Cheche Group - Q4 2023

Transcript

Operator (participant)

Good day, and welcome to the Cheche Group's fourth quarter and 2023 earnings conference call. All participants will be in a listen-only mode. Should 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 a touchtone phone. 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 Miranda Davidson, Investor Relations. Ms. Davidson, the floor is yours.

Miranda Davidson (Head of Investor Relations)

Thank you, operator. Hello, everyone, and thank you for joining us to review Cheche's 2023 fourth quarter and full year results. This morning, Cheche posted both the earnings release and related investor presentation to its website at ir.chechegroup.com. With me on the call today are Lei Zhang, Cheche's Founder and Chief Executive Officer; Sandra Ji, Cheche's Chief Financial Officer; and Ting Lin, Cheche's Chief Strategy Officer. After prepared remarks are concluded, we will open the call for questions. But before we begin, some statements in this teleconference are forward-looking within the meaning of federal securities laws. Although we believe these statements are reasonable, we can give 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 F-4 and subsequent filings for risk factors that could materially impact our results. As I mentioned, the earnings release and investor deck are available at ir.chechegroup.com, and we encourage you to review the reconciliations of certain non-GAAP measures contained within. With that, I'll turn it over to Lei Zhang, Chief Executive Officer. Lei, please go ahead.

Lei Zhang (CEO)

Thank you, Miranda. Good morning, everyone. It's a great pleasure to host our first earnings call. We are glad you have joined us. Cheche Group is China's largest auto insurance technology platform by digital auto insurance transaction premiums, and is an active driver in the digital transformation. Through our cutting-edge embedded policies and unique SaaS offerings, Cheche is well-positioned to capture significant opportunities resulting from accelerating digitalization of the auto insurance market in China. As of December 31, 2023, Cheche has facilitated a wide range of auto insurance transactions, having provided quotes for over 44 million vehicles, placing over $6 billion in recent premiums, and collaborating with over 100 insurance carriers between 2021 to 2023. We believe that the depth and breadth of our network provide a strong competitive barrier.

For auto intermediaries, Cheche provides an integrated platform to generate additional revenue streams and deepen their customer relationships. Participants access and utilize our flagship digital insurance transaction product through Easy-Insur, specialized for insurance agents and auto services professionals. We also have SaaS solution for insurance carriers, intermediaries, and regulatory bodies, including Digital Surge, an intelligent one-stop SaaS product that helps insurance intermediaries enhance operating efficiency and meeting evolving regulatory requirements. The NEV insurance platform, a SaaS platform for NEV, jointly developed by Cheche and the Shanghai Insurance Exchange, or SIE, that allows the SIE to analyze and manage risk for electric vehicles. These products are designed to be delivered via mobile, web, WeChat, and third-party applications. Our platform's open architecture also enables its interoperability with many applications, systems, and other offerings adopted by the ecosystem participants.

NEV insurance solutions 2.0 is an integrated platform connected to more than 10 of the leading insurance companies, and currently serving more than 10 of top NEV companies. The platform's SaaS system, innovative products, and digital operations, providing data-driven insights to our sales network of over 400 people, located in more than 110 branches across 25 provinces nationwide. Our scalable, self-reinforcing, cloud-based model reaches consumers cost efficiently and accumulate valuable data insights that, in turn, contribute to the precision of our products. China's auto market is undergoing unprecedented period of change driven by 3 major forces. One, the rapid shift from internal combustion to new energy vehicles.... Second, the market adoption of smart vehicle technologies, including advanced autonomous driving. The third, and the rise of China as a major auto exporter, given the consolidation of the domestic market.

While Apple recently terminated its car development program, China's Xiaomi launched the first released vehicles today as an extension of all immersive consumer experience. In many ways, China is leapfrogging the U.S. and Europe with the latest generation of NEV, including a far wider selection of vehicles, a more rapid innovation cycle, a low cost structure, and the more intensive investment into core technologies. NEV are projected to cross three-quarters of 50% of new vehicle sales in China as early as this coming May. The 2024 sales volume of NEV is expected to exceed 12 million, with over 100 new models coming to market this year. At the same time, there is a massive consolidation on the way that will favor the most innovative, cost-competitive, and well-funded player. This transition also has several implications for how auto insurance is designed and delivered.

Increasingly, insurance is issued and renewed through the smart vehicle's touch screen or app, resulting in a stickier consumer experience and generating additional revenues for the automakers. Cheche is currently serving as a technology partner for NEV manufacturers such as XPeng, Avatr, and other higher-profile brands. Second, the density of sensors in the latest generation of NEV means that insurers and automakers can shift towards automating the claims management experience, and significantly reducing the incidence of fraud. Cheche is providing the technology to make this happen, to improve both the consumer claims experience and ensure the risk management. Leveraging sensors and AI technology in NEV, it is now possible to record data before accidents and automatically monitor what happens thereafter. This data can be swiftly transmitted to the insurance company, allowing them to quickly obtain accident-related information, speed up the claim settlement process, and reduce human errors and delays.

By analyzing vehicle sensor data, insurance companies can also more accurately determine an extent of vehicle damage and repair costs, thus avoiding unnecessary disputes. Third, at Level 3 and Level 4, automation become reality. Liability will increasingly rely on data streams to determine whether an accident was due to the automakers, the operator, or some hybrid of the two. Cheche is collaborating closely with the relevant regulatory authorities and industry stakeholders to address these questions. As NEV intelligence and connectivity increase, and autonomous driving technology becomes a reality, future NEV policies will be more accurately priced, and the liability will be divided into autonomous driving liability insurance and traditional vehicle insurance. Auto manufacturers will begin to undertake a portion of a liability, allowing a pared-down auto policy for the consumer and reducing their total cost of NEV ownership. Electric vehicles possess what?

Real-time and precise data on vehicle usage and driver behavior, which will be revolutionized the actuarial model of traditional auto insurance that currently relies on historical data. Coupled with application of AI in the insurance industry, particularly in the actuarial science, insurance pricing will shift from a more simply priced pricing model to a diversified and precise. This will result in more diverse product forms, such as mileage-based insurance, and even the potential for customized pricing for each vehicle. Cheche's goals for this year are aligned with the growth strategies we have been following under the critical dynamics that are impacting the automotive industry in China as it transitions rapidly to a green, intelligent, and a global-facing future.

We will maintain our position as the most comprehensive ecosystem for auto and related insurance products in China, as illustrated recently by continued expansion of our relationship with Sinopec. We will align ourselves with the leading NEV brands in China as a key technology partner that helps insurance and claims management directly into the vehicle experience. We will continue to leverage the rich data streams from intelligent vehicles and AI to enhance effective risk management and the bottom line of the insurers. We will work with industry stakeholders and regulators to increase compliance and transparency in the industry, while establishing required standards for the rapidly approaching world of autonomous driving. We will also thoughtfully pursue opportunities to expand overseas as our manufacturing partners gain traction in markets, including Southeast Asia, the Middle East, and Europe.

In summary, we expect that 2024 will be an exciting year for our industry and for Cheche Group. Thank you for your interest in our story. I will now turn the call over to our CFO, Sandra Ji. Thank you.

Sandra Ji (CFO)

Thank you, Lei. I'd like to begin by touching on our fourth quarter and the full year operational and the financial highlights, and providing our expectations for 2024 before taking questions. Cheche continues to scale the business with a technology-driven, capital efficient approach. As a result, total written premiums placed for the quarter increased 24.7% to CNY 6.4 billion, or $894 million, while total written premiums placed for the full year increased to 36.2% year-over-year to CNY 22.6 billion, or $3.2 billion. The total number of policies placed grew 26.3% in the fourth quarter to 4.8 million, where for the full year, the number increased to 28.5% year-over-year to 15.8 million.

For the quarter, 155,000 policies and CNY 511 million of the corresponding premiums were embedded in new NEV deliveries, growing 391.7% and 322.7% respectively year-over-year. Policies embedded in the new NEV deliveries and the corresponding premiums for the full year reached 416,000 and CNY 1.45 billion or $204.2 million, representing growth of 536.7% and 525.3% respectively, compared to the prior year. Cheche's track record of strong policy growth has been largely organic and highly efficient from a marketing standpoint, with a substantial amount of business generated through word-of-mouth referrals and local industry relationships.

This is illustrated by the addition of over 5,700 new referral partners in the quarter, contributing to over 1.1 million total referral partners at the year's end. In a similar vein, insurance intermediaries totaled over 4,500, and insurance company contracts were over 1,900 at the year-end. These are driven in part by our growing partnerships with NEV manufacturers and retail networks, such as the recently announced expanded partnership with Sinopec's 5,000 gas stations nationwide. Next, let's go to financial update part. In terms of top-line results, we generated CNY 867.8 million, or $122.2 million in the first quarter, up 12.1% year-over-year.

The increase was mainly attributable to growth in insurance transactions conducted through our platform by referral partners and third-party platform partners. For the year, net revenues saw even stronger growth, increasing 23.2% to CNY 3.3 billion, or $465 million. Cost of revenues in the fourth quarter was CNY 824.2 million, or $116.1 million, up 13.4% in the quarter and 24.6% for the year to CNY 3.16 billion or $445.2 million.

The total operating expenses growth, increasing 50%, 50.1% in the fourth quarter and 19.3% for the year, has primarily been driven by the increase of share-based compensation expenses and the listing-related professional service fees. Excluding these non-GAAP expenses, our adjusted total operating expenses increased 8.1% in the quarter, mainly due to the increase of post-listing professional service fees. For the year, our adjusted total operating expenses decreased by 16.6% from the prior year, while as a percentage of net revenues, adjusted total operating expenses decreased from 8.5% for the prior year to 5.7%, resulting from the growth of our net revenues and the improvement of our operational efficiencies. Our net loss in the quarter was RMB 32 million, or U.S. dollar loss of

4.5 million, which are than the comparable loss in the fourth quarter of 2022. The adjusted net loss for the quarter was only RMB 4.9 million, or $0.7 million, compared to a gain of RMB 4.2 million in the prior year's quarter. The change was mainly driven by an increase of RMB 5.6 million in post-listing professional service fees, and a decrease of RMB 3.7 million in gross profit due to the decrease of SaaS revenues.

For the year, net loss grew to CNY 159.6 million, or $22.5 million, from CNY 91 million in the prior year, while excluding non-GAAP expenses, the adjusted net loss improved to 35.7% from CNY 51.6 million to CNY 33.2 million, or $4.7 million. Turning to our balance sheet, our cash position remains strong, with CNY 264.9 million in cash, cash equivalents, and short-term investments, providing us with healthy financial flexibility. As we look ahead, Cheche expects its net revenues for year of 2024 to range from CNY 3.5 billion-CNY 3.7 billion, representing an increase of 6.1%-12.1% compared to the full year of 2023.

Our total written premiums placed are expected to range from CNY 24.5 billion to CNY 26.5 billion, representing an increase of 8.4%-17.3% compared to the full year of 2023. With that, we will be happy to address 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 touchtone phone. 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. At this time, we will pause momentarily to assemble our roster. The first question today comes from Yuyu Zhang with CICC. Please go ahead.

Yuyu Zhang (Research Analyst)

Thanks, management. I'm Yuyu Zhang from CICC. Here I have one question. So could you give us some more color on your future strategy of your new energy vehicle insurance business? Thanks.

Lei Zhang (CEO)

[Foreign language]

[Foreign language] Need Julia to translate. Um, okay.

Speaker 6

As the largest NEV auto insurance provider in China, we have served the top 10 major NEV makers in China, such as XPeng, Li Auto, Avatr, and Baidu Auto. This year, the NEV insurance will still be the focus of our growth strategy. This year, the NEV sales have accounted for over 50% of the total new cars in China. So we believe that we will continue to work with our NEV partners and benefit from the explosive expansions of the NEVs.

Lei Zhang (CEO)

[Foreign language]

Speaker 6

And on the other hand, the NEVs are more about the autonomous driving and the more intelligence. So, we will, we can expect that we will work with-

... more NEV makers, and to provide more services on the precise insurance pricing. We expect that the smart insurance pricing cannot go without the big data and the artificial intelligence technology. So we will continue to invest in this aspect to meet the needs of the smart auto insurance and the needs of our partners.

Lei Zhang (CEO)

Thank you very much.

Operator (participant)

The next question comes from Mark Long with Prime Impact Capital. Please go ahead.

Mark Long (Founder & Partner)

Hi, Lei and Sandra. Ting, congratulations on a very strong 2023, and positioning the company for a very strong 2024. My question, Lei, was about your plans for continuing to develop AI-based technology for the auto insurance market in, in especially the EV space. Could you elaborate on your plans for deploying AI and machine learning as you continue to expand your product set?

Lei Zhang (CEO)

Thank you, Mark. [Foreign language]

Speaker 6

The smart insurance depends on the data that we gain from the autonomous driving. At present, China's smart and NEVs have connected into the IoT system, and can provide a rich driving data, driving behaviors, the mileage, and the scope of its behavior and the battery information. There are two aspects as to how we will deploy the artificial intelligence. On one hand, we will assist the insurance carriers to realize a diversified pricing for the IoT vehicles and to support their anti-fraud efforts. On the other hand, when the accident happened, our smart claim system will update the information to the claim center of the insurance carriers.

The smart insurance and the precise pricing cannot be, cannot go without the rich data. We believe that the other insurance will transit from the current financial product into a more IoT-based and online services, with a precise insurance pricing and other financial services, with the growth of more smart vehicles.

Lei Zhang (CEO)

Thank you.

Operator (participant)

As a reminder, if you would like to ask a question, please press star, then one to be joined into the queue. I would like to turn the conference back over to Lei for any closing remarks.

Lei Zhang (CEO)

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

Operator (participant)

The conference is now concluded. Thank you for your participation.