Waterdrop Inc

NYSE:WDH

Earnings Call Analysis

Earnings Call Transcript 2024-Q2

[Tracy Lisang, executive]

[Interpreted] Good morning, everyone. This is Tracy Lisang with Waterdrop Investor Relations. It's my pleasure to welcome everyone to Waterdrop's second quarter 2024 Earnings Conference Call. All participants are in a listen-only mode [indiscernible] English [ line ]. As a reminder, today's conference call is being recorded.

Please note that the discussion today will come from forward-looking statements made under the safe harbor provision of the U.S. Private Securities and the Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. Certain risks and uncertainties include, but are not limited to, those [ found ] in our public filings with the SEC. The company does not undertake any obligation to update any forward-looking statements, except as required under applicable law.

Also, this call includes discussion of certain non-GAAP [ matters ]. 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. Ran Wei, Director and GM of Insurance Business; Xu Xiaoying, Head of Finance Department; and [ Jet Lee ], [ Board ] Secretary. We will be happy to take some of the questions in the Mandarin line at the end of the conference call.

[Peng Shen, executive]

[Interpreted] Hello, everyone. This is Shen Peng. In May 2024, we celebrated Waterdrop's 8th anniversary. Over these years, we have continuously [indiscernible]. Particularly over the past 2 years, faced with a complex and changing environment, the company has proactively transformed its business. We have greater emphasis on delivering value, pursuing healthy operations and ensuring sustainable growth.

As a technology company amid the new wave of AI, we are actively exploring the application of large language models [indiscernible] in the industry to build the company's core competitiveness for the next [indiscernible] next stage.

In Q2, our business continued to advance with existing strategies, achieving robust financial performance. The company's overall revenue reached a total of CNY 676 million. Our net profit attributable to ordinary shareholders was nearly CNY 88.3 million, reflecting a year-over-year increase of over 300%.

Waterdrop has maintained profitability for 10 consecutive quarters since Q1 of 2022. This quarter, Waterdrop consolidated its leading position in the industry. Firstly, our insurance business quarterly [ OP ] reached CNY 1.18 billion with an operating profit margin [ approaching ] 21%. In April, we initiated a quality service upgrade year, offering [ good service ] with product [ in new] claims to users to further build our brand influence to also achieve the first export of customized solutions, exploring the broader application of the [LOM ] with issuers.

Secondly, with the Medical Crowdfunding actually [indiscernible] in the [ multi-level ] medical security system offering services in bilingual language and including users [indiscernible] our operational efficiency improved and the segment loss was reduced continually.

Thirdly, in health care-related business, our patient improvement platform [indiscernible] [ cooperation ] with consumables. Moreover, we achieved a high-quality [ viewable ] in CRO and the digital marketing with our clients.

In addition, we are committed to social responsibility and sustainable development. In June, the company won annual charity project and annual [ care ] model at the [indiscernible] charity gala. By the end of June, Waterdrop Charity platform had partnered with 112 public charity organizations and onboarded with more than 15,500 projects.

This concludes the recap of our Q2 performance. Currently, the industry is adapting to new policies, which may cause more -- some challenges in the short term. However, we are confident in the long-term benefit from high-quality development and will actively seek industry opportunities.

This year, the company remains committed to its financial guidance, targeting double-digit revenue growth while maintaining robust profitability. We are [indiscernible] on the ongoing support of our shareholders and investors and for [indiscernible] shareholders' interest and investment returns, the company has been actively repurchasing shares in the open market for 3 consecutive years, since 2021 and announced in August that we have continuously repurchased 49.2 million ADSs for over $100 million. Recently, our Board has approved a new share repurchase program. Also [indiscernible] the company repurchased up to $50 million within the next 12 months. The repurchased shares will be used for ESOP, encouraging our employees and the company to grow together.

In addition to [ what we ] actually purchased, in March, relating to our full year results of 2023, the company announced its first special cash dividend [indiscernible] based on the strong profitability of 2023, which was paid in Q2.

Moving forward, if our business remains healthy and has been profitable, we plan to distribute dividends at least once a year to reward the support of our shareholders and the investors.

We are pleased to announce the approval of the company's [indiscernible] [ March ] is the second special cash dividend on the first half 2024 operating results. The total dividend amounts to about $7.5 million with [ $0.02 ] per ordinary share and [ $0.02 ] per ADS to shareholders of ordinary shares and ADS as of the closing date of October 12 -- or October 11, 2024 [indiscernible] entitled to dividends.

I will now turn to Ran Wei to discuss our Insurance business in Q2.

[Wei Ran, executive]

[Interpreted] Thank you, Peng Shen. In Q2, the Insurance business generated about CNY 1.78 billion FRP, a Q-o-Q increase of 1.4%. Insurance-related income was about CNY 570 million (sic) [ CNY 573 million ], and the accruing profit was about CNY 120 million. Operating profit margin maintained at a level of more than 21%. During the quarter, the short-term Insurance FRP hit CNY 1.25 billion, up 8.2% quarter-over-quarter. New policy premiums surged near 20% sequentially. We advanced our customer acquisition of the platforms like [indiscernible], [ TikTok ], WeChat [indiscernible] and so on, we were able to gain further insight and provide more actually product recommendations [ via our ] technology, driving the number of new users up by 15.8% Q-o-Q.

We also focused on our synergy and efficiency, further increasing premiums from existing customers. Moreover, our short-term product range has expanded with more offerings meeting diverse needs and raising average premiums by 7.7%.

In April, we initiated a [ quarter ] service upgrade year into [indiscernible] initiatives like direct claims line, claims within 24 hours and [ Service Star ] program to enhance our customer satisfaction, maintaining a high renewal rate with a sequential increase.

The long-term insurance FRP reached [ CNY 1,130 million ] and Y-o-Y and Q-o-Q performance was pressured by high-based [indiscernible] and [ collections unchanged ] from [indiscernible] facing challenges, the company restructured its service teams, phasing out our [ low-digit ] operations and expanding the high-yield teams, which lead to a 1.7% rise in quarterly per-capita premium.

To enhance our content metrics of life planner approach, increasing [ lifespan ] [indiscernible] premium contribution, emphasizing [ positive ] operations for online sales, we leveraged holiday promotions to the user's [ abatement ], resulting in a 22% increase in [indiscernible] premium. We also [ reached ] our product lineup with our disability insurance product premiums reaching CNY 80 million in Q2. To increase user experience, we introduced an upgraded membership service, upgrading health management and other [ cluster ] benefits, expanding our brand visibility.

During the quarter, the company continued building its [ offline ] brokerage business, [indiscernible] upgrades and improving services. We also strengthened cooperation with insurance carriers and improved product competitiveness. [ Just remember ] [indiscernible] consolidated [indiscernible] in either acquisition and premium per lead increased steadily.

Waterdrop and Shenlanbao continue to strengthen synergy as insurance technology, explore the application of AI in the planner model and improve user acquisition efficiency. In Q2, the company promoted innovation and customization in insurance products, including upgrades in cancer protection insurance, return on child insurance and inclusive insurance.

In terms of health insurance based on the [indiscernible] new users, the company has intensively upgraded with cancer insurance products, providing a combination of reimbursement and [ big ] payments [indiscernible] for cancer patients and improve their ability to cope with the risk, providing users with loans and protection.

The series of maternal insurance should help [ us ] continue to lead the industry. This product has been upgraded to [ 33 years old ] and we have launched with the parent-child [ pregnancy ] insurance and [indiscernible] brand, [ saying ] our coverage to meet protection needs after the child's birth.

In the field of insurance for preexisting conditions, our inclusive insurance, [ life ] insurance, chronic disease insurance and [indiscernible] insurance products have been highly praised by a large number of customers with related premiums at scale [ exceeding ] CNY 100 million.

In Q2, we continued R&D investment [ in the area ] and application in medical [indiscernible] other insurance products. Towards the end of Q2, we secured 5 and filed over 30 more patents related to [ RRN ]. Our R&D is now focused on sound service scenarios, developing a full-process AI insurance component platform. This application can replicate the human voice and accurately identify customer [ intention ], setting a new standard in the insurance industry.

Our medical insurance service now features an AI [indiscernible] [ machine ] which has already met the average performance of human consultants in certain scenarios with an operational cost of just 10% of the human equivalent. Leveraging our AI technology, we have signed a strategic partnership with insurers -- one of the top insurers in this quarter, making our first [ incidental empowerment ] of a customized commercial CI consultant solution.

Another [ RRN ] application, the [ IKO ] [indiscernible] is applied to multiple scenarios of our insurance business. [ Bonbon ] can help the explanation of terms and policies, collect a compilation of product recommendation and [indiscernible] [ system ]. It effectively creates efficiency and improves user experience. It has assisted more than 60% of our human consultants, so insurance program, [ tenders ] [indiscernible].

Next June, we'll introduce the development of the company's cofounding and health-related business.

Back to you, Shen.

[Peng Shen, executive]

Thank you, Ran Wei. As of the end of Q2 2024, around 461 million people cumulatively donated CNY 65.1 billion to about 3.25 million patients through our Waterdrop Medical Crowdfunding. In Q2, [ adhered ] to the user-first service [ where ] most critical, we continue to optimize our business process and provide users with more personalized service.

For [ infants ] in regions populated by ethnic minorities, our platform now supports bilingual fundraising, aiding in the spread of cases for the local communities and bolstered by AI-assisted bilingual case verification to minimum fraud.

Further enhancing our reputation and credibility, we actually participated in the construction of [indiscernible] as a multi-level medical [ security ] platform. Thanks to this project and our charitable initiatives, in June, the company won the annual charity project and annual charity model at the 2024 Charity Gala. In the future, the company will continue leveraging its user [indiscernible] and service capabilities to create more social value.

During the quarter, our health care-related income was CNY 26.4 million, up 4.2% quarter-over-quarter. We collaborated with a total of 185 pharmaceuticals and CROs. Moreover, we engineered services for 88 new programs during Q2. We've been focused on digital trends in clinical trials and in multi-channel marketing solutions to serve a broader client base from this angle.

[ The ] health care-related business has been established for over 2 years and has quickly risen to the top lead. This year, we will continue to maintain our competitive position in the industry. At the same time, we will place more emphasis on the balance between the good growth and operational efficiency, assess the investment and promote the balanced development of [indiscernible].

In Q2, our robust patient network and AI technology [indiscernible] platform enrolled over 820 patients, bringing the total to over [ 8,000 ] [indiscernible] members. The partnership for an [indiscernible] with a leading [ MSC ], if you targeted online media and patient community to enroll 145 patients in less than 8 months, [ planning ] treatment of [ option ] for patients and [ applies ] for clients.

Now [indiscernible] project finished enrollment in last [indiscernible] client [ location ]. With our outstanding visibility, our cooperation with both domestic and international leading pharmaceuticals has continued to expand. This quarter, in cooperation with one of the global top 5 pharmaceutical [ companies ] [indiscernible] [ products ] because of our good reputation. In addition, the orders in-hand continue to accumulate. We also [ currently ] reached a cooperation with a number of leading [ MSCs ] this quarter, and it is expected to start cooperation in the second half of 2024.

The [ defined ] platform is committed to empower the industry with [indiscernible] and actively participate in [indiscernible] relative [ XMX ] standards. This quarter, the platform joined with [ DCT ] practice case and analysis project [ imagined ] by [indiscernible] Society for Drug [ Valuation ]. And we shared AI-enabled [indiscernible] in the intelligent subject recruitment model which [indiscernible] we get extensive recognition and trust.

In terms of digital multichannel marketing business, the platform has embedded AI capabilities in multiple business needs, such as reporting -- report [ interpretation ] knowledge-based construction and this patient management Q&A in the process of patient management projects with a leading [ MSC ]. With our help, the patient return rate and the customer satisfaction has been significantly improved.

Thank you for listening. I will now hand over to Xu Xiaoying to discuss our financial performance.

[Xiaoying Xu, executive]

[Interpreted] Thank you, Shen. Hello, everyone. I will now walk you through our financial highlights for the second quarter. Before I go into [ detail ], please be reminded that all numbers quoted here will be R&D, and please refer to our earnings release for detailed information on our financial performance on a year-over-year and quarter-over-quarter basis, respectively.

In Q2, despite industry challenges, the company's overall performance remains stable. The company achieved net operating revenue of CNY 676 million (sic) [ CNY 676.2 million ], stable year-over-year but down 4.1% quarter-over-quarter. The insurance-related income amounted to CNY 574 million, down CNY 5.4 million sequentially, while funding service fees amount to CNY 69.3 million, up 2.9% quarter-over-quarter, while health care-related income was CNY 26.4 million, up 4.2% sequentially.

Regarding operational costs and expenses, the company continued to focus on improving operational efficiency. In the second quarter, the company's overall operating costs and the expenses were CNY 624 million, representing a decrease on both a Y-o-Y and quarter-over-quarter basis.

Operating costs fell from CNY 333 million in the second quarter of 2023 to CNY 319 million in this period. This is inclusive of [indiscernible] consolidation, operating costs increased by CNY 11.5 million in personnel costs year-over-year, partially offsetting the CNY 12.9 million decrease in cost of referral and service fees and a CNY 8.6 million decrease in cost of patient recruitment teams. And in the combined [ influence ], operating costs decreased by 4.2% compared with the same period last year.

On a quarter-over-quarter basis, operating costs decreased by 3.7%, mainly due to a decrease in the cost of referral and service fees [ of '23 ].

S&M expenses were CNY 157 million, decreased by 23% year-over-year and 13.6% quarter-over-quarter. This is mainly due to the decrease in marketing expenses to third-party traffic channels and personnel costs in this quarter.

G&A expenses were CNY 94 million, decreased by 2.1% year-over-year, mainly due to the decrease in personnel costs because of the [ team ] adjustment. On a quarter-over-quarter basis, it increased by 5.6%, mainly due to the combined impact of increasing allowance for stock [indiscernible] comps and the reduced [ professional servicing ].

R&D expenses were CNY 53.3 million, down 38.5% year-over-year and 4.8% quarter-over-quarter due to the decrease in personnel costs and share-based comprehensive expenses.

In the second quarter, the company retained stable operations. Net profit attributable to the company's ordinary shareholders increased by 307% from CNY 21.7 million in Q2 2023 to CNY 88.3 million in the current period. Operational -- operating cash inflow remains positive for the quarter with a net inflow of CNY 15 million.

Looking ahead, we will continue focusing on operational quality, optimizing financial performance and maintaining healthy [indiscernible] development.

And ladies and gentlemen, with that, we will conclude today's conference call. We do thank you for joining. Have a good time.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]