for joining our fourth quarter 2022 earnings conference call. Looking back on 2022, the downside risks of global economy and the resurgence of pandemic put tons of pressure on the domestic economy. However, as China made efforts to [indiscernible] stable growth and smoothen the provision layer. The domestic economy and the consumer confidence [indiscernible] cycle recovery. On the guidance of policies, the insurance industry has enhanced the trip on high-quality development and continue to calculate the patient operation. In the long term, the insurance industry will have great potential since the demand for insurance continues to grow. Meanwhile, the pharmaceutical industry is entering a new age benefited from the acceleration of the clinical trial for the business model innovation. Facing headwinds, we anticipate on pursuing sustainable developments by creating value for users, which will [indiscernible] In the fourth quarter, our revenues continued the profit stream of the last 3 quarters, increased by 12.5% year-on-year. Our GAAP net profit reached RMB 126.2 million in the fourth quarter and RMB 608 million for the full year. We have delivered our commitment on overall profitability by our established business in the year of 2022. As of the end of December, our cash and cash equivalents and short-term investments amounted to RMB 3.7 billion, increase in rate 3.2% quarter-over-quarter. Even taking into account our repurchase program, we will be able to generate a positive cash inflow of RMB 1.15 million in the fourth quarter. Our ample cash reserves and ability to generate positive cash flows put us in a strong position to withstand the ever changing environment and the future-oriented arrangements. Our businesses are showing positive traits. Specifically, under the pressure of industry adjustments, our Waterdrop Insurance Marketplace continues to contribute net profit and cash flow by elevating our products and improving service capabilities. Where just macro components has expanded its market share by transforming operations. It has taken only just 1 year for our patient platform to transform from a maintenance business to an industry leader. In the fourth quarter, the revenue generated from E-find exceeded RMB 22 million, increasing 20 times year-over-year. The annual revenue reached nearly RMB 50 million. E-find has become our growth driver. Leveraging patient recruitment capability we are also actively exploring the opportunities in CRO and CMO. As an Internet company, we will continue to invest in R&D to build a long-term growth. In the fourth quarter, we acquired the intelligence dialogue platform to empower our businesses. We also achieved good results in AI-based human projects, and we continue to build the underlying technical capabilities to further reduce expenses and increase efficiency. In the fourth quarter, we actually carried out our share repurchase program, we will purchase approximately 2.7 million ADS in total, and we are continuing to achieve presently for the reminder extension program. At the end of 2022, we had repurchased almost 8.4 million ADS from the open market for a total consideration of USD 12.4 million. It demonstrates our strong confidence in our corporate value. Meanwhile, we plan to reserve this share for share incentive plans, which will align the interest of our employee with our company. Although a review of our business in the fourth quarter, we have confidence in both the industry and ourselves, down the road we will continue to pursue high-quality growth on the premise of profitability. To achieve our goals, our strategies include: first, for insurance business, we will adhere to the digital transformation to expand user coverage and improve sales capability to achieve sustainable product quality; second, we will increase the investment in pharmaceutical area to be long-term drivers; and third, leveraging abundant cash reserves we will take M&A and other opportunities around the Insurance and pharmaceutical sectors and continue to invest in R&D to empower the whole industry. In the end, I'd like to emphasize that we will continue to cultivate our business and invest on user-centric development to fully enhance our industry-leading position. We acknowledge recovery, supported policy and abundant cash reserves, our cash card insurance business and [indiscernible] business continue to be in their own track, allowing us to face the market share deliberately. I will hand to Ran Wei to discuss the performance of the Waterdrop Insurance business in Q4.

Thank you, Shen Peng. Hello, everyone. Let me give you an update on our Insurance business. With the complex external environment, a resurging pandemic across the country and softer consumer demand, plus the profile adjustment of life and health insurance industry. The growth rate of both year premium has not increased significantly. Against the backdrop, our first year premiums amounted to RMB 1.6 billion and the insurance-related revenue reached RMB 611 million. However, since we invested on high-quality development, our insurance business remains relevant and continue to contributing all the profit. And we also found ways to study a bottom line and driving vector ROI and using budget more efficiently. In the fourth quarter, we leveraged the management of the safety users by building into our business constantly include either experience and their value projection. The number of policies per capita increased by 18% quarter-over-quarter and further increasing the chunk rate and renewal rate at high levels of over 60% and 90% and the ATL of existing users increased 7% quarter-over-quarter and we continue to improve operational efficiency. With actively exposed customer acquisition channels on various social media platforms, the overall number of new customers increased by 39%, in which have regular accounts, the new customers increased by 166% quarter-over-quarter. It has already achieved quality, laying a solid foundation for further expansion. [indiscernible] based on the current events and identified users with high volume to consume and our sales team will follow-up timely to provide financial consulting service for them. Leveraging now direct to consumer experience as the ability to deliver high-impact content. The number of consumers in the short video platform increased by 321%. On the other hand, we collaborated with industry players to obtain [indiscernible] and based from our commercial capabilities, the ATL on [indiscernible] increased by 60% quarter-over-quarter. Our online operation efficiency in customer acquisition and conversion by taking target growth, delivering competitive ratio contents and reinforcing user application capabilities, our network traffic increased by 36% quarter-on-quarter. Meanwhile, the average lease cost decreased by 17% as we further include the accounts to reach the content pipeline, the number of accounts increased by 100% quarter-on-quarter. By appointing the user commercial model, we found a working mechanism for the insurance planner and thereby, the ATL increased by 140% quarter-over-quarter. In this quarter, the outside growth showed a substantial risk with a year-on-year increase of 229%, we have expanded our business to 11 cities across China including Beijing and Shanghai. Meanwhile, the synergy effects with online brokerage has boosted the transformation of [indiscernible]. In terms of distribution channels, we made progress in optimizing our distribution network with 30 new partners on-boarding in this quarter. We focused on the exploration of the insurance planner model in the fourth quarter, it provided users with in-depth bank to bank service through enterprise WeChat. We take a medical insurance products and a trigger to educate users and improve their insurance awareness to expand to family issuance and life insurance products. The ATL in December increased by 60% compared with October. Regarding our progress on innovation in the fourth quarter, we definitely explored the user needs and strongly developed 9 new products with insurance. [indiscernible] insurance to launch a customers product savings [indiscernible] for the patients to meet their protection needs. Another example in fact, we launched a post an active accident insurance. The total program has exceeded RMB 10 million and it has become a benchmark program in the market. In addition, we have upgraded new medical issuance products and made exploration in the early screening from cancers and cardiovascular disease. We concluded partnership with two divisions in this quarter and expect the breadth and depth of cooperation with certain insurance such as [indiscernible] As a technology company, we sustained our investment in AI-driven innovation, laying a solid ground for our medium and long-term growth. For example, we released a robust configuration platform under a new architecture to increase our level to realize a factor self-training in different scenarios, optimize our intelligent sales with matching system and included more cost of those leads and workplaces. We use AI to help sales team identify potential customers in return and thereby the premium [indiscernible]. We also strengthened our risk control capabilities of applying AI, which significantly reduced the comp base rate. We empowered industry with our technology. In Q4, we successfully integrated and exported the selective products of our industry-leading AI system. At the end of December, we exported our [indiscernible] interactive technology to industry partners, we simplified the sales product and optimized their ability to communicate with customers. This concludes my briefing on our insurance products. So let me hand over to Yao Hu for an update on the medical crowd-funding and patient recruitment business.

As of the end of Q4, a cumulative total of $426 million helped a saving 2.7 million patients with around $57 million on our platform. In this quarter, the observational transparency committee made further improvements. For instance, we released the monthly bill including the overview and breakdown of the fund raised in our platform, which marks that not only can we achieve the transparency of a single campaign, but also the transparency of the online platform. The system includes the total number of counting details from refunded and refused. It also shows the cash flow from the donor to the fund raiser. In addition, the retail [indiscernible] cases and in useful search on are provided for the public oversight and monitoring. Besides, we can also fully disclosure the key review procedure and the corresponding results on Weibo to be specific, when accounting was initiated, this grant will be identified and intercepted on the simple scenarios including concerning the financial position, under taking personal information, using funds to buy a house or car, used to relate on our [indiscernible]. On the other hand [indiscernible] based on recent process, any campaign related to the use of funds, bank account and medical bills will also be identified as active. We will also publicize the rationale and decisions to build users on commercial cases on the various scenarios, overall enhancing the transparency on the [indiscernible]. In the fourth quarter, the development of clinical sales were impacted by the pandemic in many places around the country. And therefore, the life of many clinical trials were hindered. We are taking the advantage of our wide coverage across the country and capability quickly and accurately for recruiting patients, the E-find patient platform involves nearly 700 patients to over 200 clinical drills. Significantly accelerated the trial to progress of our partner. Next to our industry reputation and excellent project performance. The number of clinical trial program continues to grow, with nearly 18 new programs launched in this quarter. At the end of Q4, we already collaborated with over 100 pharmaceutical companies. In the meantime, we also take those relations with our regular customers and continues to expand the skills with collaboration. For example, E-find collaborated with Beijing for results timing in early 2022 to participate in the patient recruitment for a certain tumor clinical trial, which required patients to have qualifying factors such as genetic mutations, leveraging our normal patient core and digital capabilities, we enrolled many patients in a very short time. We [indiscernible] that have been higher than online. As a result of this, Beijing and E-find continued the collaboration with 5 new projects launched in this quarter. As guidance, we are also promoting cooperation with a number of world-leading pharmaceutical companies and is expected to complete the acquired review in 2023 and formally launch cooperation. In addition, we also upgraded the ecosystem composed by the pharmaceutical companies, doctors and patients and export main directions of health care digitalization location operations, and other potential business direction. We elected in R&D in the medical sales and [indiscernible] upgrade, our medical algorithm platform covers almost 100% of diseases and can ultimately detect and identify criteria, [indiscernible] which improve the operational efficiency. In addition, the algorithm can be used to improve the onetime successes rate of [indiscernible], which demonstrates the synergy effects between our pharmaceutical business and insurance business. I'll now hand over to Yang Guang to give our fourth quarter financial performance.

Thank you, Yao Hu. Hello, everyone. I will now walk you through our financial highlights for the fourth quarter and full year of 2022. Before I go into details on the financial performance, please be reminded that all numbers quoted here will be in RMB as the level of our earnings release for detail information on our comparative financial performance on both a year-over-year and quarter-over-quarter basis respectively. Despite the challenging external environment we invested on the high-quality development. Our net operating revenue increased by 12.5% year-over-year to RMB 639.5 million. which primarily due to the increase of insurance-related income crowdfunding service fees and digital clinical trial solution income. The operational cost and expenses decreased by 10.5% year-on-year and 5.2% quarter-on-quarter, amounting to RMB 606.6 million, driven by the financial [indiscernible] taken in the third quarter of 2021. To break it down, operating costs were RMB 278.6 million up by roughly 41% year-over-year, mainly due to the increase in international and on customer service base of RMB 51.2 million and the recording of consolidative service base of roughly RMB 67 million from sales and marketing expenses to operating costs and we started to generating crowdfunding service base, since April 2022 and partially offset by around RMB 41 million decrease in personnel costs for our consultants and agents. On a quarter-over-quarter basis, operating costs decreased by 18.4% as a result on the professional and also customer service base decreased by around RMB 25 million. Sales and marketing expenses decreased by 42.8% year-over-year to RMB 137.8 million which was primary due to a RMB 36 million decrease in marketing expenses to third-party traffic channels. And exactly RMB 18 million decreasing up cost sales and marketing services in third party. On a quarter-over-quarter basis, our sales investment expenses almost remains unchanged. Our G&A expenses decreased by 20.7% year-over-year to RMB 118.6 million due to the combined impact of a decrease of RMB 39 million in impairment loans and partially offset by an increase of around RMB 15 million allowance for doubtful accounts and RMB 7.7 million decrease in personnel costs. Quarter-on-quarter basis increased by 44.5% primarily due to the increase in allowance for doubtful accounts, professional service fees and share-based compensation expenses. In this quarter, the R&D expenses decreased by 21.2% year-over-year and 8.5% quarter-on-quarter to RMB 71.7 million which were primarily due to the decrease in R&D personnel costs. In Q4 we reported a non-GAAP profit of RMB 155.7 million and a GAAP profit of RMB 126.2 million, compared with an adjusted net profit of RMB 5.9 million for the same period of 2021. In profit, we have generated over the past 5 quarters illustrates the determination and achievements of cost discipline and profit enhancement. As for December 31, 2022, our cash and hedge equivalent and short-term investment increased 2% quarter-on-quarter to RMB 3.7 billion as it continues to generate positive operating cash flow. In conclusion, we have committed our financial guidance of achieving a non-GAAP profit in the year of 2022. Going forward, we will continue our efforts in calculating our business, enhancing our government policy and adapting cost reduction. Our competency is underscored by the resilient business ongoing momentum and most importantly quality, unwavering commitment to deliver best in class service to our customers. Ladies and gentlemen, with that, we will conclude today's conference call. We do thank you for joining.

The conference has now concluded. We thank you for attending today's presentation, and you may now disconnect your lines.