Earnings Call Transcript - WDH Q1 2024

Tracy Lee, Investor Relations

Good morning, everyone. This is Tracy Lee from Waterdrop Investor Relations. It's a pleasure to welcome everyone to Waterdrop's First Quarter 2024 Earnings Conference Call. As a reminder, today's conference call is being recorded. Please note that the discussion today will contain forward-looking statements made under 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 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 discussions of certain non-GAAP financial 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, and GM of the International Business; Mr. Yang Wei, Director and GM of the Insurance Business; Mr. unnamed, Head of Finance; and Ms. Jasmine Lee, Secretary. We'll be happy to take some questions in the Mandarin line at the end of the conference call.

Unknown Executive, Executive

Hello, everyone. Thank you for joining us for our first quarter 2024 earnings conference call. Since the beginning of 2024, the domestic economy remains on track for recovery, leading to steady growth in the personal insurance industry. For Waterdrop, the company continues to pursue high-quality development while enhancing our quality and efficiency. In terms of our financial performance, total revenue of Q1 reached RMB 705 million, up 16.3% year-over-year. GAAP net profit attributed to the company reached RMB 80.6 million, a significant increase of 62.2% year-over-year. Since Q1 of 2022, we have continuously recorded profitability for nine consecutive quarters. In Q1, all our business segments maintained robust performance. For our Insurance Business, we actively optimized our product offerings, explored new service models, and we continue to see significant empowerment from our IGC initiatives. Insurance premiums significantly increased sequentially, representing an operating margin of over 20%. For Waterdrop Medical Crowdfunding, we are proactively participating in a multi-label medical assistance system to continue improving service quality. The segment loss was further reduced. In our healthcare-related business, we continue to collaborate with domestic and international pharmaceutical companies, expanding into digital marketing solutions. During Q1, our revenue increased 7.3% year-over-year. We continued to invest in R&D, obtaining four LLM-related patents and submitting over ten more patent applications. We are committed to improving efficiency across the entire insurance service group. Regarding our CSR and ESG efforts, Waterdrop is committed to sustainable development in ESG management and implementation. In the latest rating published by IGF, our rating increased to A-, reflecting significant progress in our ESG initiatives. As of the end of Q1, our charity platform has partnered with 112 charity organizations, supporting more than 15,000 projects. One multi-level medical assistance platform we joined was awarded Project of the Year at the 2023 China Charity Annual Conference. For the capital market, we recently paid our first special dividend since listing. We look forward to bringing more value to our shareholders in the future. Regarding share buybacks, as of the end of May 2024, the company has cumulatively repurchased 45.5 million shares in the open market for a total consideration of about $95.9 million. The repurchased shares will continue to be used for Employee Stock Ownership Plans (ESOPs) to motivate our talented team. This is a recap of our performance in Q1. For the full year of 2024, Waterdrop's financial guidance remains unchanged, targeting a profitable year with double-digit revenue growth, an insurance operating margin above 8%, and sustained growth in healthcare-related revenue. To achieve our goals, we will implement the following strategies. In the insurance business, we will adhere to our user-first principle, further optimize our conversion processes, explore new service models and product innovations, and invest in AI technologies, driving business operations to improve efficiency for both ourselves and the industry. In Medical Crowdfunding, we will continue leveraging our technological capabilities to ensure sustainable development while creating social value and addressing user needs. For our healthcare business, we will swiftly move toward enhancing our penetration, expanding our comprehensive service capabilities into more categories, and actively exploring digital marketing to broaden our business boundaries. With sufficient cash reserves, we're taking a suitable approach towards partnership and M&A targets in the insurance and healthcare sectors. Looking ahead, the company will continue to strengthen its business value and its competitive barriers, in line with our mission and values, while seizing more segmentation opportunities. Thanks, Jan. This quarter, our insurance business demonstrated steady growth. The total first-year premiums (FYP) reached RMB 1.75 billion, an increase of 3.7% year-over-year. Insurance-related income was RMB 610 million, up 13.1% year-over-year. Operating profit for the insurance business reached RMB 130 million. The total new policy FYP for short-term insurance products was RMB 1.15 billion in the first quarter, representing a sequential increase of 15.9%. Additionally, the new policy FYP grew by 41.6% sequentially. We have consistently improved online traffic conversion and, based on the user profile of each content distribution platform, we have specifically optimized our product offerings accordingly. Our policy renewal rate remains high, consistently above 95%, which indicates strong user recognition. The FYP for long-term insurance products amounted to RMB 600 million in Q1, representing a growth of 13.4% year-over-year. The contribution of FYP generated for long-term insurance products to overall FYP is expected to further increase. The FYP of life insurance products to overall long-term products increased to 56.4%. We have also seen a sequential increase in productivity per capita of 6.4%, with the overall quality of long-term policies further improving, and the first-year retention rate increasing by two percentage points sequentially. We continue to develop our offline brokerage business. In Q1, we launched our new brand for offline brokers, aimed at providing more comprehensive offline services and strengthening our brand awareness. On a similar note, we've seen sequential increases in FYP through the Waterdrop Insurance Marketplace, significantly enhancing synergies in sales resources, content marketing, and product partnerships. Our capability in catering various products to meet user needs continues to improve. Throughout this quarter, we launched a long-term medical insurance product designed with a 20-year coverage period, aimed at providing high-value coverage for seniors. Our disability income insurance for the elderly has surpassed RMB 10 million in FYP during its first month of launch, reflecting strong market demand. We have successfully upgraded one of our star products and gained top recognition across various platforms. For individuals with pre-existing conditions, we have upgraded our product offerings to eliminate the waiting period and extended the age limit up to 105 years old. Our overall carrier insurance products achieved RMB 100 million in FYP during Q1, continuously gaining user trust. Moving on to technology empowerment. In Q1, we expanded the application of our technologies. The accuracy and efficiency of our large language model have significantly improved. Our AI broker has reached 98% of the average level of a human broker in the health insurance sector, capable of conducting independent dialogues with our clients for up to 40 minutes. Meanwhile, our AI copilot, which has been widely adopted internally, reached an accuracy rate of over 98% in the insurance module, significantly boosting the efficiency of sales, quality controls, and other functions. We are actively exploring external applications to empower the industry, with several partnerships currently under negotiation. To date, we have obtained four LLM-related patents and submitted over ten more patent applications. Looking ahead, we will remain dedicated to positioning our results at the forefront in the industry. This concludes my remarks for today, and I will now pass the floor to discuss our Medical Crowdfunding and healthcare business. Thank you. As of the end of Q1 2024, approximately 456 million people donated RMB 63.8 billion to over 3.17 million patients through our Waterdrop Medical Crowdfunding. We maintain a sustained focus on transparency and continually strengthen our risk management mechanisms. To enhance verification processes, we integrated algorithms to identify false or fake medical documents, effectively mitigating related risks. Furthermore, for patients with a high risk of complications, we ensure that all donations are made in batches according to treatment stages, thereby reducing the risk of fund misappropriation. We have observed that the higher the transparency we have, the greater the donor enthusiasm is. At the same time, we are constantly improving user experiences and service quality. For urgent cases, we have opened an advanced payment application portal for patients. We conduct risk control reviews, and when patients need to withdraw funds but the 24-hour public notice period has ended, we use our own funds as advance payments. This ensures that patients can promptly access the funds for their treatment. During Q1, we actively participated in multi-level medical assistance programs initiated by local governments in China. In February, on International Rare Disease Day, Waterdrop launched a special rare disease care program in addition to our existing support initiatives. By the end of Q1, more than 67,000 patients with rare diseases were assisted through our Waterdrop Medical Crowdfunding platform, receiving donations totaling more than RMB 1.5 billion from 48.9 million donors. We collaborate through our Waterdrop Medical Crowdfunding charitable bonds and partnerships with pharmaceuticals, providing a fast track for rare disease patients and dedicated consultants to offer support. Waterdrop Charity works with charity funds to help these patients seek medical resources consistent with local medical insurance policy updates. Through these efforts, we will continuously enhance our care initiatives for patients, bringing hope to those in need. In Q1, our healthcare-related business continued its momentum. We expanded our digital capabilities in healthcare solutions and multi-channel marketing solutions. For this quarter, healthcare-related income reached RMB 25.3 million, representing an increase of 7.3% year-over-year. The number of corporate clients, pharmaceuticals, and CROs reached 179, and the number of new programs reached 88, both figures remaining high, leveraging a broad patient base and strong connections. The E-Find Platform continued to identify suitable candidates for our pharmaceutical clients, successfully enrolling over 800 patients in Q1, and subsequently enrolling around 7,800 patients to date. Our performance has been recognized by our clients as we submitted proposals for advanced healthcare products to a global top-five multinational corporation, working as their exclusive third-party patient recruitment partner and successfully enrolling over 60 patients within three months, which is 20% faster than the average timeframe needed. As we fulfill our commitments to donations in the industry, we continue to deepen our cooperation with leading pharmaceuticals and CROs both domestically and internationally, already collaborating with seven out of the global top ten pharmaceuticals. The CRO business has continued to develop steadily as our reputation and influence strengthen. We secured a new bid for a clinical trial project in the field of cell therapy for a listing pharmaceutical company in Q1. Additionally, two key clinical trial initiatives on our platform were completed in the first quarter, including projects concerning small long-chain molecules. Looking ahead, we will continue to explore financial digitalization in the healthcare sector and improve integrated solutions across the entire industry chain. In Q1, we further expanded the digital multi-channel marketing landscape, leveraging our experiences in patient management for chronic diseases. We have seen an increasing number of clients, and our cooperation with MSCs has grown stronger. Meanwhile, we signed a strategic cooperation agreement with a leading domestic pharmaceutical company, and we believe that Waterdrop will increasingly become the preferred partner in marketing for more pharmaceutical entities. Thank you, Jasmine. Hello, everyone. I will now walk you through our financial highlights for Q1. Please note that all numbers quoted here will be in RMB, and refer to our earnings release for detailed information on our financial performance on both a year-over-year and quarter-over-quarter basis. We are thrilled to kick off 2024 with solid financial results. The company revenue in Q1 amounted to RMB 705 million, representing a quarter-over-quarter growth of 16.3%. The revenue structure is becoming more diversified, with insurance-related income amounting to RMB 607 million, while crowdfunding business contributed revenue of RMB 67.4 million and healthcare-related income of around RMB 25.3 million, all three business segments growing steadily. The company continues to focus on operational efficiency, with overall operating costs and expenses of RMB 658 million, up 10.5% year-over-year and 4% quarter-over-quarter. Among these, Q1 operating costs were approximately RMB 331 million, showing a year-over-year increase of 33.6% due to consolidated results, representing a sequential increase of 9.6%, primarily because of an increase in referral and receipt incentives. Regarding expenses, S&M expenses amounted to RMB 182 million, representing an increase of 5% and 4.2% on a year-over-year and quarter-over-quarter basis, respectively, maintaining a healthy and steady trend aided by effective cost control. G&A expenses were RMB 89 million, reflecting a decrease of 7.1% and 7.3% on a year-over-year and quarter-over-quarter basis. R&D expenses amounted to RMB 56 million, with the decrease due to the impacts from team restructuring. In Q1, our profitability improved significantly. Net profit attributable to ordinary shares amounted to RMB 80.6 million, indicating an increase of 62.2% year-over-year and 30.5% quarter-over-quarter. We have continuously recorded profitability since Q1 of 2022, generating a net cash inflow from operations of RMB 179 million. Looking ahead, we will continue to create value for our users and shareholders through solid profitability and growth. Thank you all for joining today's conference call, and have a great day.

Operator, Operator

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