Waterdrop Q3 2023 Earnings Call Transcript

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December 7, 2023

There are 1 speakers on the call.

Operator

morning, everyone. This is Li Tongjun from Waterdrop Investor Relations. It's my pleasure to welcome everyone to Worthey Job's 3rd quarter 2023 earnings conference call. All participants are in a listen only mode in our English line.

Operator

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 provisions of 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.

Operator

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 any applicable law. Also, this call includes discussion of certain non GAAP measures. Please refer to our earnings release for a consideration between non GAAP and GAAP. Joining us today on the call are Mr.

Operator

Chen Peng, our Founder, Chen and CEO Mr. Yang Guang, Co Founder, Director, Finance VP and GM of International Business Mr. Zhu Zetao, GM of Core Funding and PharmaTech Business Mr. Chen Ruizhen, Board Secretary. And I would be happy to take some of the questions in the This quarter, the domestic economy in China is still in the recovery process.

Operator

Virus factors, including adjustments in product policies, have temporarily impacted the life insurance business. With the improvement in industry transparency and standardization coupled with gradual acceptance of new product policy in the market, The company believes that the life insurance industry is entering a new development stage. Facing both opportunities and challenge, the company actively responds to regulatory direction, striving to enhance business health and efficiency. Prioritizing user certification, the company allowed its key insight into user needs to solidify user service and product innovation capabilities, embracing industry change with an efficient and dynamic approach. In the Q3, the company continued to focus on creating value for users, achieving a resilient financial performance with approximately $6,900,000,000 in the revenue, maintaining a profitable trend for the past 7 quarters.

Operator

GAAP profit reached $36,300,000 showing a 2Q growth of 60.67 percent and demonstrating the sustainable and high quality development with sustainable net profit and positive operating cash flow at the end of September in the context of continuous share repurchase and acquisition of Chenango, the company still maintain a robust cash reserve and the ability to organic growth. The combined cash, cash equivalents and short term investments are about $3,100,000,000 providing flexibility and stability for the company to navigate uncertainties and support long term growth. All business models of the company performed well in the 3rd quarter, consolidating our leading position in the industry. Briefly, Waterdrop Insurance Marketplace focused on enhancing business health, optimizing the product metrics through excellent demand insight and the quality improvement and it continues to contribute stable net profit. Secondly, our Waterdrop Medical Profiling platform continues to improve our service and risk control mechanism, accumulating serving over 3,000,000 patients emphasized on found transparency and credibility, actively demonstrating the company's commitment to authenticity.

Operator

The company adhere to the Centric, consistently enhancing service quality and advocating for the transformation of service oriented competence with the principle of users first service promote. In terms of digital clinical trial solution business, the Yifan platform continued to deepen the collaboration with well known domestic and international pharmaceuticals, expanding the range of recruited disease types. Leveraging technological advantages, we continue to explore innovative opportunities in pharmaceutical field. In addition, we continue to invest in R and D to empower business development. In the 3rd quarter, the company iterated and upgraded our AI technology across various effects of the product operations and services.

Operator

With implementation of our technology, the company will also seek the export opportunity to empower the industry. Meanwhile, the company continues to prioritize and enhance its ESE efforts, striving to do a sustainable development of the company and society. Virus initiatives related to environmental protection, employee rights, corporate governance are successfully advancing. In September, the company collaborated with IIGS to initiate the online insurance industry EIC whitepaper, contributing to the practice and development of EIC Information Disclosure for the industry. In addition to business development, the company actively fulfilled CSR in August due to the flood in Beijing, Ouzhou Public Welfare Platform collaborated with well known charitable foundation to assist the strategic area.

Operator

The platform launched a special topic on our homepage and we donated many suppliers to the Beijing Youth Development Foundation. As of September 30, 2023, the platform has collaborated with 112 public charitable organizations in areas such as serious illness assistance, emergency disaster relief and education support, raising a total of over $1,300,000,000 with over 70,000,000 participants. Leveraging our business and technology advantage, we actively participated in the construction of multilevel medical system, implementing one self assessment tools such as heavy phone and so on in many cities. In terms of share repurchase, as of November 30, 25, 3, the company has cumulatively repurchased about RMB 38,500,000 from the open market, spanning over US87.4 million dollars This reflects the company's strong confidence in its inner value and long term sustainable development. The repurchase shares will continue being used for ESOP to enhance internal dynamic and promote mutual growth with our employees.

Operator

The above is a brief review of business performance in Q3. Although facing the challenging and micro environment, we feel fully confident in ourselves and as an industry. Looking forward to the last quarter of this year, our statuses include, firstly, driven by online and digital transformation. The insurance business will continue to be eviscentric, striving to achieve long term healthy and stable development. Meanwhile, we will continue to enhance team efficiency, consolidate by the business foundation and provide users with professional and thoughtful service.

Operator

Secondly, the core funding business will continue to adhere user first and easily service model, leading the industry towards high quality development. We will also adhere to transparent operations and implement strict risk management while actively fulfilling CFR. Thirdly, leveraging big data. The pharmaceutical business will continue to increase industry penetration globally in order to construct a long term growth engine. Firstly, the company will make use of its Campbell and Ball cash reserve and seek cooperation and investment opportunities around insurance and healthcare sectors.

Operator

Last but not least, the company will accelerating technology empowerment and enhance AI abilities to build core technology competitiveness, thereby supporting the implementation of long term strategies and empower the industry. In summary, the company will continue to prioritize user value, focusing on high quality development and with advancing business synergy and organic growth, constantly expanding business boundaries to better bring insurance and healthcare service to billions through technology. And next, I will pass to Rianwei to introduce the development of our insurance business in this quarter. In the first three quarters, the gross rate of life insurance slowed down against the backdrop. The FYP reached RMB 16,950,000,000 in this quarter with 38% long term insurance proportion.

Operator

Insurance related income reached RMB 6,200,000,000 and the operating profit reached RMB 1,500,000,000. Among them, the FRP of short term insurance business reached RMB 10,500,000,000. During this quarter, the company actively utilized the AI technology to enhance user acquisition capabilities and the service quality. On the customer acquisition side, the number of new users increased by 20% year over year. The company actively developed facial CPQ using the large model to enhance content production capabilities, driving a significant increase in WeChat channel views with a sequential growth of 16% in the following numbers.

Operator

The company also continued to upgraded the intelligence dialogue check out driving a sequential increase of 6% in the renewal rate for short term insurance and is remaining above 90%. Long term insurance business is further developed in the 3rd quarter, achieving our FIT of 640,000,000 an increase of 17% year over year and 9% quarter over quarter. The average premium per policy increased by 43% year over year and 4% sequentially. Brokerage income increased by 11% year over year and 18% sequentially. The company adhered to improving the capability of long term insurance service team and continuously optimizing the service quality, achieving a sequential increase of 23% in FYP of private domain operations.

Operator

The platform's long term insurance product offerings further expanded. The proportion of life insurance users increased sequentially, driven an almost 2% increase in the 1st year renewal rate. In the Q3, the company demonstrated resilience in developing new service models like in our life planning segment amid a market with declining interest rates. The company continues to build content capabilities and online planning service around the combination of life planners and new insurance. The team continues to grow, achieving a new monthly FYP record despite the challenging market conditions.

Operator

In online brokerage sector, the company continued to enhance the functionality of our app, advancing towards industry leading tools. In this quarter, FIP of offline brokerage increased by 7% year over year and the average productivity per capita improved by 16% year over year. Regarding Shulanbaou, Waterdrop Insurance Marketplace and Shunlampao preliminary its core business synergy, significantly enhancing content marketing capability. The monthly FIP option on both a new high during this quarter. In Q3, the company optimizing its insurance products to meet the rising demand.

Operator

In the health insurance sector, the company introduced Waterdrop Launching Outpatient and Emergency Insurance. It is a groundbreaking product and is the first thing in the industry that cover medical expenses in the below secondary level community hospitals and township hospitals, which address the shortcomings of existing product in the market, Targeting users with pre existing conditions, the company upgraded service by introducing Waterdrop IWU Cancer Recurrence Insurance. This product provides comprehensive coverage with high coverage amounts, offering flexible options for wide range of users. Additionally, the company launched Waterdrop Blue Ocean Number 3 Series Unit Insurance, further enhancing the experience for SOP Health users. The company also respond to public product policy shift in savings insurance by offering diverse options tailored to different segmental population and scenarios.

Operator

In Q3, Waterdrop continued to enhance its insurance technology capabilities, investing in large models and AI technology to empower our business and deliver high quality insurance service. The company utilized the algorithms and AI to automatically identify potential intention in the pre sales process, significantly improve efficiency by 20% with the assistance of AI technology. Salesmen were able to achieve more refined user segmentation, effectively engaged with our users. The company also leveraged Large Module Technology to create an insurance assistant based on our Waterdrop Insurance Knowledge Big Data. This assistant can answer questions related to insurance application claims, coverage responsibilities, premiums and so on, assisting our staff and promptly addressing to users' concerns.

Operator

Additionally, the company successfully launched an intelligent copywriting assistant with content production capabilities to assist our salesman in crafting more accurate and professional personalized content. Since its launch, over 1,000,000 have utilized this tool, significantly improved our efficiency. The above was about insurance business performance in Q3. Now Zutao will introduce the product of Waterdrop's corresponding and digital clinical trial versions. Thank you, Rianlei.

Operator

At the end of Q3, Waterdrop Medical confirming platform has accumulated 445,000,000 donors assisted over 3,000,000 patients and raised over 61,300,000,000. Both user members and fundraising amounts continue to grow. In Q3, orders of operating transparency committee further enhanced platform interference. The platform revamped the fundraising information display page with 4 different models like information disclosure, platform verification, public confirmation and bank disclosure. These provide a more comprehensive representation of key details.

Operator

And to enhance consultant service, we conduct the 1st Waterdrop consultant service month in August. We standardized our consultant operations with the release of service handbook and improved overall service quality and risk awareness. As a result, overall user certification rose to 98% and the NPS for Fundalyzer increased from 55% to 70%. In Q3, we continued the transition to service oriented competent in 45 strategic hospitals nationwide. This approach received high praise from both hospitals and patients.

Operator

The platform will further improve the efficiency of service oriented component while maintaining service quality. We prioritize user experience hosting the 1st donor and fundraiser open day in September with the same open end transparency gathering trust. The company's CEO, Xuan Peng and myself gathered with donors and fundraisers to have deep communication on fundraising service experience, on transparency and case and authenticity. The company will continue to listen to user feedback, focus on technology innovation to enhance service efficiency and transparency. We will honor the trust of every user.

Operator

Digital Clinical Trial Solutions business showed stable and healthy development in this quarter, with a quarterly revenue of about $27,600,000 representing a year on year growth of 60.7%. During Q3, the Yifan platform expanded its collaboration with over 135 pharmaceutical and CROs, finding over 90 new projects with a rapid expansion. Benefiting its excellent ability of recruitment and top project management, collaborations with leading M and Cs really given this quarter. The platform entered into an exclusive participate recruitment partnership with the RISE's clinical trial product with 1 of the world's top 5 MNCs. Additionally, supply process were initiated with 2 top 5 MNCs with formal collaboration expected in Q4.

Operator

The inbound platform continues to expand the application of cutting edge technology to accelerating new drug development, leveraging big data and structured information from clinical trial projects. The platform use AI driven matching system to enhance efficiency in connecting patients with suitable products. In patient service, due to our wild series unit patient base, we have developed an efficient private domain platform about patient management and core expertise in medical service. The platform offers patient management and integrated service such as patient selection, medication management, medical service, innovative payment solutions and data insight and so on. Providing the digital marketing solution covers the entire product life circle.

Operator

In Q3, a formal collaboration has been merged with a leading MNC focused on the health management of chronic disease patients. And that's all. And now I'll pass to Yang Guang for the next part. Thanks, Desso. Hello, everyone.

Operator

I will now walk you through our financial highlights for the Q3. Before I go into details, please be reminded that all members quoted here will be in RMB, And please refer to our earnings release for the detailed information on our financial performance on both year over year and a quarter over quarter basis, respectively. In Q3, despite a unique period of product adjustment, the company demonstrated robust profitability. The company revenue was $686,000,000 a slightly Q2 increase from 6.70 9,000,000. For Stephanie report, it is the Q1 that we started to consolidate the financial results of Shenanbao and reported the results under the insurance related segment.

Operator

Our insurance related income was $619,000,000 showing a 3.7% QoQ increase. Profound service fees were $36,000,000 due to clinical solution income was about 27,600,000 dollars with a remarkable 60.7 percent year over year growth. Operating costs and expenses increased by 7 point 6% year over year, decreased by 4.4% in QoQ. Operating costs decreased by 8.5% year over year to $313,000,000 mainly due to firstly, a $19,500,000 decrease in the cost of 1 year health insurance coverage related to termination of mutual aid plan, which occurred the same quarter last year. 2nd reason will be was $9,400,000 decrease in cost of the fuel and services.

Operator

S and M expenses increased by 38% to 36.1% year over year to RMB 187 700,000 and it was primarily due to firstly, the consolidation of Shilang Bao, which generated a dynamic expense of $28,100,000 secondly, dollars 14,400,000 increase in marketing expenses to 3rd party traffic channels and thirdly, dollars 9,100,000 increase in personnel costs and share based comprehensive expenses. In this quarter, the company proactively adapt certain advertising strategies. There was a $41,300,000 major decrease in marketing expenses to 3rd party traffic channels, partially offset by the consolidation of Shuananbaou. S and M expenses decreased by 8.2% sequentially. G and A expenses increased by 39.7 percent year over year to $114,600,000 and increased by 19.4% sequentially.

Operator

Both QoQ and Y o Y virus due to the consolidation of Shuananbaou and the increase in professional service fee. R and D expenses decreased by 5.7% year over year to $73,900,000 The decrease was primarily due to personnel costs and share based comprehensive expenses. Adjusted net profit attributed to the company in Q3 was $74,800,000 The GAAP net profit was $36,300,000 and we have generated GAAP profits over the past 7 quarters. As of the end of September 2003, the company had combined cash, cash equivalents and short term investments of RMB 3,100,000,000 indicating sufficient cash reserve. Overall, the business performance in Q3 was stable.

Operator

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

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Key Takeaways

  • The company delivered a resilient Q3 performance with RMB 6.9 billion in revenue, GAAP profit of RMB 36.3 million (up 60.7% QoQ), marking its seventh consecutive profitable quarter and ending September with RMB 3.1 billion in cash and equivalents.
  • All three core segments grew: the Insurance Marketplace saw RMB 16.95 billion of first-year premiums and 20% new user growth with renewal rates above 90%, the Medical Crowdfunding platform served over 3 million patients and raised RMB 61.3 billion (NPS up from 55% to 70%), and Digital Clinical Trials revenue rose 60.7% YoY to US $27.6 million with 90+ new projects.
  • The group continued heavy investment in AI and technology, launching AI-powered insurance assistants and copywriting tools used by over 1 million users, and upgrading large-model capabilities to boost product operations and explore industry export opportunities.
  • Waterdrop repurchased RMB 38.5 million of shares (US $87.4 million) through its open-market buyback program, earmarking the shares for ESOP to reinforce management’s confidence in the company’s long-term value.
  • On ESG and CSR, the firm co-authored an industry white paper on information disclosure, coordinated flood relief donations raising over RMB 1.3 billion with 70 million participants, and advanced initiatives in environmental protection, employee rights, and corporate governance.
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Earnings Conference Call
Waterdrop Q3 2023
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