Waterdrop Q1 2023 Earnings Call Transcript

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June 2, 2023

There are 1 speakers on the call.

Operator

Good morning, everyone. This is Li Fengjun from Waterdrop Investor Relationships. It's my pleasure to welcome everyone to Waterdrop's Q1 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.

Operator

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. Potential risk and uncertainty includes, but not limited to those outlined in our public filings with the SEC.

Operator

The company does not undertake any obligation to update any forward looking statements, except as required in 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. Sheng Peng, our Founder, Chairman and CEO Mr.

Operator

Yang Guang, Co Founder, Director, Finance VP and GM of International Business Mr. Lan Wei, Director, GM of Insurance Technology Business Mr. Zhu Zetao, GM of Corresponding and PharmaTech Business Mr. Chen Ruizheng, Board Secretary. And we will be happy to take some of your questions in the line at the end of the conference call.

Operator

Hello, everyone. This is Shen Peng. Thank you for joining our Q1 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 excellent headwinds to the industry. However, as the impact of the pandemic and holiday subsides, the domestic macro economy should sign us a recovery and the overall trend of the insurance and pharmaceutical industry is gradually picking up.

Operator

In the long term, as 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 direction. Additionally, as a hospital, outpatient department goes back to normal. Clinical trial projects continue to operate. So overall demand for new drug and research and development will further increase. In Q1 of 2023, the company continued to focus on creating value for our users and keep pursuing healthy development.

Operator

The business performance remains robust with the company's revenue reaching $606,000,000 in the Q1, carrying over the upward trend for the last whole year. The GAAP profit in the Q1 reached $49,700,000 demonstrating the sustainable and high quality development of the company's operations. We sustained positive net profit. The company maintains ample cash reserves. As of the end of March, the company had a total $3,600,000,000 in cash, cash equivalents and short term investments.

Operator

The abundant cash reserves helped the company to face uncertain environment with more confidence and support long term planning and layout for the future growth. All of our business model achieved strong performance in the Q1, continuously consolidating our leading position and influence in the industry. First of all, Waterdrop Insurance Marketplace adhered to promoting insurance products, diversification and innovation. Meanwhile, we moderately increased investments in 3rd party traffic channel in the Q1, and we consistently optimize our existing customer operations. Thanks to the efforts of our colleagues.

Operator

There was a quarter on quarter growth in FYP and our Waterdrop Insurance business continued to contribute stable net profit to the company. In addition, our Waterdrop Medical core 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 dishonest fundraising activities. This initiative was highly recognized by the industry. And at Integrity Beijing 315, the company has honored as an Integrity Commitment Enterprise for the consumer new force in 2023.

Operator

Lastly, in terms of the digital clinical trial solution business, due to our excellent performance in contract fulfillment, the eFind patient platform against 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 the Q1, the company closely follows the development in AI industry.

Operator

We further upgraded AI empowered dialogue chatbots 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 cloud native technology, building a solid foundation for the export of our technology. As of the end of May 2023, the company has cumulatedly repurchased 24,900,000 ADS shares on the open market, with cash flow of total consideration of approximately US61.2 million dollars We will continue to execute the 1 year extension program announced in September 2022. This demonstrates the company's firm confidence in our own value and long term sustainable development.

Operator

Meanwhile, we plan to reserve the shares for ESOP, which will further motivate our employees. Above is a review of our business in the Q1 and 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 and scale. Secondly, we will actively explore the rapidly growing pharmaceutical company business.

Operator

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 merger and acquisition opportunities around insurance and pharmaceutical sectors. Lastly, we will continue to invest in R and D and seek to empower the industry. In conclusion, the company will continue to prioritize user centricity and create value for our users. We will further strengthen our existing business advantage while maintaining an entrepreneurial mid site to pursue higher quality growth and business innovation.

Operator

We will continually bring insurance and healthcare service to 1,000,000,000 through technology. I will pass to Yuan Wei to discuss the performance of insurance business in this quarter. Thank you, Sheng Tong. Hello, everyone. Let me give you an update on our insurance business.

Operator

In Q1, the life insurance market showed some certain growth and there was a noticeable increase in professional savings amount. 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 Q1 of 2023, the 1st year premiums generated through our water drop insurance marketplace amounted to RMB 1,692,000,000, an increase of 6.3% quarter over quarter. Our insurance related income amounted to RMB 5 $36,000,000 In Q1, leveraging algorithm, our short term insurance continued to improve in product offering, channel efficiency and content innovation.

Operator

In order to better serve our users, we offer differentiated user service to a wider range of users and steadily enhanced business engagement. Furthermore, we upgraded service capability in policy renewal, improved user experience and value perception and saw 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 broadly innovated in user service, leading to a further increase in insurance premiums contributed by enterprise WeChat. The LPT maintains industry leading capabilities in fine business operations and productivity per capita.

Operator

We invest in new talent for improving and 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 rapid growth in personal productivity, the company maintains strict control over user service and policy quality, resulting in a 2% quarterly increase in the 1st 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 channels customer acquisition and it resulted in a 111% increase in insurance premiums compared to the previous quarter.

Operator

In Q1 of 2023, Autoshop 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 reserve products across all insurance categories. With precise user targeting ability, the cost of customer acquisition saw the decrease with 18% quarter on quarter reduction in cost per day. Our service capability significantly improved with a 3.96% increase in APL, which means average premium per lead in March compared to the last quarter and there is a 7.94 increase in standard premium per candidate from January to March. In this quarter, the new business premiums for offline brokerage increased by 48.8% year on year.

Operator

Premiums by active broker increased by 21.9% and the member of policy per active broker increased by 22.5% on quarter on quarter basis. As offline brokerage business matured, we emphasized organizational structure, which improves business quality and refined brokerage model. In the Q1, we initiated pilot project to promote the enterprise WeChat Insurance client model in multiple cities, driving the upgrade of service quality. By optimizing the service key for insurance planners, APL in March increased by 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 performance from January to March.

Operator

In Q1, Woundroshop Insurance Marketplace continued to enrich its product offerings and its tailored product targeting specific user groups. For children's insurance products, we customize outpatient medical insurance for children, which covers outpatient, inpatient, burns, vaccination, traction, dental repairs and expanded coverage for childhood leukemia. This product expanded to cover items that parents are more concerned about and provide more comprehensive protection. Targeting a license, we launched a licensed Myopia prevention insurance, combining protection and Myopia prevention related health management service. We cooperate with Beijing Tonglen Hospital and United Family Healthcare on this feature product.

Operator

To address the insurance needs of the elderly population is 65 and above. We introduced exclusive choice like semi long term caret insurance and malignant tumor insurance. Furthermore, we have achieved innovative progress in insurance for customer with pre existing conditions. In a scenario based insurance category, we successfully launched a surgery care insurance and achieved Brookstone's in hospital operation model. The equity of this product has achieved a consistent growth of 100 and more or 3 consecutive months.

Operator

While maintaining a low clean rate which is industry leading. The premium of the industry first leukemia relapse insurance exceeded $1,000,000 in FYP in Q1. In addition, we are developing long term critical illness insurance for chronic kidney disease and comprehensive cancer relapse insurance for virus high incident cancers. These products will be introduced to the market to benefit more individuals with pre existing conditions. As a technology company, we sustain our R and D investment in insurance business, making solid growth for our medium and long term growth.

Operator

Firstly, we continuously emphasize our soft use R and D. For example, by keeping up with the latest achievements in AI, we consistently upgrade and integrate our AI empowered dialogue channel, which can now product a 10 minute call immediately, even surpassing the service efficiency of Geniusoft. By developing dedicated chatbots in various business scenarios, our employees can further enhance their service and capability to better serve our clients. Additionally, we utilized AI capability to deepen our perception operations in intelligent marketing and private sales and operations. In the intelligent marketing domain, we have built a stable and efficient leading matching system, empowering AI with more decision making authority in lead matching and increasing the APL ratio by almost 12%.

Operator

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 iterated. While emphasized on self use R and D, we also explore the export of our technology capability to empower the industry partners. In Q1, we integrated and upgraded our self management and same school interactive system, significantly improving the efficiency of partner integrity. We have made significant progress in sales management, web tools, data centers and other functional models, enable us to provide a comprehensive solution for our partners. This concludes my briefing on insurance business.

Operator

So now let me hand over to Joseph Cao for an update on our Medical Core Funding and Digital Clinic Trial Solution business. As of the end of Q1, accumulated total of 432,000,000 donors helped exceeding 2,860,000 patients with around RMB38,400,000,000 on our medical corresponding platform. The overall number of users in fundraising represents an upward trend. In this quarter, the operational transparency committee of fundraising targets and the regulation of consulting service, optimizing and improving operational capability. Regarding the determination of reasonableness upon the rising targets, on one hand, the committee strengthened technology's ability to identify medical materials, allowing for more accurate filtering of duplicated materials and photoshop information.

Operator

On the other hand, we optimized medical risk control strips for variable scenarios, including rare disease and complex treatment plans, achieving intelligent auditing of finalizing targets. Additionally, in the initial review process, we enhanced medical risk control audits, especially for fundraising targeted amounts, timely and accurately assess and eliminate cases with unreasonable target amount to enhance the regulation of consultant service. The operational transparency committee established mystery visitor mechanism. By adopting a patient perspective, we delve into the actual service process of consultant to identify issues and collect natural viral internal inspection of consulting. This will ensure a short load process for standard setting, implementation to effecting assessment, significantly reducing irregular behavior during service and enhancing service level of our fundraising consultants.

Operator

We're continuously improving our own service and risk control stability, we actually collaborate with various stakeholders, including judicial departments, hospitals and industry to crack down on this honest fundraising activity, ensuring that everything in the donation is used properly. This year, as Integrity Beijing's 3 1 5 guidelines, Wooddrop was honored as consumer enforced integrated integrated and enterprise for 2023. As a medical core funding platform, Body Shop 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, Waverly Drop also received a 20 22 Public Welfare Enterprise Award as was included in the list of 20 22 most socially responsible enterprise. The company will continue to explore participation in critical illness systems and the construction of a multilevel medical security system.

Operator

In terms of our data clinical trial solution business, as the impact of the pandemic weakened in the Q1, the business gradually stabilized and shows a growth trend. In the first half, this platform successfully enrolled over 700 patients as the effect of pandemic and holiday gradually sub sites, the platform saw significant accelerating in clinical trial enrollment with over 350 patients enrolled in March, greatly speeding up the progress of our partner's clinical trial. As our industry reputation serves, our eFind patient platform has attracted leading domestic and international integrated medical pharmaceuticals to establish partnerships and continuously deepen the scope of collaboration. In the Q1, we collaborated over 120 pharmaceutical companies and CROs. Based on our outstanding track record in Q4 2022, the platform's different strategy partnerships with leading domestic pharmaceutical companies such as CTGQ and Beijing and will keep expanding the scope of collaboration.

Operator

The platform has also established partnership with several top intact international pharmaceutical companies and will officially kick off a few projects in the second quarter. In the Q1, the in line platform launched over 70 new projects, continues the platform 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 final multiple projects. In the Q1, we add psoriasis, atopic dermatitis, asthma and other chronic disease.

Operator

In the field of psoriasis, over 100 patients were enrolled in March. Both efficiency and quality are industry leading position. In the Q1, the company continues to invest in research and development in the medical field. The technology for medical material are continuously aggregated and can support the 1st 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.

Operator

With the help of relevant technology, the first half rate of material audits increased by 2%, our leading recruitment capacity exceeding by nearly half of the one day per day, half an hour per day, resulting in continuous business efficiency improvement. Thank you. I will now hand over to Yan Guang to discuss our Q1 financial performance. Thank you, Zetang. Hello, everyone.

Operator

I will now walk you through our financial highlights for the Q1. Before I go into detail on the financial performance, please be reminded that all members quote here will be in 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 Q1, the company adhered to a high quality development model. The company's revenue was RMB 606,000,000, slightly lower compared to RMB 639,000,000 in the same period of 2022.

Operator

For Marvell, insurance related income was RMB536,000,000, representing a year on year decrease of 14.6%. Correspondent service fees were $42,000,000 comparing to nil in the same period last year. Digital clinical trial solution income was $22,800,000 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 on Q. Operating cost increased by 60% year over year to RMB248,000,000 for the Q1 of 203,000,000, compared with RMB 155,000,000 for the Q1 of 2022, which was primarily driven by 2 effects.

Operator

Firstly, there was a 29 $100,000 increase in professional and outsourcing customer service fee secondly, an increase of RMB 61.5 million mainly due to recording the corresponding consulting team costs at operating costs rather than sales and marketing expense. As we started to generate co funding sales fees since April 2022. On a quarter over quarter basis, operating costs decreased by 11%, currently due to a decrease of $25,900,000 in professional and outsourcing customer service expense. Sales and marketing expense decreased by 15.1% year over year to $173,000,000 for the Q1 of 2023 compared with RMB 204 1,000,000 for the same quarter of 202. This decrease was mainly due to the corresponding related direct costs recorded from under sales and marketing expense to under operating costs as mentioned before.

Operator

On a quarter over quarter basis, there has been a 29 point $4,000,000 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 $95,800,000 primarily due to a decrease of $16,300,000 allowance for doubtful accounts. On a quarter over quarter basis, general and admin expense decreased by 19.2% in the Q1 of 2023 mainly due to $19,700,000 decrease on allowance for doubtful accounts. Research and development expense increased by 11.2 percent to RMB 78,700,000 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 and D cost of human resources and share based comprehensive expenses.

Operator

Adjusted net profit attributable to water drop for the Q1 of 2023 was $96,400,000 and the GAAP net profit was $49,700,000 and we have generated GAAP profit 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 3,600,000,000 indicating sufficient cash reserves. Overall, the business performance in the Q1 was stable. Looking ahead, we will continue to focus on users' value and sustainable high quality development. And ladies and gentlemen, with that, we will conclude today's conference call.

Operator

We do thank you for joining. Have a good time. The conference has now concluded. We thank you for attending

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Key Takeaways

  • Waterdrop reported Q1 2023 revenue of RMB606 million and a GAAP net profit of RMB49.7 million, supported by RMB3.6 billion in cash, cash equivalents and short‐term investments.
  • The Waterdrop Insurance Marketplace saw a 6.3% quarter‐over‐quarter increase in first‐year premiums, driven by productivity gains (+27% productivity per capita) and a 14% rise in policies per capita.
  • Waterdrop Medical’s core funding platform facilitated RMB38.4 billion in patient grants from 432 million donors, earning recognition as an Integrity Commitment Enterprise and enhancing risk control measures.
  • The eFind digital clinical trial solution enrolled over 700 patients in Q1, with 350 in March alone, secured partnerships with over 120 pharmaceutical companies/CROs, and expanded into chronic disease trials.
  • Looking ahead, Waterdrop plans to maintain a user‐centric focus with profitable scale in insurance, accelerate pharmaceutical market penetration, pursue M&A using its cash reserves, and invest in AI and cloud‐native R&D.
AI Generated. May Contain Errors.
Earnings Conference Call
Waterdrop Q1 2023
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