Peng Shen; Chairman of the Board, Chief Executive Officer; Waterdrop Inc
Wei Ran; Director and General Manager - Insurance Technology Business; Waterdrop Inc
Xiaoying Xu; Head - Finance; Waterdrop Inc
Presentation
Tracy Lisang
Good morning, everyone. This is Tracy Lisang from Waterdrop Investor Relations. It's my pleasure to welcome everyone to Waterdrop's second-quarter 2024 earnings conference call. (Events Instructions) As a reminder, today's conference call is being recorded. Please note that discussion today will contain forward-looking statements made under Safe Harbor provisions of US Private Securities and the Litigation Reform Act of 1995. Forward-looking statements are factor to risks and uncertainties that may cause actual results to differ materially from our current expectations. 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 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. Shen Peng, our Founder, Chairman, and CEO; Mr. Ran Wei, Director and GM of Insurance Business; Xu Xiaoying, Head of Finance Department; and Jasmine Li, Board Secretary. We'll be happy to take some of the questions in the Mandarin line at the end of the conference call.
Peng Shen
Hello, everyone. This is Shen Peng. In May 2024, we celebrated Waterdrop's eighth anniversary. Over these years, we have continued to iterate in pace. Particularly, over the past two years, with a complex and changing environment, the company has actively transformed its business. We have placed greater emphasis on delivering the value, pursuing healthy operations, and ensure sustainable growth. As a technology company, amid the new wave of AI, we are actively exploring the application as large language models such as LLM in the industry to build the company core competition 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 stability for 10 consecutive quarters since Q1 of 2022. This quarter, Waterdrop consolidated its leading position in the industry. Firstly, our insurance business company equity reached RMB1.8 billion with an operating profit margin exceeding 21%. In April, we initiated a quality service upgrading year, offering good service, good product, and good claims to users to further build our brand influence to also achieve the first export of customized solutions exploring broader application of LLM with issuers. Secondly, the medical corresponding actively participates in the multi-level medical security system. Offering services in bilingual language and improving user experience, our operating efficiency improved, and the segment loss was reduced continually. Thirdly, in healthcare related business, our patient recruitment platform became a cooperation with consumables. Moreover, we achieve high quality deliverables in CRO and the digital marketing with our clients. In addition, we are committed to social responsibility and sustainable development. In June, the company won annual charity project and annual charity model as a 20 licensed for charity gala. By the end of June, Waterdrop Charity platform has partnered with 112 public charity organizations and onboarded a bit more than 15,500 projects. This concludes the recap of our Q2 performance. Currently, the industry is adapting to new policies which may pose some challenges in short term. However, we are confident in the long-term benefits from high quality development and will actively seek industries opportunities. This year, the company remains committed to its financial guidance, targeting double digit revenue growth while maintaining robust profitability. We are grateful for our ongoing support of our shareholders and investors and for our shareholders' interests and investor returns. The company has been actively repurchasing shares in the open market for three consecutive years since 2021. At the end of August, Waterdrop has cumulatively repurchased 49.3 million EDF for over $100 million. Recently, our Board has approved a new share repurchase program, authorizing the company repurchase up to $50 million within the next 12 months. The repurchase shares will be used for ESOP, encouraging our employees in the company to grow together. In addition to what actually purchased in March, while releasing our full year results of 2023, the company announced its first a special cash dividend with listing based on the strong profitability of 12.3, which was paid into Q2. Moving forward, if our business remains healthy and is within 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 that, with the Board approval, the company will soon launch its second special case dividend based on the first-half 2024 operating results. The total dividend amounts to about $7.5 million, $0.002 cents per ordinary shares and $0.02 per ADS. The shareholders of ordinary shares and ADS as the closing date of October 11, 2024, US Eastern time are entitled to dividend. I will now continue our way to discuss our insurance business in Q2.
Wei Ran
Thank you, Peng Shen. In Q2, the insurance systems generated about RMB1.78 billion in FYP, a QoQ increases 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 this quarter, our short-term insurance FYP hit RMB1.25 billion, up 8.2% quarter-over-quarter. New policy premiums would surge in near 20% sequentially. We advance our customer acquisition through platforms like Red Book, TikTok, WeChat videos, and so on. We were able to change their insights and provide more accurate products recommendations via AI technology, driving the number of new users up by 15.8% through 2Q. We also focus on synergy and efficiency further increasing premiums from existing customers. Moreover, our short-term product range has expanded with more offerings, leading diversity and raised average premiums by 7.7%. In April, we initiated a, call it, service upgrade year, introducing initiatives like direct claims line, claims within 24 hours, and the restart program to enhance our customer satisfaction, maintaining a high renewal rate with a sequential increase. For long-term insurance, FYP reached RMB530 million and the YoY and QoQ performance was pressured by high base figures and product upon change from a few facing challenges. The company restructured its service team, phasing out low efficiency operations and expanded high-yield team, which led to 1.7% rise in quarterly per capita premium. We have enhanced our company metrics of life planner approach, increasing life planner premium contribution, emphasizing private domain operations for online sales. We leverage holiday promotions as to boost the user engagement, resulting in a 22% increase in private domain premiums. We also leverage our product lineup with our disability insurance product premiums reaching RMB80 million in Q2. To improve user experience, we introduced an upgraded membership service, offering health management and other exclusive benefits, extending our brand visibility. During this quarter, the company continue building its offline brokerage business, completing team upgrades, and improving services. We'll also strengthen cooperation with insurance carriers and improve product competitiveness. On Shenlanbao, the team consolidated the benefit in either acquisition and a premium to early increased steadily. Waterdrop and Shenlanbao continue to strengthen synergy of insurance technology, explores the application of AI in the planner model and improve user acquisition vision. In Q2, the company promoted our innovation and customization in insurance products, including upgrading in cancer protection insurance, maternal and child insurance, and inclusive insurance. In terms of health insurance, based on the deep insight of new users, the company has intensively upgraded with cancer insurance products, providing a combination of reimbursement and big payments for cancer patients and improve their ability to cope with the risk, providing users with loans and protection. The series of maternal insurance should help us continue to lead the industry. This product has been upgraded to 33 years old and we have launched with the parent-child pregnancy insurance and its brand, extending our coverage to meet protection needs after the child's birth. In the field of insurance, for preexisting conditions, our inclusive insurance, life insurance, chronic disease insurance, and hospital-based scenario insurance products have been highly praised by a large number of customers with related premiums at scale exceeding RMB100 million. In Q2, we continued R&D investment [in the area] and application in medical, critical illness, other insurance products. Towards the end of Q2, we secured five and filed over 30 more patents related to RNN. Our R&D is now focused on sound service scenarios, developing a full-process AI insurance component platform. This application can replicate the human voice and accurately identify customer's intention, setting a new standard in the insurance industry. Our medical insurance service now features an AI [machine], which has already met 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 have signed a strategic partnership with insurers -- one of the top insurers in this quarter, making our first external empowerment of a customized commercial CI consultant solution. Another RNN application, AI Copilot [Bang Bang], is applied to multiple scenarios of our insurance business. Bang Bang can help the explanation of terms and policies, collect a compilation of product recommendation and revenue system. It effectively creates efficiency and improves user experience. It has assisted more than 60% of our human consultants, so insurance program, tenders a [thousand times]. Next June, we'll introduce the development of the company's cofounding and health-related business. Back to you, Shen.
Peng Shen
Thank you, Ran Wei. As of the end of Q2 2024, around 461 million people cumulatively donated RMB65.1 billion to about 3.25 million patients through our Waterdrop Medical Crowdfunding. In Q2, adhered to the user-first service where most critical, we continue to optimize our business process and provide users with more personalized service. For instance, in regions populated by ethnic minorities, our platform now supports bilingual fundraising, aiding in the spread of cases for the local communities and bolstered by AI-assisted bilingual case verification to minimum fraud. Further enhancing our reputation and credibility, we actually participated in the construction of [Bohu Hui Bang] as 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 healthcare-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 place more emphasis on the balance between the good growth and operational efficiency, assess the investment and promote the balanced development of business. In Q2, our robust patient network and AI technology, the Yifan platform, enrolled over 820 patients, bringing the total to over 8,600. In the partnership for an asthma trial with a leading MSC, if you targeted online media and patient community to enroll 145 patients in less than eight months, expanding treatment options for patients and earning a price for our clients. Moreover, a key [CCL] project finished enrollment in less than four months, surpassing client 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 top five pharmaceuticals, [the platform won] for three consecutive points of higher projects because of our good reputation. In addition, the orders in-hand continue to accumulate. We also, currently, reached a cooperation with a number of leading MSCs this quarter, and it is expected to start cooperation in the second half of 2024. The Yifan platform is committed to empower the industry with [student mobilization] and actively participate in virus-relative seminars. This quarter, the platform joined with [DCT] practice case and analysis project initiated by Chinese Society for Drug Regulation. And we shared AI-enabled [cases] in the intelligent subject recruitment model. With hundreds of experts and followers, we gain extensive recognition and trust. In terms of digital multichannel marketing business, the platform has embedded AI capabilities in multiple business needs, such as reporting -- report interpretation, knowledge-based construction, and this patient management Q&A in the process of patient management projects with a leading MSC. With our help, the patient return rate, and the customer satisfaction has been significantly improved. Thank you for listening. I will now hand over to Xu Xiaoying to discuss our financial performance.
Xiaoying Xu
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 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, while healthcare-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 the expenses were RMB624 million, representing a decrease on both a YoY 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 Shenlanbao consolidation. Operating costs increased by RMB11.5 million in personnel costs year-over-year, partially offsetting the RMB12.9 million decrease in cost of referral and service fees and a RMB8.6 million decrease in cost of patient recruitment teams. And in the combined influence, 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 [of '23]. S&M expenses were RMB157 million, decreased by 23% year-over-year and 13.6% quarter-over-quarter. This is mainly due to the decrease in marketing expenses to third-party traffic channels and personnel costs in this quarter. G&A expenses were RMB94 million, decreased by 2.1% year-over-year, mainly due to the decrease in personnel costs because of the team adjustment. On a quarter-over-quarter basis, it increased by 5.6%, mainly due to the combined impact of increasing allowance for software accounts and the 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. Operational -- 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.
Statements in English on this transcript were spoken by an interpreter present on the live call. The interpreter was provided by the company sponsoring this event.
