Waterdrop Inc

NYSE:WDH

Earnings Call Transcript 2023-Q1

[Unknown Executive]

Good morning, everyone. This is Lee Hongjing from Waterdop Investor Relationships. It's my pleasure to welcome everyone to Water drop's First Quarter 2023 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 the safe harbor provision of U.S. Private Securities and the litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties and that 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 and applicable law. Also, the call includes a discussion of certain non-GAAP measures. Please refer to our earnings release for reconciliations 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, SVP and GM of International Business; Mr. Ran Wei, Director, GM of Insurance Technology business; Mr. [indiscernible] of cross-funding and Parmatech business; Mr. Chen [indiscernible], Board Secretary.

And we will be happy to take some of the questions in the manner in-line at the end of the conference call.

[Peng Shen, executive]

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 external headwinds to the industry. However, as the impact of the pandemic and holiday subside, the domestic macro economy show sign of recovery and the overall trend of the insurance and pharmaceutical industry is gradually picking up.

In the long term, as the insurance customer base gradually become younger and the distribution and so become more separated. The life insurance industry is significantly shifting towards online and intermediary direction.

Additionally, as a hospital outpatient determine 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 net profits in the first quarter with 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 of RMB 3.6 billion in cash, cash equivalents and short-term investments. The bond and cash reserves helped the company to face uncertain environment with more confidence and supported our 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, order of 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 water drop insurance business continued to contribute stable net profits to the company.

In addition, our Waterdrop Medical Crowd-funding 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 dis-honest fund-rising activities.

This initiative was highly recognized by the industry. In our Integrity Beijing 3.15 Gala, the company has honored as an Integrity Commitment Enterprise for the consumer new force in 2023.

Lastly, in terms of the digital clinical trial solution business due to our excellent performance in contract fulfillment. The E-find patient platform gains recognization from domestic and international partners.

We continue to expand the range of recruit 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 the AI industry. We further upgraded AI in power dialogue chat bots and relevant technologies. As a result, we improved our marketing capability, serviceability and risk control competence, thus facilitating and improving our business efficiency. The company also actively explored cognitive technology, building a sound foundation for the expert 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 USD 61.2 million. We will continue to execute the 1-year extension program announced in September 2022.

This demonstrates the company's current confidence in our own value and long-term sustainable development. Meanwhile, we plan to reserve those shares for so which will further motivate our employees. Above is a review of our business in the first quarter, and we 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 business. With the goal to rapidly penetrate domestic and international pharmaceutical markets and build new growth engines in the long run. Thirdly, leveraging our abundant cash reserves. We will seek partnership and merge in aggregation opportunities around insurance and pharmaceutical sectors. Lastly, we will continue to invest in R&D and seek to empower the industry.

In concluding, the company will continue to prioritize user centricity and create value for our users. We will further strengthen our existing business advantage. We are maintaining an entrepreneurial message to pursue higher quality growth and business innovation. We will continually bring insurance and health care service to billions through technology.

I will pass to Ran Wei to discuss the performance of Insurance business this quarter.

[Wei Ran, executive]

Thank You, Shen Peng. Hello everyone. Let me give you an update on our insurance business. In first quarter, the life insurance market shows 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 leaves 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 amounted to RMB 1,692 million, an increase of 6.3% quarter-on-quarter. Our insurance-related income amounted to RMB 536 million.

In first quarter, leveraging algorithm, our short-term insurance continued to improve in product offering, channel efficiency and content innovation. In order to better serve our invest, we offer differentiated user service to a wide range of users and steadily enhanced business engagement.

Furthermore, we upgraded service capability in policy renewal improve user experience and value perception and follow 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 boldly innovated in user service, leading to a further increase in insurance premiums contributed by enterprise [indiscernible]. The LPG maintains industry-leading capabilities in fine business operations and further activity per capita. We invest in new talent while improving in the performing 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 [indiscernible] personal productivity. The company maintained strict control over user service and power 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 strength, 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 results in a 111% increase.

And insurance premiums compared to the previous quarter.

In the first quarter of 2023, Waterdrop continued to explore new block trade 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. We are precise user targeting ability. The cost of customer activation saw a decrease with a 80% quarter-on-quarter reduction in cost per deal. Our service capabilities significantly improved with a 396% increase in EPO, which means average premium per lease in March compared to the last quarter.

And various 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.

Premium by active broker increased by 21.9% as a memorial policy per active worker increased by 22.5% on quarter-on-year basis.

As offline brokerage business [indiscernible], we as organizational structure, which improves business quality and a refined brokerage model.

In first quarter, we initiated a pilot project to promote the enterprise WeChat insurance [indiscernible] cities, driving the upgrade of service quality by optimizing the service for insurance planner.

APL in March increased 70% compared to December 2022. At the same time, the company increased talent investment and control ROI which lead to 182% increase in standard premium procurement from January to March.

In first quarter, Waterdrop insurance marketplace continue to enrich its product offerings and tailored product targeting specific user books.

For tutors insurance products, we customize outpatient medical insurance for children which covers out-patients, in-patient, burns, vaccination, fraction, dental repairs and expanded coverage for child leukemia. This product extended to cover items that parents are more concerned about and provide more comprehensive protection. Targeting at a license -- we launched a licensed [ myLPPrevention ] insurance. Combining the protection and OPF prevention-related health management service, we cooperate with Beijing Tongan Hospital and United Family Health care on this feature product.

To address the insurance needs of the elderly population is 35 and above. We introduced its case choice like senior long-term charity insurance and malignant tumor insurance. Furthermore, we have achieved innovative progress in ensuring for customers with preexisting conditions.

In the narrow best insurance category, we successfully launched a salary card insurance and achieved books in the in-hospital operation model. The FYP of this product has achieved a consistent growth of 100 and more for 3 consecutive months. While maintaining a low [ clean ] rate versus industry leading. The premium of the industry-first leukemia relapse insurance exceeded RMB 1 million in FYP in Q1.

In addition, we are developing long-term critical units insurance for chronic [indiscernible] disease and comprehensive cancer relapse insurance for virus high-incident cancers. This product will be introduced to the market to benefit more individuals with pre-existing conditions. A technology company will sustain our R&D investment in insurance business, being solid growth for our medium and long-term growth.

Firstly, we continuously emphasize on [indiscernible] R&D. For example, by keeping up with the latest achievement in AI, to consistently upgrade and integrate our AI empowered by of travel, which can now protect attainment call immediately, even supporting the service efficiency of Junior -- [indiscernible]. By developing dedicated travels in various business scenarios.

Our employees can further enhance the service and capability to benefit our clients. Additionally, we utilized AI capabilities given our precession operations in [ Intellis ] marketing and private open operations. In the [indiscernible] marketing demand, we have built a stable and efficient matching system, in power AI with more decision-making authority in lead matching and increasing the ATL ratio by almost 12%.

In an important model of [indiscernible] marketing, our private domain operation via enterprise future, we have achieved a continuous optimization and user retention improvements through technology deteriorated. We'll emphasize on self R&D, we also explore the export of our technology capability to enter industry panel. In the first quarter, we integrated and upgraded our sales management and same-school interactive system.

Significantly improving the efficiency of painter [indiscernible], we have made a significant progress in sales management of tools, data centers and other functional models enable us to provide a comprehensive solution partners.

This concludes my briefing on insurance business statement.

Let me hand over to [indiscernible] on our medical crowd funding and digital clinic trial solutions business.

[Unknown Executive]

As of the end of Q1, accumulated total of 432 million helped exceeding 2.6 million -- 2.86 million patients with around [ 38.4 ] billion on our medical crowd funding platform. The overall number of users on the rising target represent an upward trend.

In this quarter, the operational transparency committee upon the rising target and the regulation of consultant service, optimizing and improving our operational capabilities regarding the determination of reasonableness of rising targets.

On one hand, the committee strengthened another ability to identify medical material, allowing for more accurate future of duplicated material and photoshop information.

On the other hand, we optimized medical risk control [indiscernible] for variable scenarios. Including rare disease and complex treatment plan, achieving intelligent auditing of underwriting targets. Additionally, in the initial review process, we enhanced the medical risk control audit is partially for fund raising capital.

Timing and accurately assess and eliminated cases with and reasonable target amount to enhance the regulation of consultant service. The Operational Transparency Committee established Mystery Visitor Mechanism.

By adopting a patient perspective, will delve into the actual service programs of comporting to edifices and collect natural in internal infection of consulting. This will ensure so slow process for standard setting, implementation to effective assessment, significantly reducing irregular behavior. During service and enhancing service level of our fund raising consulting. We're continuously improving our own service and risk control stability. We collaborate with various stakeholders, including judicial departments, hospitals and industries.

To crack down on dishonest fund raiding activity. Ensuring that every single donation is used properly. This year at Integrity Beijing 3.15 Gala Waterdrop was honored as consumer in-force integrated integrity, commitment enterprise for 2023.

As a medical crowd funding 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 a 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 data clinical trial solution business as the impact of the pandemic working in the first quarter, this is graduating it stabilized and shows the growth trend. In first call, this platform successfully enrolled over 700 patients as the impact of pandemic and holiday gradually subside.

The platform saw a decent salary in [ conga ] enrollment with over 350 patients enrolled in March.

Greatly is speeding up the progress of our partner's clinical trials. As our industry auctions, our E-find patient platform has attracted leading domestic and international graded medical pharmaceuticals to example partnerships and continuously dependent global collaboration.

In first quarter, we collaborated over 120 pharmaceutical companies and CROs. Based on our outstanding track record in Q4 2022, the platform's feeding strategy partnership with leading domestic pharmaceutical companies such as [ CDP ] and [ Beidi ] and we'll keep expanding the scope of collaboration.

The platform has also established partnership with several top international pharmaceutical company and will officially kick off a few projects in the second quarter. In first quarter, the E-find platform launched over 70 new projects continue to perform leading recruitment advantage in the field of oncology.

Meanwhile, the problem consciously expanded into more disease, leveraging our brand influence, patient population and extensive patient community. We expanded recruitment for chronic disease and [indiscernible] products.

In the first quarter, we had psoriasis, atopic dermatitis, asthma and other chronic disease. In the field of psoriasis, over 100 patients were enrolled in March of efficiencies and quality industry-leading position. In the first quarter, the company continued to involve in research and development in [indiscernible] skills. The technologies among mature continuously activated and can support the first-level structuring of titrated and mission webcast, a set discharge summaries and a medical record among others.

Based on that, we have completed the expansional drug information for 10 of us of liver cancer patients. With the help of relevant technology, the first [indiscernible] of material orders increased by 2%.

I lead to recruitment compositing [indiscernible] day per day -- half an hour per day. We work in continuous business efficiency improvements. Thank you.

I will now hand over to Yang Guang to discuss our first quarter financial on.

[Yang Guang, executive]

Thank you, [indiscernible]. Hello, everyone, and will now walk you through our financial highlights for the first quarter. Before I go into the details on the financial performance, please be reminded that all numbers quoted here will be RMB, and please refer to our earnings release for detail 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%. Corresponding service fees were RMB 42 million compared to nil in the same period last year.

Digital clinical trial solution income was RMB 22.8 million, achieving a significant year-on-year growth of 167%.

The company's overall operating cost and expense has increased by 12% Y-o-Y and decreased by 1.8% Q-o-Q.

Operating costs increased by 60% year-over-year to RMB 248 million for the first quarter of 2023. Comparing with RMB 155 million for the first quarter of 2022, which was primarily driven by 2 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 core funding consulting team costs as operating costs rather than sales and marketing expense as we started to generate crowd-funding service fees since April '22.

On a quarter-over-quarter basis, operating cost has decreased by 11%, primarily due to a decrease of RMB 25.9 million in professional and outsourcing customer service system.

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 corresponding related direct costs recorded from sales and marketing expense to enter 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 RMB 16.3 million allowance for doubtful accounts.

On a quarter-over-quarter basis, general 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 Y-o-Y and Q-o-Q 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 profits over past 5 quarters. As of the end of March 2023. The company has combined cash and cash equivalents and short-term investments of RMB 3.6 billion, indicating succession has reversed.

Overall, the business performance in the first quarter was stable.

Looking ahead, we will continue to focus on user value and sustainable high-quality development. And ladies and gentlemen, with that, we'll conclude today's conference call.

We do thank you for joining. Have a good time.

[Operator]

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