Waterdrop Inc. (WDH) Earnings Call Transcript & Summary

Good morning, everyone. This is [ Tracy Lee ] from Waterdrop Investor Relations. It's my pleasure to welcome everyone to Waterdrop's First Quarter 2024 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference call is being recorded. Please note that discussion today will contain forward-looking statements made under safe harbor provisions of U.S. Private Securities and the Litigation Reform Act of 1995. Forward-looking statements are factor to risks and uncertainties that may cause actual results to differ materially from our current expectations. Potential risks and uncertainties include, but not limited to, those outlined in our public filings with the SEC. The company does not undertake any obligation to update any forward-looking statements, except as required any under applicable law. Also, this call includes discussion of certain non-GAAP measures. Please refer to our earnings release for a reconciliation between non-GAAP and GAAP. Joining us today on the call are Mr. Yang Guang, Co-Founder, Director, Finance VP and GM of the International Business; Mr. Ran Wei, Director and GM of Insurance Business; Ms. Xiaoying, Head of Finance; and Ms. [Indiscernible] Board Secretary. We'll be happy to take some of the questions in the Mandarin line at the end of the conference call.

Hello, everyone. Thank you for joining us, our first quarter 2024 earnings conference call. Since the beginning of 2024, the domestic economy remains on track for recovery, leading to a steady growth in personal insurance industry. For Waterdrop, the company continues to pursue high-quality development while improving our quality and efficiency. In terms of our financial performance, total revenue of Q1 reached RMB 705 million, up 16.3% year-over-year. GAAP net profit attributed to the company reached RMB 80.6 million, a significant increase of 62.2% year-over-year. Since [Q1 of 2022], we have continuously recorded profitability for 9 consecutive quarters. In Q1, all our business segments maintained [Indiscernible] For our Insurance Business, we actively optimized this product offerings, explore new service models and continue to [Indiscernible] empowerment. Insurance premiums significantly increased sequentially, representing an operating margin of over 20%. For Waterdrop [Indiscernible], we are actively participating in [multi-label medical] assistance system to continue improving service quality. Segment loss was further reduced. For Healthcare-related business, we continue to collaborate with domestic and international pharmaceuticals, expanding to a digital marketing solution [indiscernible]. During Q1, our revenue increased 7.3% Y-o-Y. In the first quarter, we continued to invest in R&D. By now, we have obtained 4 LLM-related patents and submitted over 10 more patent applications. We are committed to improve efficiency in the entire insurance service group. For our CSR and ESG efforts, Waterdrop will adhere to sustainable development in ESG management, implementation and as well as [indiscernible]. In the latest rating published by ICCF, our rating increased to A-, reflecting a great leap forwarding at ESG. As of the end of Q1, our charity platform has partnered with 112 [Indiscernible] charity organization, [indiscernible] more than 15,000 projects. [indiscernible] multilevel medical assistance platform we joined was awarded to 2023 Project of the year in [Indiscernible] China Charity Annual conference. For the capital market, we recently paid our first special [indiscernible] since listing. We look forward to bringing more value to our shareholders in the future. Regarding share buyback, as of the end of May 2024, the company has cumulatively repurchased 45.5 million ADS in open market for a total consideration of about $95.9 million. The repurchased shares will continue to be used for ESOPs to motivate our talented team. This is a recap of our performance in Q1. For the full year of 2024, Waterdrop financial guidance remains unchanged. First, profitable year with double-digit revenue growth; second, insurance operating margin above 8%; third, sustained growth in health care-related revenue. To achieve our goals, we will implement the following strategy. For insurance business, we will adhere to our user first principle, further optimize [Indiscernible] conversion, explore new service models and product innovation, invest in AI [indiscernible], driving business operations to improve efficiency for both ourselves and industry. For Medical Crowdfunding, we will continue to take advantage of technology capability to ensure sustainable development while building social value and [indiscernible] user needs. For health care business, we will swiftly move to the penetration revolve, expanding the comprehensive service capability to more [indiscernible] categories and actively exploring digital marketing to broaden business boundaries. With abundant cash reserves, we're picking suitable partnership and M&A targets around insurance and health care sectors. Looking ahead, the company will continue to strengthen its business value and its barriers that imbibe our mission and value, we'll continue to see more segmentation opportunities. Now I will pass to around [Indiscernible] discuss our insurance business in Q1.

Thanks, [Indiscernible]. This quarter, our insurance business demonstrates steady growth. The total [Indiscernible] 1.75 billion increased by 3.7% year-over-year. Insurance-related income was 610 million, up by 13.1% Y-o-Y. Operating profit for the insurance business reached [RMB 130 million]. [Indiscernible] [short-term] insurance products was [RMB 1.15 billion] in the first quarter, representing a sequential increase of 15.9%. [Indiscernible] policy FYP grew by 41.6% sequentially. We have continually incurred online traffic [conversion and] based on the user profile each content distribution platform, we specifically optimized our product offering accordingly. Our policy renewal rate remains at a high level, consistently above 95%, which indicates strong user recognition. FYP for long-term insurance products amounted to RMB 600 million in Q1, representing a Q-o-Q growth of 13.4%. The contribution of FYP generated for long-term insurance products to overall FYP was further increased. The FYP of life insurance product -- overall long-term products increased to 56.4%. We saw a sequential increase in productivity per capita by 6.4%, the overall quality of long-term policy further improved with the first year retention rate increasing by 2 percentage points sequentially. We continue to develop our offline brokerage business. In Q1, we launched our new brand of off-line brokers for [Indiscernible] aimed to provide more comprehending offline service and strengthening our brand awareness. On [indiscernible], we got sequential increase in FYP and Waterdrop Insurance Marketplace at [indiscernible] really enhanced synergies in sales resources, content marketing and product partnerships. Our capability in catering various products to meet user needs continue to improve. During this quarter, we launched [indiscernible], a long-term medical insurance product that guarantees renewal for 20 years and aims to provide high-value coverage for females, especially for females. Our [indiscernible] disability income insurance for the elderly has exceeded RMB 10 million in FYP for the first month they launched, reflecting a strong market demand. Targeting the market segment, we have successfully upgraded one of our star products, [indiscernible] to [indiscernible] 2.0, which gained top recognition on various platform. For people with previous existing conditions, we upgraded our [indiscernible] to over 0 waiting period and extended it's [indiscernible] age up to 105 years old. The overall carrier insurance products achieved 100 million FYP during Q1, continuing to gain user trust. Moving on to technology empowerment. In Q1, we continued to expand the application of our [indiscernible]. The accuracy and efficiency of our large language model has been significantly improved. Our AI broker has reached 90% of the average level of human broker in health insurance sector, capable of conducting independent dialogues with our clients for up to 40 minutes. Meanwhile, on our AI copilot, which has been widely internally asset reached an accuracy rate of over 98% in the insurance [Indiscernible] significantly boosting the efficiency of sales, quality controls and others. We also actually explore external application to empower the industry, with several partnerships currently under negotiation. By now, we have obtained 4 LLM-related patents and submitted over 10 more patent applications. Looking ahead, we will remain dedicated to positioning our results at the forefront. This concludes my remarks for today, and we now pass through [indiscernible] for an overview of Medical Crowdfunding and Health care business.

Thank you, [indiscernible]. As of the end of Q1 2024, around 456 million people cumulatively donated 63.8 billion to over 3.17 million patients through our Waterdrop Medical Crowdfunding. We sustained focus on transparency and keep strengthening our risk management mechanism. For instant, before manual verification, we integrated algorithm resonation to identify false or fake medical documents and mitigate related risks effectively. In addition, for patients with a high risk of passing away withdraw all the donations are made in batches according to the stage of fitness, reducing the risk of fund misappropriation. [Indiscernible] higher [eccentricity] we have, the greater the donor enthusiasm will be. In the meantime, we constantly [indiscernible] user experience and constantly improve service quality. For urgent cases, we opened up an advanced payment application portal for patients. We have the risk control review. When patients need to withdraw the fund, but 24 hours public notice period has ended, we will use our own funds as advanced payment. This ensures that the patients can promptly get the fund for their treatment. During Q1, we actively participate in multilevel medical assistance programs initiated by local governments in China. In February, on International Rare Disease Day, Waterdrop launched the special rare disease care program on top of our existing support initiatives. By the end of Q1, more than 67,000 patients with rare disease have -- help through our Waterdrop Medical Crowdfunding and received donation of than RMB 1.5 billion from 48.9 million donors. We contribute through our platform, the Waterdrop Medical Crowdfunding charitable bonds and collaboration with pharmaceuticals. We provide a fast track for rare disease patients to respond as well as dedicated consultants and [fundraising] support. Waterdrop charity works with charity fund to help these patients seek medical resources at local medical insurance policy updated and so on. Through that, we'll continuously update our care initiatives for patients, bringing more hope to those in need. In Q1, our health care-related business continued its momentum. We expanded our digital capabilities in [indiscernible] solutions and multichannel marketing solutions. For this quarter, health care-related income reached [ 25.3 million ], representing an increase of 7.3% year-over-year. The number of corporations, pharmaceuticals and CROs reached 179. And the number of new programs reached 88, both figures remain high level, leveraging a broad patient base and strong [indiscernible]. E-Find Platform continued to enroll [Indiscernible] candidates for our pharmaceutical clients. In Q1, E-Find Platform successfully enrolled over 800 patients. As of the date about 7,800 patients were enrolled. Our performance has been recognized by our clients. For instant, in [indiscernible] products for global top 5 MNC. We work at exclusive Chinese third party patient recruitment partner and successfully enrolled over 60 patients within 3 months, which is 20% faster than the revenue time needed. As we fulfill [indiscernible] in the industry, we continue to deepen our cooperation with leading pharmaceuticals and CROs, both domestically and internationally. We have already cooperated with 7 out of the global top 10 pharmaceuticals. The CRO business continued to a steady development as our reputation and influence strengthen. We won a new bid for a clinical trial project in the field of cell therapy for a listing pharmaceutical in Q1. In addition, 2 key clinical trial [Indiscernible] on our platform completed initiation in the first quarter, including the [Indiscernible] centers. Looking ahead, we'll continue to explore financial digitalization in the health care sector. The platform will continue to build and improve integrated solutions across the entire industry chain. In Q1, we further expanded in field of digital multi-channel marketing, leveraging our experience in patient management for chronic disease. We saw an increasing number of clients. The cooperation with MSCs further depends. Meanwhile, we signed a strategic cooperation with the leading domestic pharmaceutical. We believe that -- Waterdrop will become the preferred partner in marketing for more and more pharmaceutical. This now concludes my speech. Now I'll pass to Ms. Xiaoying, the Head of Finance, to discuss the company's financial performance.

Thank you [Indiscernible]. Hello, everyone. I will now walk you through our financial highlights for Q1. Before I go into details, please be reminded that all numbers quoted here will be in RMB. And please refer to our earnings release for detailed information on our financial performance on both the year-on-year and quarter-over-quarter basis, respectively. We are thrilled to kick off 2024 with solid financial results. The company revenue in Q1 amounted to RMB 705 million, representing a Q-o-Q growth of [ 16.3% ]. The revenue structure is more diversified upwards, which the insurance-related income amounted to RMB 607 million. The crowdfunding business contributed revenue of RMB 67.4 million and the health care related income of about RMB 25.3 million, with all 3 business segments growing steadily. At the same time, the company also continue to focus on operational efficiency, with overall operating costs and expenses of RMB 658 million, up 10.5% year-over-year and 4% quarter-over-quarter. Among them, Q1 operating costs were approximately RMB 331 million. Operating costs showed a year-over-year increase of 33.6% because of the consolidated [indiscernible], representing a sequential increase by 9.6%, mainly due to an increase in the referral and the receipts. In terms of expenses, S&M expenses amounted to RMB 182 million, representing an increase of 5% and 4.2% on a Y-o-Y and Q-o-Q basis, respectively, which maintain a healthy and steadily trend, and benefiting our firm our effective cost control. G&A expense amounts to RMB 89 million, representing a decrease of 7.1% and 7.3% on a Y-o-Y and Q-o-Q basis. R&D expenses amounted to RMB 56 million. The decrease is due to the impact of team restructuring. In Q1, our profitability improved significantly. Net profit attributable to the company's ordinary shares amounted to RMB 80.6 million, 62.2% year-over-year and 36.5% quarter-over-quarter. Since Q1 of 2022, we've continuously recorded profitability for 2 consecutive years. We generated a net cash inflow from our operating activities of RMB 179 million. Looking ahead, we will continue to create value for our users and shareholders with great profitability and growth. And ladies and gentlemen, with that, we will conclude today's conference call. We do thank you for joining. Have a good time.

Conference has now concluded. We thank you for attending today's presentation, and you may now disconnect.