Cheche Group - Q2 2024

Transcript

Operator (participant)

Good morning, and welcome to Cheche's Q2 2024 conference call. All participants will be in listen-only mode. If you need assistance, please signal a conference specialist by pressing the star key followed by zero. 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, today's conference is being recorded. I will now turn the conference over to Crocker Coulson, investor relations for Cheche Group. Mr. Coulson, the floor is yours.

Crocker Coulson (Head of Investor Relations)

Thanks a lot, operator. Good morning, everyone. Thank you for joining us to review Cheche's 2024 second quarter results. This morning, Cheche posted the earnings release and related investor presentation to its website, which you can find at ir.chechegroup.com. With us on the call today are Lei Zhang, Cheche's Founder and Chief Executive Officer, and Sandra Ji, Cheche's Chief Financial Officer. After the prepared remarks this morning are concluded, we're gonna open up the call to your questions. But before we begin, 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 filings with the SEC for risk factors that could materially impact our results. As I mentioned, the earnings release is available on ir.chechegroup.com, and we encourage you to review the reconciliations of certain non-GAAP measures contained within. With that, it's my pleasure to turn the call over to Lei Zhang, Chief Executive Officer. Lei, please go ahead.

Lei Zhang (CEO)

Thank you, Crocker. Greetings, everyone. We are glad you have joined us. Our platform has continued to grow, with Cheche providing quotes for about forty-nine million workers, placing over $8 billion in written premiums and collaborating with about one hundred insurance carriers between twenty twenty-one and the second quarter of this year. We remain China's largest auto insurance technology platform by digital auto insurance transaction premiums and active driver in the ongoing digital transformation. Globally, the NEV industry continues to experience substantial growth led by the Chinese NEV manufacturers. As NEV adoption rates in China climb, seeing the second-highest sales on the record in this quarter alone, we have maintained our leadership role as a provider of customized system and embedded insurance products.

Today, positioned on the cusp of profitability in this arena, we continue to push forward, forging strategic partnership and leveraging our innovative solutions to further create opportunities. We kicked off the quarter with the previously published Volkswagen Digital Sales and Service partnership, which appoints Cheche as an exclusive service provider to Volkswagen NEV insurance business. The following month, we announced a collaboration with NIO Insurance Broker, the insurance arm of NIO, where we committed to customizing a digital insurance service system for the well-known NEV manufacturer. BAIC Group is one of the largest auto manufacturers in China, producing and selling vehicles through its own brands as well as foreign-branded joint ventures.

The agreement we announced with the BAIC Group's insurance subsidiary named us as a co-partner with the opportunity to develop relationships with brands under its umbrella, with NEV or traditional internal combustion vehicles. The partnership has already lead to lead to several successes, including Beijing Automotive system, which is expected to cover two hundred dealerships by year-end. Beijing Hyundai system, which is planned for one hundred dealerships over the same time horizon. And the robust partnership with ARCFOX that is set to include more products in addition to the service system being launched as a direct sales channel. Most recently, we signed an agreement with Dongfeng Motor Group's insurance arm, naming us an approved provider for its family of brands.

Our first established partnership in this group is with a luxury NEV brand, Voyah, which provides national leasing and other comprehensive insurance services across China, including more than 900 Voyah delivery stores. As of June 30, 2024, the number of embedded policies continues to grow, up 147% year over year to 224,000 policies. NEV gross premiums are almost doubled from the prior year, growing 99% to $91 million over the same period. Our technology roadmap continues to prioritize winning additional higher profile EV manufacturers and growing our current market share. Our self-reinforcing cloud-based model is easy to scale and collects valuable data insights that are organically leveraged to drive increasing precision of our products. Cheche's primary revenue driver continues to passenger vehicle sales volumes.

As such, the company's strategies are related with underlying dynamic that propel the automotive industry in China. To ensure thriving future, we have leveraged our unique position in the industry, passing the ever-increasing quantities of inbound data streams to enhance all touch points with the user from renewal to claims. We assess the refined risk profiles to better update pricing models and predict trends better. Helping manufacturers command a great understanding of driving behavior and the large ecosystem. Working together, we will generate more value for our partners and higher margins for Cheche. In the long term, we will work to extend our partnership with auto manufacturers beyond China and into additional regions such as Southeast Asia, the Middle East, and Europe, where local insurance companies might struggle to underwriting embedded policies.

Our platform, giving our valuable data collected in the space, would be able to help develop a customized pricing model. We are pleased with our progress in twenty twenty-four and look forward to the opportunities in the back half of the year. I will now turn the call over to our Chief CFO, Sandra. Thank you.

Sandra Ji (CFO)

Thank you, Lei. I want to begin by touching on our second quarter operational and financial highlights before taking questions. While total written premiums placed for the quarter remained steady at CNY 5.6 billion or $780 million, the total number of policies placed grew 11.1% in the second quarter to 4 million. As Lei mentioned, 225,000 policies and CNY 662.6 million of corresponding premiums were embedded in new NEV deliveries, growing 147.3% and 99.6% respectively, year-over-year. In terms of revenues, we generated CNY 851.8 million or $117.2 million in the second quarter, representing an increase of 2.5% year over year.

The cost of revenues in the second quarter was CNY 820.9 million or $113 million, up 1.9% from the prior year quarter. We reported selling and marketing expenses growth of 14.2% to CNY 19.3 million or $2.7 million, mainly due to the increase in staff cost, marketing, and the share-based compensation expenses. The general and administrative expenses increased to CNY 27.7 million or $3.8 million from CNY 19.6 million in the prior year quarter, primarily due to increased share-based compensation, one-off dispute resolution expenses. Research and development expenses decreased 21.1% to CNY 9.1 million or $1.3 million, mainly driven by reduced staff costs.

The total cost and operating expenses increased 2.7% to CNY 877.1 million or $120.7 million, from CNY 854.1 million in the prior year quarter, including share-based compensation expenses, amortization of intangible assets related to acquisition, listing-related professional service fees, and one-off dispute resolution expenses. The adjusted total cost and operating expenses increased only 1.9% from the prior year quarter. Our net loss in the quarter was CNY 23.6 million or $3.2 million, an improvement from the comparable CNY 28.2 million loss in the second quarter of 2023.

The adjusted net loss for the quarter decreased 38.8% to CNY 12.2 million or $1.7 million, from CNY 20 million in the prior year quarter, resulting from the growth of our revenues and the improvement of our operational efficiencies. Turning to our balance sheet, we reported CNY 204.6 million in cash and cash equivalents and short-term investments. Looking ahead, Cheche is reaffirming its previously stated guidance. We continue to expect that net revenue for 2024 will range from CNY 3.5 billion to CNY 3.7 billion, representing an increase of 6.1%-12.1% compared to the full year of 2023.

The total written premium placed are expected to range from CNY 24.5 billion to CNY 26.5 billion, representing an increase of 8.4%-7.3% compared to the full year of 2023. That concludes our prepared remarks. Next, we will be happy to address your questions. Thank you.

Operator (participant)

Thank you. If you would like to ask a question, please press star then one on your telephone keypad. If your question has already been addressed, and you'd like to remove yourself from queue, please press star then two. Once again, that's star then one if you have a question. Today's first question comes from Michael Legg with Benchmark. Please go ahead.

Michael Legg (Equity Research Analyst)

Thanks. Good morning. Could you just comment on when you sign these new partnerships and, with the likes of BAIC, Dongfeng, Volkswagen, how much, the ramp starts, the immediate impact, and then how you expect them to grow over time? Thanks.

Lei Zhang (CEO)

[Foreign language]

So basically, we have announced our partnership with BAIC Group and the Volkswagen Group in the first half of this year. So basically, we provide a long-term service system for services and operations for the automakers, but it's based on different types of charging standards. There will be short-term charging, and also the other one will be based on the script, and the charging standards are different and we think it's not okay to disclose it.

Michael Legg (Equity Research Analyst)

Okay, thank you.

Operator (participant)

Thank you. And our next question today comes from Steve Silver at Argus Research. Please go ahead. Oops, I apologize, everybody. Steve, I apologize, sir. I'm gonna place your line on mute for one second. It looks like we have lost our speaker connection. If you can just stand by for one moment, please. Thank you. Everyone, once again, this is the operator. Please stand by. It looks like we have lost our speaker connection. We will get them right back in, so please stand by. Thank you. And pardon me, everybody. This is the operator. We've rejoined the speaker line. Steve, you may proceed with your question now, sir.

Steve Silver (Security Analyst)

Thank you.

Okay, sorry about that, operator, so my question is, as the company continues to expand the platform's offerings, are there any areas of interest that you see for either internal development or for acquisition through M&A?

Lei Zhang (CEO)

Okay. [Foreign language]

Focus on the insurance product innovation around the NEV ecosystem. For example, in the areas of charging infrastructure, the maintenance, and other types of value-added services. Besides, we'll pay attention to the value exploration and capital operation opportunities with related companies from the upstream and downstream companies.

Thank you.

Steve Silver (Security Analyst)

Okay, and one more, if I may. Given the momentum of the referral and partnership programs, and the relationships you have with the largest insurance carriers and NEV manufacturers, should that have a favorable effect moving forward on longer term sales and marketing requirements?

Lei Zhang (CEO)

Okay. Uh, [Foreign language]

So we believe the NEV automakers are attaching great importance to the insurance business, because the auto insurance business has a great impact on their after-sale service, on the revenue of their after-sales services. At the same time, the choice of the Cheche's leading NEV insurance solutions will have a great influence on the auto insurance market.

Uh, [Foreign language]

At the same time, by sharing our technology know-how, we can help the insurance companies to reduce their cost ratios and to improve their service levels, and also in the future, when they are faced with risk related with new scenarios such as intelligent driving or autonomous driving, we can increase them with the digital capabilities to address risks in such new scenarios.

Thank you.

Steve Silver (Security Analyst)

Thank you very much.

Operator (participant)

Thank you. Our next question comes from Allen Klee at Maxim. Please go ahead.

Allen Klee (Managing Director and Equity Research Analyst)

Yes, hi. Can you talk a little about how what you're offering improves the technology for the insurance companies in terms of their efficiencies and then any things that can also improve driver safety and claims? Thank you.

Lei Zhang (CEO)

Okay. Uh, [Foreign language]

We're gonna answer this question in two aspects. The first is for the global insurance companies; they have limited experiences when it comes to underwriting the NEV insurance. But in China, there are two point five million NEV cars. So basically, for the companies in China, they have accumulated a large amount of experiences and data.

Uh, [Foreign language]

As a service provider for the NEV insurance solutions, we will share our technology know-how with the insurance companies from both China and global.

Uh, [Foreign language]

The second one is, as we all know, the NEV cars are basically intelligent cars, so it has a great amount of data which can be accumulated from underwriting these cars. This data can be used in risk pricing and underwriting, so we can provide the insurance companies with underwriting capabilities as well as claim systems.

Allen Klee (Managing Director and Equity Research Analyst)

Thank you.

Operator (participant)

Thank you. And this concludes our question and answer session. I'd like to turn the conference back over to Lei for closing remarks.

Lei Zhang (CEO)

Okay.

Okay.

Okay.[Foreign language] Thank you-

Okay.

Thank you, everyone, for joining us, joining the call. If you have any follow-up questions, please contact IR. Thank you.

Operator (participant)

Thank you. This concludes today's conference call, and we thank you for joining the call. If you have any follow-up questions, please contact the IR team. Have a great day, and thank you for your attendance.