Waterdrop Inc. (NYSE:WDH) Q1 2024 Earnings Conference Call June 5, 2024 8:00 AM ET

Company Participants

Guang Yang - Director, VP of Finance and GM of International Business
Wei Ran - Director and GM of Insurance Technology Business
Jasmine Li - Board Secretary, Head of IR and Corporate Strategy
Xiaoying Xu - Head of Finance

Unidentified Company Representative

Good morning, everyone. This is Tracy Li from Waterdrop Investor Relations. It's my pleasure to welcome everyone to Waterdrop’s First Quarter 2004 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 discussion today will consist forward-looking statements made under the Safe Harbor provision of US 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 risks and uncertainties include, but are not limited to those outlined in our public filings with the SEC. The company does not undertake any obligation to update any forward-looking statement except as required by any under applicable law. Also, this call includes discussion of certain non-GAAP measures. Please refer to our earnings release for a reconciliation between non-GAAP and GAAP.

Joining us today on the call are Mr. Yang Guang, Co-Founder, Director, Finance VP, and GM of International Business; Mr. Ran Wei, Director and GM of Insurance Business; Mr. Xiaoying Xu, Head of Finance and Mrs. Jasmine Li, Board Secretary.

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

Guang Yang

Hello, everyone. Thank you for joining us -- our First Quarter 2024 Earnings Conference Call. Since the beginning of 2024, the domestic economy remains on track for recovery, leading to a steady growth in the personal insurance industry.

For Waterdrop, the company continues to pursue high quality development while improving our quality and efficiency. In terms of our financial performance, total revenue of Q1 reached RMB705 million, up 16.3% year-over-year. GAAP net profit attributes for the company reached RMB80.6 million, a significant increase of [62.2%] (ph) year-over-year. Since Q1 of [2022] (ph), we have continuously recorded profitability for nine consecutive quarters.

In Q1, all our business segments maintain robust. For our insurance business, we actively optimize the product offerings for new service models and continue to support AIGC empowerment. Insurance premiums significantly increased sequentially, representing an operating margins of over 20%. For Waterdrop medical Medical Crowdfunding, we are actively participating in multi-level medical assistance systems to continue improving service quality.

[Spending] (ph) loss was further reduced. For healthcare-related business, we continued to collaborate with domestic and international pharmaceuticals, expanding to digital marketing solution, during Q1 our revenue increased 7.3% Y-o-Y. In the first quarter, we continued to invest in R&D. By now, we have obtained 4 LLM related patents and submitted over 10 more patent applications. We are committed to improve efficiency in the entire insurance services.

For our CSR and ESG efforts, Waterdrop here to sustainable development in ESG management, implementation, and as well as disclosure. In the latest rating published by IIGF, our rating increased to A- reflecting a great lift forwarding at ESG. As of the end of Q1, our charity platform has partnered with 112 public charity organization, last more than 15,000 projects. [indiscernible] one of multilevel medical assistance platform we joined was awarded to 2023 project of the year in 8th China Charity Annual Conference.

For the capital market, we recently paid our first special cash dividend since listing. We look forward to bring more value to our shareholders in the future. Regarding share buyback, as of the end of May 2024, the company has cumulatively repurchased 45.5 million ADS in open market for a total consideration of about $95.9 million. The repurchased shares will continue to be used for ESOPs to motivate our talented team. This is a recap of our performance in Q1.

For the full year of 2024, Waterdrop financial guidance remains unchanged. First, profitable year with double-digit revenue growth; second insurance operating margin above 8%; third, sustained growth in health care-related revenue. To achieve our goals, we will implement the following strategy. For insurance business, we will adhere to our user first principle, further optimize [capital] (ph) conversion, explore new service models and product innovation, invest in AIGC, driving business operations to improve efficiency for both ourselves and industry.

For Medical Crowdfunding, we will continue to take advantage of technology capability to ensure sustainable development while building social value and [indiscernible] user needs. For health care business, we will swiftly move to the penetration revolve, expanding the comprehensive service capability to more disease categories and actively exploring digital marketing to broaden business boundaries.

With abundant cash reserves, we're taking suitable partnership and M&A targets around insurance and health care sectors. Looking ahead, the company will continue to strengthen its business value and its barriers that in by our mission and value, we'll continue to see more segmentation opportunities.

Now I will pass to Ran Wei to discuss our insurance business in Q1.

Wei Ran

Thanks, Yang. This quarter, our insurance business demonstrates steady growth. The total FYP risk at [RMB1.75 billion] (ph), increased by 3.7% year-over-year. Insurance-related income was RMB610 million, up by 13.1% Y-o-Y. Operating profit for the insurance business reached [RMB130 million] (ph). Our FYP for short-term insurance products was [RMB1.16 billion] (ph) in the first quarter, representing a sequential increase of 15.9%. [indiscernible] new policy FYP grew by 41.6% sequentially.

We have continually incurred online traffic conversion and based on the user profile of each content distribution platform, we specifically optimized our product offering accordingly. Our policy renewal rate remains at a high level, consistently above 95%, which indicates strong user recognition. FYP for long-term insurance products amounted to RMB600 million in Q1, representing a [Q3] (ph) growth of 13.4%. The contribution of FYP generated for long-term insurance products to overall FYP would further increase.

The FYP of life insurance product to overall long-term products increased to 56.4%. We got a sequential increase in productivity per capita by 6.4%, the overall quality of long-term policy further improved, with the first year retention rate increasing by 2 percentage points sequentially.

We continue to develop our offline brokerage business. In Q1, we launched our new brand of off-line brokers for health insurance, aimed to provide more comprehending offline service and strengthening our brand awareness. On Shenlanbao, we got sequential increase in FYP and Waterdrop Insurance Marketplace at Shenlanbao really enhanced synergies in sales resources, content marketing and product partnerships. Our capability in catering various products to meet user needs continue to improve.

During this quarter, we launched [indiscernible], a long-term medical insurance product fees [renewal] (ph) for 20 years and aims to provide high-value coverage for senior, especially for seniors. Our [indiscernible] disability income insurance for the elderly has exceeded RMB10 million in FYP for the first month they launched, reflecting a strong market demand.

Targeting the market segment, we have successfully upgraded one of our star products, Jiehaoyun to version 2.0, which gained top recognition on various platform. For people with previous existing conditions, we upgraded our [indiscernible] to over zero waiting period and extended the new real age up to 105 years old. The overall carrier insurance products achieved RMB100 million FYP during Q1, continuing to gain user trust.

Moving on to technology empowerment. In Q1, we continued to expand the application of our [indiscernible]. The accuracy and efficiency of our large language model has been significantly improved. Our AI broker has reached [90%] (ph) of the average level of human broker in health insurance sector, capable of conducting independent [IRS] (ph) with our clients for up to 40 minutes.

Meanwhile, on our AI copilot, which has been widely internally processed reached an accuracy rate of over [98% ] (ph) in the insurance [indiscernible] rate, significantly boosting the efficiency of sales, quality controls and others. We also actually explore external application to empower the industry, with several partnerships currently under negotiation. By now, we have obtained 4 LLM-related patents and submitted over 10 more patent applications.

Looking ahead, we will remain dedicated to positioning our results at the forefront. This concludes my remarks for today, and we now pass through Jasmine for an overview of Medical Crowdfunding and Health care business.

Jasmine Li

Thank you, Ran Wei. As of the end of Q1 2024, around 456 million people cumulatively donated RMB63.8 billion to over 3.17 million patients through our Waterdrop Medical Crowdfunding. We sustained focus on transparency and keep strengthening our risk management mechanism. For intent, before manual verification, we integrated algorithm recognition to identify false or fake medical documents and mitigate related risks effectively.

In addition, for patients with a high risk of [passing-away] (ph) with all of the donations are made in batches according to the stage of treatment, reducing the risk of fund misappropriation. Proceeding that the higher authenticity we have, the greater the donor enthusiasm will be.

In the meantime, we constantly [indiscernible] user experience and constantly improve service quality. For urgent cases, we opened up an advanced payment application portal for patients. We have the risk control review. When patients need to withdraw the fund but 24 hours public notice period has an end, we will use our own funds as advanced payments. This ensures that the patients can promptly get the fund for their treatment.

During Q1, we actively participate in multi-level medical assistance programs initiated by local governments in China. In February, on International Rare Disease Day, Waterdrop launched the special rare disease care program on top of our existing support initiatives. By the end of Q1, more than 67,000 patients with rare disease have -- as will help through our Waterdrop Medical Crowdfunding plaform and received donation of more than [RMB1.5 billion] (ph) from 48.9 million donors.

We contribute through our platform, the Waterdrop Medical Crowdfunding charitable bonds and collaboration with pharmaceuticals. We provide a fast track for rare disease patients to respond as well as dedicated consultants and [indiscernible] support. Waterdrop charity works with charity fund to help these patients seek medical resources at local medical insurance policy updated and so on. Through that, we'll continuously update our care initiatives for patients, bringing more hope to those in need.

In Q1, our health care-related business continued its momentum. We expanded our digital capabilities in clinical-trial solutions and multichannel marketing solutions. For this quarter, health care-related income reached RMB25.3 million, representing an increase of 7.3% year-over-year. The number of co-operations, pharmaceuticals and CROs reached 179. And the number of new programs reached 88, both figures remain high level, leveraging a broad patient base and strong [indiscernible].

E-Find Platform continued to enroll sustain, suitable candidates for our pharmaceutical clients. In Q1, E-Find Platform successfully enrolled over 800 patients. As of the date about 7,800 patients were enrolled. Our performance has been recognized by our clients. For intent and drive [indiscernible] higher products for global top 5 MNC. We work at exclusive Chinese third party patient recruitment partner and successfully enrolled over 60 patients within three months, which is 20% faster than the revenue time needed.

As we fulfill [indiscernible] for donations in the industry, we continue to deepen our co-operation with living pharmaceuticals and CROs, both domestically and internationally. We have already cooperated with seven out of the global top 10 pharmaceuticals. The CRO business continued to a steady development as our reputation and influence strengthen. We won a new bid for a clinical trial projecting the field of cell therapy for listing pharmaceutical in Q1.

In addition, two key clinical trial version of our platform completed initiation in the first quarter, including the small long chain of new brand centers. Looking ahead, we'll continue to explore financial digitalization in the health care sector. The platform will continue to build and improve integrated solutions across the entire industry chain. In Q1, we further expanded the [indiscernible] of digital multi-channel marketing, leveraging our experience in patient management for chronic disease. We saw an increasing number of clients. The co-operation with MNCs [after] (ph) depends.

Meanwhile, we signed a strategic cooperation with the leading domestic pharmaceutical. We believe that Waterdrop will become the preferred partner in marketing for more and more pharmaceutical. This now concludes my speech. Now I'll pass the call to Xu Xiaoying, the Head of Finance, to discuss the company's financial performance.

Xiaoying Xu

Thank you Jasmine. Hello, everyone. I will now walk you through our financial highlights for Q1. Before I go into details, please be reminded that all numbers quoted here will be in RMB. And please refer to our earnings release for detailed information on our financial performance on both the year-on-year and quarter-over-quarter basis, respectively.

We are thrilled to kick off 2024 with solid financial results. The company revenue in Q1 amounted to RMB705 million, representing a Q-o-Q growth of 16.3%. The revenue structure is more diversified upwards, which the insurance-related income amounted to RMB607 million. The Crowdfunding business contributed revenue of RMB67.4 million and the health care related income of about RMB25.3 million, with all three business segments growing steadily.

At the same time, the company also continue to focus on operational efficiency, with overall operating costs and expenses of RMB658 million, up 10.5% year-over-year and 4.0% quarter-over-quarter. Among them, Q1 operating costs were approximately RMB331 million. Operating costs showed a year-over-year increase of 33.6% because of the consolidated [indiscernible], representing a sequential increase by 9.6%, mainly due to an increase in the referral and service fees.

In terms of expenses, S&M expenses amounted to RMB182 million, representing an increase of 5% and 4.2% on a Y-o-Y and Q-o-Q basis respectively, which maintain a healthy and steadily trend, and benefiting our firm our effective cost control. G&A expense amounts to RMB89 million, representing a decrease of 7.1% and 7.3% on a Y-o-Y and Q-o-Q basis. R&D expenses amounted to RMB56 million. The decrease was primarily due to the impact of team restructuring.

In Q1, our profitability improved significantly. Net profit attributable to the company's ordinary shares amounted to RMB80.6 million, 62.2% year-over-year and 36.5% quarter-over-quarter. Since Q1 of 2022, we've continuously recorded profitability for two consecutive years. We generated a net cash inflow from our operating activities of RMB179 million. Looking ahead, we will continue to create value for our users and shareholders, with great profitability and growth.

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

Question-and-Answer Session

End of Q&A

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