Earnings Call Transcript
Waterdrop Inc. (WDH)
Earnings Call Transcript - WDH Q2 2024
Tracy Lisang, Investor Relations
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 in our English line. As a reminder, today's conference call is being recorded. Please note that the discussion today will consist of forward-looking statements made under the Safe Harbor provision of the U.S. Private Securities and 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 outlined 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 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. Ran Wei, Director and GM of Insurance Business; Ms. Xu Xiaoying, Head of Finance Department; and Ms. Jasmine Li, Board Secretary. We will be happy to take some of the questions in the Mandarin line at the end of the conference call.
Shen Peng, CEO
Hello, everyone. This is Shen Peng. In May 2024, we celebrated Waterdrop's 8th anniversary. Over these years, we have continuously enhanced our services. Particularly over the past two years, faced with a complex and changing environment, the company has proactively transformed its business. We have placed 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 (LLM) in the industry to build the company's core competitiveness for the 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 RMB676 million. Our net profit attributable to ordinary shareholders was nearly RMB88.3 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 FYP reached RMB1.78 billion with an operating profit margin increasing to 21%. In April, we initiated a quality service upgrade year, offering excellent service and products in new claims to users to further build our brand influence and also achieving the first export of customized solutions, exploring the broader application of the LLM with issuers. Secondly, in the Medical Crowdfunding area, we actively participated in the multi-level medical security business offering services in bilingual language, including user churn, and our operational efficiency improved, with the segment loss being reduced continually. Thirdly, in the health care-related business, our patient recruitment platform E-Find cooperated with computables. Moreover, we achieved high-quality deliverables in CRO and digital marketing with our clients. In addition, we are committed to social responsibility and sustainable development. In June, the company won the annual charity project and the annual charity model at the charity gala. By the end of June, the Waterdrop Charity platform had partnered with 112 public charity organizations and onboarded more than 15,500 projects. This concludes the recap of our Q2 performance. Currently, the industry is adapting to new policies, which may cause some challenges in the short term. However, we are confident in the long-term benefits 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 grateful for the ongoing support of our shareholders and investors. For the interests and investment returns of shareholders, the company has been actively repurchasing shares in the open market for three consecutive years since 2021 and announced in August that we have cumulatively repurchased 49.2 million ADSs for over $100 million. Recently, our Board has approved a new share repurchase program, allowing the company to repurchase 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 based on the strong profitability of 2023, which was paid in Q2. Moving forward, if our business remains healthy and profitable, we plan to distribute dividends at least once a year to reward the support of our shareholders and investors. We are pleased to announce the company will soon launch its second special cash dividend based on the first half of 2024 operating results. The total dividend amounts to about $7.5 million with $0.02 per ordinary share and $0.02 per ADS. The shareholders of ordinary shares and ADS as of the closing date of October 12 or October 11, 2024, U.S. are entitled to dividends. I will now turn to Ran Wei to discuss our insurance business in Q2.
Ran Wei, Director and GM of Insurance Business
Thank you, Peng Shen. In Q2, the insurance business generated about RMB1.78 billion FYP, a quarter-over-quarter increase of 1.4%. Insurance-related income was about RMB570 million, and the operating profit was about RMB120 million. The operating profit margin maintained at a level of more than 21%. During the quarter, the short-term insurance FYP hit RMB1.25 billion, up 8.2% quarter-over-quarter. New policy premiums surged nearly 20% sequentially. We advanced our customer acquisition through platforms like Redbook, TikTok, WeChat videos, and so on. We were able to gain further insight and provide more accurate product recommendations via AI technology, driving the number of new users up by 15.8% quarter-over-quarter. 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, raising average premiums by 7.7%. In April, we initiated a quarterly service upgrade year, introducing initiatives like direct claims line, claims within 24 hours, and the service star program to enhance our customer satisfaction, maintaining a high renewal rate with a sequential increase. The long-term insurance FYP reached RMB530 million, with year-over-year and quarter-over-quarter performance pressured by high-based figures and some challenges we are facing. The company restructured its service teams, phasing out our low-digit operations and expanding the high-yield teams, which led to a 1.7% rise in quarterly per-capita premium. To enhance our content metrics approach, we have increased life planner premium contribution, emphasizing private domain operations for online sales. We leveraged holiday promotions to boost user engagement, resulting in a 22% increase in insurance domain premium. We also strengthened our product lineup, with our disability insurance product premiums reaching RMB80 million in Q2. To increase user experience, we introduced an upgraded membership service, enhancing health management and other corporate benefits, expanding our brand visibility. During the quarter, the company continued building its offline brokerage business, completing team upgrades, and improving services. We strengthened cooperation with insurance carriers and improved product competitiveness. Through Shenlanbao, the team consolidated its positive preventive measures in both acquisition and premium per lead, which increased steadily. Waterdrop and Shenlanbao continue to strengthen synergy in insurance technology, exploring the application of AI in the planner model to 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 the area of health insurance, based on deep insights into users, the company has upgraded cancer insurance products, providing a combination of reimbursement and fixed payments for cancer patients to improve their ability to cope with risks. This series of maternal insurance helps us to continue leading the industry. This product has been upgraded to version 3.0, and we have launched the parent-child critical illness insurance brand, matching our coverage to meet protection needs after the child's birth. In the field of insurance for pre-existing conditions, our inclusive insurance, life insurance, and chronic disease insurance products have been highly praised by many customers, with related premiums at scale exceeding RMB100 million. In Q2, we continued our R&D investment in pioneering LLM applications in medical critical illness and other insurance products. Towards the end of Q2, we secured five patents and filed over 30 more related to LLM. Our R&D is now focused on self-service scenarios, developing a full-process AI insurance component platform. This application can replicate the human voice and accurately identify customer intentions, setting a new standard in the insurance industry. Our medical insurance service now features an AI consultant team, which has already matched 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 formed a strategic partnership with one of the top insurers in this quarter, making our first external empowerment of a customized commercial AI consultant solution. Another LLM application, the AI co-pilot Shenlanbao, is applied to multiple areas of our insurance business. Shenlanbao can assist in explaining terms and policies, compiling product recommendations, and enhancing the underwriting process. It effectively creates efficiency and improves user experience. It has assisted more than 60% of our human consultants and has facilitated insurance programs hundreds of thousands of times. Next, June, we'll introduce the developments of the company's co-founding and health-related business. Back to you, Shen.
Shen Peng, CEO
Thank you, Ran Wei. As of the end of Q2 2024, around 461 million people have cumulatively donated RMB65.1 billion to about 3.25 million patients through our Waterdrop Medical Crowdfunding. In Q2, adhering to user-first service where most critical, we continued to optimize our business processes 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 local communities, and bolstered by AI-assisted bilingual case verification to minimize fraud. Further enhancing our reputation and credibility, we participated in the construction of 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 insight and service capabilities to create more social value. During the quarter, our healthcare-related income was RMB26.4 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 two 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 emphasize the balance between robust growth and operational efficiency, assess our investments, and promote balanced business development. In Q2, with our robust patient network and AI technology, the E-Find platform enrolled over 820 patients, bringing the total to over 8,600 in partnership with a leading MSC, targeting online media and patient community to enroll 145 patients in less than eight months, planning treatment options for patients and applying for clients. Moreover, a key CRO project finished enrollment in less than four months, surpassing the client's expectations. 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 supply consumables, the platform won several trial project claims due to our good reputation. Additionally, the orders on hand continued to accumulate. We also formally reached cooperation with a number of leading MSCs this quarter and expect to start cooperation in the second half of 2024. The E-Find platform is committed to empowering the industry with standardization and actively participating in projects related to academic standards. This quarter, the platform joined with DCT practice case and analysis projects initiated by China’s Society for Drug Regulation. We shared AI-enabled cases in the intelligent subject recruitment model with hundreds of experts and followers, gaining extensive recognition and trust. In terms of the digital multi-channel marketing business, the platform has embedded AI capabilities in multiple business needs, such as report interpretation, knowledge-based construction, and patient management projects with a leading MSC. With our help, the patient return rate and customer satisfaction have been significantly improved. Thank you for listening. I will now hand over to Xu Xiaoying to discuss our financial performance.
Xu Xiaoying, Head of Finance Department
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 in RMB, 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 RMB676 million, stable year-over-year but down 4.1% quarter-over-quarter. The insurance-related income amounted to RMB574 million, down RMB5.4 million sequentially, while funding service fees amount to RMB69.3 million, up 2.9% quarter-over-quarter. Health care-related income was RMB26.4 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 expenses were RMB624 million, representing a decrease on both a year-over-year and quarter-over-quarter basis. Operating costs fell from RMB333 million in the second quarter of 2023 to RMB319 million in this period. This is inclusive of the scope of consolidation; operating costs increased by RMB11.5 million in personnel costs year-over-year, partially offsetting the RMB12.9 million decrease in the cost of referral and service fees and a RMB8.6 million decrease in the cost of patient recruitment teams. In aggregate, 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. S&M expenses were RMB157 million, which decreased by 23% year-over-year and 13.6% quarter-over-quarter. This is primarily due to the decrease in marketing expenses to third-party traffic channels and a reduction in personnel costs this quarter. G&A expenses were RMB94 million, decreasing by 2.1% year-over-year, mainly due to the reduction in personnel costs because of team adjustments. On a quarter-over-quarter basis, it increased by 5.6%, primarily due to the combined impact of increasing allowance for stock-based compensation and reduced professional service fees. R&D expenses were RMB53.3 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 RMB21.7 million in Q2 2023 to RMB88.3 million in the current period. Operating cash inflow remains positive for the quarter with a net inflow of RMB15 million. Looking ahead, we will continue focusing on operational quality, optimizing financial performance, and maintaining healthy business development. And ladies and gentlemen, with that, we will conclude today's conference call. We do thank you for joining. Have a good time.