Waterdrop - Q1 2023

Transcript

Speaker 0

Good morning, everyone. This is Li Hongjian from Waterdrop Investor Relations. It's my pleasure to welcome everyone to Waterdrop's first quarter 2023 earnings conference call. All participants are in listen-only mode in our English line. As a reminder, today's conference call is being recorded. Please note that the discussion today will contain forward-looking statements made under the safe harbor provisions of U.S. Private Securities and the Litigation Reform Act of 1995.

Forward-looking statements are subject to risk and uncertainties that may cause accurate results to differ materially from our current expectations. Potential risk and uncertainty includes, 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 in the applicable law. Also, the call includes a discussion of certain non-GAAP measures.

Please refer to our earnings release for reconciliation between non-GAAP and GAAP. Joining us today on the call are Mr. Shen Peng, our Founder, Chairman, and CEO, Mr. Yang Guang, Co-founder, Director, FSVP, and GM of International Business, Mr. Ran Wei, Director, GM of Insurance Technology Business. Mr. Zhu Zetao, GM of Crowdfunding and Pharmatech Business, Mr. Chen Ruichen, Board Secretary. We will be happy to take some of your questions in the mineral line at the end of the conference call.

Hello, everyone, this is Shen Peng. Thank you for joining our first quarter 2023 earnings conference call. After the adjustment of the pandemic control policies, there was a peak period of domestic infection in January, combined with the impact of the Spring Festival holiday, which briefly brought accidental headwinds to the industry.

However, as the impact of the pandemic and holiday subsides, the domestic macroeconomy shows signs of a recovery, the overall trend of the insurance and pharmaceutical industry is gradually picking up. In the long term, as the insurance customer base gradually becomes younger and the distribution and sales become more separated, the life insurance industry is significantly shifting towards online and intermediary directions.

As a hospital outpatient department goes back to normal. Clinical trial projects continue to operate. The overall demand for new drug and research and development will further increase. In first quarter of 2023, the company continued to focus on creating value for our users and keep pursuing healthy development. The business performance remains robust, with the company's revenue reaching RMB 606 million in the first quarter, carrying over the upward trend for the last whole year.

The GAAP profit in the first quarter was RMB 49.7 million, demonstrating the sustainable and high-quality development of the company's operations. With sustained positive net profit, the company maintains ample cash reserves. As of the end of March, the company had a total RMB 3.6 billion in cash equivalents, and short-term investment. The abundant cash reserves help the company to face uncertain environments with more confidence and support long-term planning and layout for the future growth.

All of our business model achieved strong performance in the first quarter, continuously consolidating our leading position and influence in the industry. First of all, Waterdrop Insurance Marketplace adhere to promoting insurance product diversification and innovation. Meanwhile, we moderately increased investments in third-party traffic channel in the first quarter, and we consistently optimize our existing customer operations.

Thanks to the efforts of our colleagues, there was a quarter-on-quarter growth in FYP, and our Waterdrop Insurance business continued to contribute stable net profits to the company. In addition, our Waterdrop Medical Crowdfunding platform continuously enhanced service and risk control capabilities. We actively collaborate with various stakeholders, such as judicial departments, hospitals, and industry, to crack down on dishonest fundraising activities. This initiative was highly recognized by the industry. In the Integrity Beijing 315 Gala, the company has honored as an Integrity Commitment Enterprise for the Consumer New Force in 2023.

Lastly, in terms of the data clinical trial solution business, due to our excellent performance in contract fulfillment, the E-Find Patient Platform gains recognition from domestic and international partners. We continue to expand the range of recruited disease types, thereby accelerating drug development for pharmaceutical companies.

We will keep exploring innovative opportunities in the field of CRO and pharmaceuticals. Along with business development, the company continues to invest in research and development. In first quarter, the company closely follows the development in AI industry. We further upgraded AI-empowered dialogue chatbots and relevant technologies. As a result, we improved our marketing capability, service ability, and risk control confidence, thus facilitating and improving our business efficiency.

The company also actively explored cloud-native technology, building a solid foundation for the export of our technology. As of the end of May 2023, the company has cumulatively repurchased 24.9 million ADS shares on the open market, with cash for a total consideration of approximately RMB61.2 million. We will continue to execute the one-year extension program announced in September 2022.

This demonstrates the company's firm confidence in our own value and long-term sustainable development. Meanwhile, we plan to reserve those shares for escrow, which will further motivate our employees. Above is a review of our business in the first quarter. I will stay fully confident in the industry and our own development. Down the road, we will continue to pursue high-quality growth on the premise of profitability.

To achieve our goals, our strategies include, firstly, for the mature insurance business, we will insist on being user-centric to deliver more professional online service, improve sales capability, and achieve profitability at scale. Secondly, we will actively explore the rapidly growing pharmaceutical content business, with a goal to rapidly penetrate domestic and international pharmaceutical markets and build new growth engines in the long run.

Leveraging our abundant cash reserves, we will seek partnerships and merger and acquisition opportunities around the insurance and pharmaceutical sectors. Lastly, we will continue to invest in R&D and seek to empower the industry. In conclusion, the company will continue to prioritize user centricity and create the value for our users. We will further strengthen our existing business advantage while maintaining an entrepreneurial mindset to pursue higher quality growth and business innovation. We will continually bring insurance and healthcare service to billions through technology. I will pass to Wei Ran to discuss the performance of insurance business in this quarter.

Thank you, Shen Peng. Hello, everyone. Let me give you an update on our insurance business. In first quarter, the life insurance market showed some certain growth and there was a noticeable increase in precautionary savings demand. In this setting, we continue to enhance operational efficiency and business health, optimize operations for existing customers, and actively explore new channels while adhering to product innovation. This lays a solid foundation for the long-term sustainable growth of our business.

For the first quarter of 2023, the first year premiums generated through our Waterdrop Insurance Marketplace amounts to RMB 1,692 million, an increase of 6.3% quarter-over-quarter. Our insurance-related income amounts to RMB 536 million. In first quarter, leveraging algorithms, our short-term insurance continued to improve in product offering, channel efficiency, and content innovation. In order to better serve our users, we offer differentiated user service to a wider range of users and steadily enhance business engagement.

Furthermore, we upgraded service capability in policy renewal, improved user experience and value perception, and saw a further improvement in the short-term insurance policy renewal rate. Overall, FYP of our short-term insurance increased 6.4% quarter-over-quarter. As for long-term insurance, we focus on user value and thoroughly innovated in user service, leading to a further increase in insurance premiums contributed by Enterprise WeChat.

The LP team maintains industry-leading capabilities in fine business operations and productivity per capita. We invest in new talent for improving underperforming branches. As a result, there was a 27% increase in productivity per capita, and the number of policy per capita increased by 14% quarter-over-quarter, while achieving rapid growth in personal productivity.

The company maintains strict control over user service and policy quality, resulting in a 2% quarterly increase in the first-year renewal rate of our long-term insurance policies. In terms of the user acquisition, based on our existing strengths, we further expanded our capability and saw a 3% quarterly increase in the overall number of new users.

In particular, we kept strengthening our end-to-end operational ability through video channel customer acquisition, and it result in a 111% increase in insurance premiums compared to the previous quarter. In the first quarter of 2023, Waterdrop continued to explore new brokerage channels, such as online brokerage, offline brokerage, and insurance planner, to facilitate sustainable business growth.

For the perspective of meeting user value, our online brokerage kept enriching its product portfolio. resulting in a quarter-on-quarter increase of 83% in the number of reserved products across all insurance categories. With precise user targeting ability, the cost of customer acquisition further decreased with 18% quarter-on-quarter reduction in cost per lead. Our service capability significantly improved with a 396% increase in ATL, which means average premium per lead, in March compared to the last quarter.

There is a 7.9-fold increase in standard premium per capita from January to March. In this quarter, the new business premiums for offline brokerage increased by 48.8% year-on-year. Premiums by active broker increased by 21.9%, and the number of policy per active broker increased by 22.5% on quarter-on-quarter basis. As offline brokerage business moved forward, we emphasized organizational structure, which improved business quality and a refined brokerage model.

In the first quarter, we initiated a pilot the Enterprise WeChat insurance planner model in multiple cities, driving the upgrade of service quality. By optimizing the service key for insurance planners, ATL in March increased by 70% compared to December 2022. At the same time, the company increased talent investment and controlled ROI, which lead to 182% increase in standard premium per planner from January to March.

In first quarter, Waterdrop Insurance Marketplace continued to enrich its product offerings and its tailored products, targeting specific user groups. For children's insurance products, we customized outpatient medical insurance for children, which covers outpatients, inpatients, burns, vaccinations, fractions, dental repairs, and re-expanded coverage for childhood leukemia.

This product expanded to cover items that parents are more concerned about and provide more comprehensive protection. Targeting adult license, we launched a licensed myopia prevention insurance, combining protection and myopia prevention-related health management service. We cooperate with Beijing Tongren Hospital and United Family Healthcare on this featured product. To address the insurance needs of the elderly population in 75 and above, we introduced exclusive choices like senior long-term care insurance and malignant tumor insurance.

We have achieved innovative progress in insurance for customers with pre-existing conditions. In the scenario-based insurance category, we successfully launched a surgery care insurance and achieved breakthrough in the in-hospital operation model. The FYP of this product has achieved a consistent growth of 100+ for three consecutive months, while maintaining a low claim rate, which is industry leading.

The premium of the industry-first leukemia relapse insurance exceeded one million in FYP in Q1. In addition, we are developing long-term critical illness insurance for chronic kidney disease and comprehensive cancer relapse insurance for various high-incident cancers. These products will be introduced to the market to benefit more individuals with pre-existing conditions. As technology company, we sustain our R&D investment in insurance business, laying solid ground for our medium and long-term growth. We continuously emphasize on self-use R&D.

For example, by keeping up with the latest achievements in AI, we consistently upgrade and integrate our AI-empowered dialogue chatbots, which can now predict a 10-minute call immediately, even supporting the service efficiency of junior staff. By developing dedicated chatbots in various business scenarios, our employees can further enhance their service and capability to benefit our clients. Additionally, we utilize AI capability to deepen our precision operations in intelligent marketing and private domain operation.

In the intelligent marketing domain, we have built a stable and efficient lead matching system, empower AI with more decision-making authority in lead matching and increasing the ATL ratio by almost 12%. An important model of intelligent marketing, our private domain operation via Enterprise WeChat, we have achieved a continuously optimization and user retention improvement through Technology Iterative. While emphasized on self-use R&D, we also explore the export of our technology capability to empower industry partners.

In first quarter, we integrated and upgraded our self-management and face screening intellectual interactive system, significantly improving the efficiency of partner integrity. We have made a significant progress in self-management, self-tools, data centers, and other functional models, enable us to provide a comprehensive solution for our partners. This concludes my briefing on insurance business. Now, let me hand over to Zhu Zetao for an update on our medical crowdfunding and Digital Clinical Trial Solution business.

As of the end of Q1, accumulated total of 432 million donors helped exceeding 2.86 million patients. With around RMB 38.4 billion our medical crowdfounding platform. The overall number of users in fundraising amount represents an upward trend. In this quarter, the Operational Transparency Committee took upon the rising targets and the regulation of consultant service, optimizing and improving operational capability.

Regarding the determination of reasonableness of fundraising targets, on one hand, the committee strengthens technology abilities to identify medical materials, allowing for more accurate filtering of duplicated materials and Photoshop information. On the other hand, we optimize medical risk control stress for variable scenarios, including rare disease and complex treatment plans, achieving intelligent auditing of fundraising targets.

Additionally, in the initial review process, we enhanced medical risk control audit, especially for fundraising target amounts, timely and accurately assess and eliminate cases with unreasonable target amounts. To enhance the regulation of consulting service, the Operational Transparency Committee established mystery visitor mechanism. By adopting a patient perspective, we delved into the actual service process of consultants to identify issues and conduct nationwide internal inspection of consulting.

This way ensures a closed-loop process for standard setting implementation to effective assessment, significantly reducing irregular behavior during service and enhancing service level of our fundraising consultants. While continuously improving our own service and risk control stability, we actively collaborate with various stakeholders, including judicial departments, hospitals, and industry, to crack down on dishonest fundraising activities, ensuring that every single donation is used properly.

This year, as Integrity Beijing 315 Gala, Waterdrop was honored as Consumer Enforce Integrity Commitment Enterprise for 2023. As a medical crowdfounding platform, Waterdrop has always maintained an open and transparent attitude, providing assistance to extremely needy patients and delivering more value to society while actively fulfilling our social responsibility.

This quarter, Waterdrop also received the 2022 Public Welfare Enterprise Award and was included in the list of 2022 Most Socially Responsible Enterprise. The company will continue to explore participation in critical illness assistance and the construction of a multi-level medical security system. In terms of our digital clinical trial solution business, as the impact of the pandemic weakened in the first quarter, the business gradually stabilized. It shows a growth trend.

In the first quarter, the platform successfully enrolled over 700 patients. As the effect of pandemic and holiday gradually subside, the platform saw significant acceleration in clinical trial enrollment, with over 350 patients enrolled in March, greatly speeding up the progress of our partners' clinical trials. As an industry observation search, our E-Find Patient Platform has attracted leading domestic and international innovative medical pharmaceuticals to establish partnerships. It continuously deepens the scope of collaboration. In the first quarter, we collaborate over 120 pharmaceutical companies and CROs.

Based on our outstanding track records in Q4 2022, the platform seasoned strategy partnership with leading domestic pharmaceutical companies such as CTTQ and BeiGene and will keep expanding the scope of collaboration. The platform has also established partnerships with several top international pharmaceutical companies and will officially kick off a few projects in the second quarter. In this quarter, the E-Find Platform launched over 70 new projects, continuing the platform's leading recruitment advantage in the field of oncology.

Meanwhile, the platform consciously expanded into more disease, leveraging our brand influence, patient population, and an extensive patient community. We expanded recruitment for chronic disease and signed on multiple projects. In the first quarter, we added psoriasis, atopic dermatitis, asthma, and other chronic disease. In the field of psoriasis, over 100 patients were enrolled in March. Of efficiency and quality, industry leading position.

In the first quarter, the company continued to invest in Research and Development in the medical field. The technologies for medical material are continuously aggregated and can support the first-level structuring of discharge records, admission records, discharge certificates, discharge summaries, and medical records, among others. Based on that, we have completed the extraction of drug information for tens of thousands of liver cancer patients.

With the help of relevant technology, the first process of materials, August increased by 2%, our leading recruitment consultant saving by nearly half of one day per day, half an hour per day, resulting in continuous business efficiency improvements. Thank you. I will now hand over to Yang Guang to discuss our first quarter financial performance.

Thank you, Zetao. Hello, everyone, I will now walk you through our financial highlights for the first quarter. Before I go into details on the financial performance, please be reminded that all numbers quoted here will be RMB, and please refer to our earnings release for detailed information on our financial performance on both year-over-year and quarter-over-quarter basis.

In the first quarter, the company adhered to a high-quality development model. The company's revenue was RMB 606 million, slightly lower compared to RMB 649 million in the same period of 2022. Among them, insurance-related income was RMB 536 million, representing a year-on-year decrease of 14.6%. Crowdfunding service fees were RMB 42 million, comparing to nil in the same period last year. Due to a clinical trial solution, income was RMB 22.8 million, achieving a significant year-on-year growth of 167%.

The company's overall operating costs and expense have increased by 12% YoY and decreased by 1.8% QoQ. Operating costs increased by 60% year-over-year to RMB 1,248 million for the first quarter of 2023, combined with RMB 155 million the first quarter of 2022, which was primarily driven by two effects. Firstly, there was a RMB 29.1 million increase in professional and outsourcing customer service fees.

Secondly, an increase of RMB 61.5 million, mainly due to recording the crowdfunding consulting team costs as operating costs rather than sales and marketing expense, as we started to generate crowdfunding services since April 2022. On a quarter-over-quarter basis, operating costs decreased by 11%, primarily due to a decrease of RMB 25.9 million in professional and outsourcing customer service expense.

Sales and marketing expense decreased by 15.1% year-over-year to RMB 173 million for the first quarter of 2023, compared with RMB 204 million for the same quarter of 2022. This decrease was mainly due to the crowdfunding-related direct costs recorded from under sales and marketing expense to under operating costs, as mentioned before.

On a quarter-over-quarter basis, there has been a RMB 29.4 million increase in sales and marketing expense as third-party advertising expense for traffic channels in the quarter increased. General and admin expense decreased by 6.1% year-on-year to RMB 95.8 million, primarily due to a decrease of RMB16.3 million allowance for doubtful accounts.

On a quarter-over-quarter basis, general and admin expense decreased by 19.2% in the first quarter of 2023, mainly due to RMB 19.7 million decrease on allowance for doubtful accounts. Research and development expense increased by 11.2% to RMB 38.7 million year-over-year and increased by 9.8% on a quarter-over-quarter basis. The YOY and QOQ increase are both mainly due to increase in R&D cost of human resources and share-based comprehensive expenses.

Adjusted net profit attributed to Waterdrop for the first quarter of 2022, 2023 was RMB 96.4 million, and the GAAP net profit was RMB 49.7 million, and we have generated GAAP profit over past five quarters. As of the end of March 2023, the company has combined cash and cash equivalents and short-term investment of RMB 3.6 billion, indicating sufficient cash reserves. Overall, the business performance in the first quarter was stable. Looking ahead, we will continue to focus on users' value and sustainable, high-quality development.

Ladies and gentlemen, with that, we will conclude today's conference call. We do thank you for joining. Have a good time. The conference is now concluded. We thank you for attending.