Cheche Group - Q1 2024

Transcript

Operator (participant)

Hello, and welcome to the Cheche Group first quarter 2024 results call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star, then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Crocker Coulson, Investor Relations for Cheche Group. Please go ahead.

Crocker Coulson (Investor Relations)

Thanks so much, operator. Good morning to all of you joining us here in the US. Good evening to those of you joining us from Asia. We'd like to welcome you all, and thank you for joining us to review Cheche's 2024 first quarter results. This morning, Cheche posted both the earnings release and the related investor presentation to our website, and you can find that at ir.chechegroup.com. Now, with us on the call today are Lei Zhang, Cheche's Founder and Chief Executive Officer, Sandra Ji, Cheche's Chief Financial Officer, and also Ting Lin, Cheche's Chief Strategy Officer. After the prepared remarks are concluded, we're gonna open up the call for your questions. But before we begin, I'd like to note that some statements in this teleconference are forward-looking within the meaning of the federal securities laws.

Although management believes these statements are reasonable, we can provide no assurance that they will prove to be accurate because they are prospective in nature. Actual results could differ materially from those we discuss today. We encourage you to review the most recent Form 20-F and subsequent filings for risk factors that could materially impact our results. As I mentioned, the earnings release is available at ir.chechegroup.com, and we encourage you to review the reconciliations of certain non-GAAP financial measures that are contained within. With those formalities now out of the way, it's my pleasure to turn this call over to Lei Zhang, Chief Executive Officer. Lei, please go ahead.

Lei Zhang (CEO)

Thank you, Crocker. Good morning, everyone. We are glad you have joined us. As China's largest auto insurance technology platform by digital auto insurance transaction premiums and an active driver in the digital transformation, we are continuing to gain market share through our cutting-edge embedded insurance capabilities, powerful ecosystem, and a unique SaaS offerings. Cheche remains well-positioned to capture significant opportunities resulting from accelerating digitalization of auto insurance market in China. As of March 31, 2024, Cheche facilitated a wide range of auto insurance transactions, providing quotes for about 49 million vehicles, placing over $7 billion in written premiums, and collaborating with over 100 insurance carriers between 2021 and the first quarter of 2024.

The NEV market in China has the highest penetration rate in the world, which has attracted several international automakers to begin manufacturing electric vehicles here, driving further industry competition and potential. We have capitalized on this new market segment with our recently announced partnership with Volkswagen Digital Sales and Service to amplify the presence of Volkswagen NEV insurance business. We also began collaborating with Beijing Houji, the insurance brokerage firm in Xiaomi Group this quarter. Xiaomi recently entered the NEV market with a big splash. We will leverage our technology platform and SaaS solutions to help them provide auto insurance services and products to consumers in multiple cities across China. We remain the industry's leading provider of embedded insurance solutions, and our technology roadmap continues to prioritize winning additional higher profile NEV manufacturers and growing our current market share of 11 partnerships.

As a result of its efforts, our number of NEV embedded policies is up 124.4% year-over-year to 119,000, with the corresponding written premium growing 78.5% to $51 million over the same period last year. Our self-reinforcing cloud-based model is highly scalable and steadily collects valuable data, insights that are organically leveraged to drive increasing efficiencies of our products. In April of this year, NEVs crossed over to account for more than 50% of new vehicle sales in China.

The range of offerings now available for NEVs to Chinese consumers is more affordable, more intelligent, and makes driving more entertaining than the comparable IC offerings. Cheche continues to align its growth strategy with many of critical dynamics driving the automotive industry in China, as it sets the standard for affordable, functional, and sustainable vehicles. The first phase of the strategy is establish connectivity as embedded insurance technology and operating service provider, so that NEV manufacturers can capture insured sales and renewal as part of their direct consumer relationship. We are later focused on securing relationships with the remaining large NEV players. In phase two, we foresee that NEV insurance which will bolster the following features. The first is embedded and subscribed insurance models will become mainstream.

Embedded and subscriber insurance will feature integrated products, smart recommendations, one-click renewal, and digital claims with NEV makers as the new shopping and service portal. Second, insurance will be data-driven and provide real-time pricing. The data-driven model will capitalize on data analytics and AI actuarial modeling capabilities, such as data connection, real-time pricing, and smart risk management to reshape auto insurance. Third, NEV makers will offer lifetime services to users and will be more involved in value-added services, such as financing, used cars, and new car services than insurers. Phase three will leverage the enormous data stream and management from NEVs to help manufacturers understand driver behavior and risk profiles at a granular level.

These data streams will grow ever richer as autos transition towards L3 and Level 4 autonomy, and the driver steps back as an active participant when cars are in a supervised automatic mode. With the foundation of the body of insurance-relevant driver data, Cheche is positioned to embed AI deeper into the tech stack and roll out capabilities such as automated claims management, automated fraud prevention, and individualized risk-adjusted pricing that generate more value for our partners and higher margins for Cheche. Our strategy is to develop and leverage the network effect of being the hub of the NEV industry to build sustainable competitive advantage and help our partners survive and thrive in the years to come. In the long term, we may consider global expansion opportunities in regions such as North America and Southeast Asia.

We are pleased with our progress in 2024 and look forward to capitalizing on the industry's evolving opportunities. I will now turn the call over to our CFO, Wenting Ji. Thank you.

Wenting Ji (CFO)

Thanks, Lei. I'd like to begin to touch on our first quarter operational and financial highlights before taking questions. For the operational updates, Cheche continues to grow its business with its CapEx-light, technology-focused strategy. As a result, total written premiums placed for the quarter increased 9.2% to RMB 5.4 billion, or $751.1 million. The total number of policies placed grew 21.2% in the quarter to 4 million. As Lei mentioned, 119,000 policies and RMB 370.3 million or $51.3 million of the corresponding premiums were embedded in NEV deliveries, growing 124.5% and 78.5% respectively, year-over-year.

Word-of-mouth referrals and local industry relationships remain central to Cheche's organic growth strategy for the installed base of auto insurance markets. The quarter's addition of over 496 new referral partners contributed to the company's approximately 1.2 million total referral partners at the quarter's end. For the financial update, in terms of net revenues, we generated RMB 787.1 million or $109 million US dollars in the first year, up 1% year-over-year. Our cost of revenues in the first quarter was RMB 753.4 million or $104.3 million US dollars, also up 1% year-over-year, in line with the revenue growth.

The total operating expenses decreased by 18.5% to RMB 65.7 million or $9.1 million from RMB 80.7 million in the prior year quarter, mainly due to the decrease in share-based compensation expenses, marketing expenses, and staff costs. Excluding the impact of share-based compensation expenses and listing-related professional service fees, the adjusted total operating expenses increased by 3.4% from the prior quarter, mainly due to the incurrence of RMB 5.2 million in post-listing professional service fees. Net loss decreased 28.8% to RMB 31.3 million or $4.3 million over the prior year quarter.

Excluding non-GAAP expenses, the adjusted net loss was RMB 12.2 million, or $1.7 million, increasing by RMB 4.4 million compared to the adjusted net loss of RMB 7.8 million for the prior quarter, mainly due to the incurrence of RMB 5.2 million in post-listing professional service fees. Turning to our balance sheet, we had RMB 234 million or $32.4 million in cash, cash equivalents and short-term investments, which provides us with healthy financial flexibility.

Looking ahead, Cheche is reaffirming its previously stated guidance, which is we continue to expect that net revenues for 2024 will range from RMB 3.5 billion-RMB 3.7 billion, representing an increase of 6.1%-12.1% compared to the full year of 2023. Total written premiums placed are expected to range from RMB 24.5 billion-RMB 26.5 billion, representing an increase of 8.4%-17.3% compared to full year of 2023. With that, we're happy to address any of your questions. Thank you.

Operator (participant)

We will now begin the question and answer session. To ask a question, you may press star, then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. Once again, it is star then one to ask a question. We will now pause momentarily to assemble our roster. The first question comes from Yiyi Zhang with CICC. Please go ahead.

Yiyi Zhang (Analyst)

[Foreign language] have one question, and, this is about the, the, potential upside of the, new energy vehicle. So what's the potential upside of new energy vehicles or insurance markets, and what's the role Cheche plays and will play in this market? Thanks.

Lei Zhang (CEO)

[Foreign language]

Speaker 6

Thanks for your question. As we can see now that the premiums of the auto insurance has accounted for over 60% of the total ownership of the NEVs, and the EV market has become the main service. The EV insurance has become the main service of the EV makers, and it is no longer served as a sub affiliated and offerings of the EV makers, but it is served as the core business of their total offerings.

Lei Zhang (CEO)

[Foreign language]

Speaker 6

The next year, we believe that the revenue will grow from CNY 200 billion to CNY 300 billion. In terms of the revenue from the repair parts and from the aftermarket services, we believe it will exceed CNY 500 billion. The total market size will range between CNY 500 billion to CNY 800 billion.

Lei Zhang (CEO)

[Foreign language]

Speaker 6

So, as the service provider, there are two roles that we play in this ecosystem. First of all, we will help and assist the EV makers to become the main participant in the market. We help them to build the SaaS system and empower them with the operating services.

Lei Zhang (CEO)

[Foreign language]

Speaker 6

And on the other hand, as the EV insurance become more intelligent and subscribe services, we will help the insurance carriers with their smart risk management and the real-time pricing, and also with the innovations in terms of the insurance product as the self-driving mode is becoming more and more mature.

Lei Zhang (CEO)

[Foreign language]

Speaker 6

We believe that we are one of the leaders in the NEV insurance market in China, and we will occupy the major market share in the next 3-5 years.

Lei Zhang (CEO)

Thank you.

Operator (participant)

Did you have a follow up, Ms. Zhang?

Yiyi Zhang (Analyst)

No, thanks very much.

Operator (participant)

Thank you. Again, if you have a question, please press star, then one on a touchtone phone. This concludes our question and answer session. Oh, excuse me, just a moment. I do have a question from Edwin Liu with CLSA. Please go ahead.

Edwin Liu (Equity Analyst)

[Foreign language] So, thanks to management for the opportunity to ask question. I have two quick question. Firstly, in terms of the partnership with the NEV OEM, for the insurance broker or SaaS platform, do we have a rough idea for you know the percentage of our market share?

The second question is, based on the guidance for the adjusted net loss, we think that imply a sequential improvement in terms of the profitability from the first quarter this year. Is our understanding correct? And what would be the driver behind the improvement? Thank you.

Lei Zhang (CEO)

[Foreign language]

Speaker 6

... so, we would like to answer your first question. As you have mentioned, we have worked with many major Chinese EV makers such as NIO and Xiaomi, and there are the three services that we are offering them now. The first one is at the new car delivery. They about 80%-90% the new cars will purchase the auto insurance through our platform. The second one is at the renewal juncture that about 50% of the cars will choose to renew their auto insurance on their app through our SaaS platform.

And the third one is the services that we provided in terms of the claims management, where we help the EV makers to build their additional platform, and that will help the car owners to report about the car accidents.

Lei Zhang (CEO)

[Foreign language]

Speaker 6

As we have mentioned, that we have worked with major EV makers. For example, the first one is the Volkswagen Anhui factory. This is where they will launch their first electric vehicles in China, and we have established the exclusive partnership with them to offer our services in covering the new car insurance and the insurance renewal, and to the claims management. And as to another major EV makers and the largest EV sales in China, the Li Auto, we have served more than 60%-70% of their auto insurance offerings, including the new car insurance and the renewals. And in particular, we have, like, 100% service for their renewal services.

The next one is a new EV maker, Xiaomi, and we have served 50% of their total own car owners. So, we can say that we are a leader, we are a leader in the auto insurance sector, especially in the EV insurance.

Lei Zhang (CEO)

[Foreign language]

Speaker 6

And more and more EV makers have realized that insurance have contributed a lot to their revenues in the aftermarket services. And 50% of their revenues are coming from the repair parts and the after-market services. And among them, insurance have accounted a biggest part. So they more and more EV makers have made insurance major strategies of their future growth. So we believe that in the next 5-10 years we will see the vast growth opportunities and the resources in this end.

Wenting Ji (CFO)

Thanks, I, this is Sandra. I will answer the second question in terms of the adjusted net loss. Yes, there was a increase in adjusted net loss in the first quarter of 2024. Actually, there are a few special reasons resulted in this result. Firstly, as we mentioned in the ER, we incurred RMB 5.2 million post-listing professional service fees, like lawyer fees, auditor fees, et cetera, compared to the first quarter of last year. The second reason is that there was a close, there was a RMB 1.4 million exchange gains due to the fluctuation of RMB and US dollars exchange rate. That's a kind of non operating related issue.

The third reason is that there was close to RMB 5 million government grants, which was due to the preferential tax policies regarding the value-added tax. Since the beginning of this year, the government canceled this preferential policy. That's why we didn't enjoy the benefit in this year. Actually, to sum up those three reasons, that there are almost RMB 10 million different increase compared to the first quarter last year. If including this non-operating one-off issues, actually we would have been deliver much better results compared to last year. That would be over 50% improvement in terms of the adjusted net loss. Thank you.

Operator (participant)

Was there-

Lei Zhang (CEO)

Thank you. Thank you.

Operator (participant)

Once again, if you have a question, please press star then one. This concludes our question and answer session. I would like to turn the conference back over to Lei Zhang for any closing remarks.

Lei Zhang (CEO)

Thank you. Thank you, everyone, for joining the call. If you have any follow-up questions, please contact IR. Have a good, great day. Thank you. Thank you, everybody. Thank you.

Operator (participant)

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.