Waterdrop Inc. (WDH) Q4 2021 Earnings Call Transcript


Picture supply: The Motley Idiot.

Waterdrop Inc. ( WDH 24.09% )
This autumn 2021 Earnings Name
Mar 23, 2022, 8:00 a.m. ET

Contents:

  • Ready Remarks
  • Questions and Solutions
  • Name Contributors

Ready Remarks:

Operator

Good morning, girls and gents, and thanks for standing by for Waterdrop Inc.’s fourth quarter and financial yr 2021 earnings convention name. At the moment, all contributors are in a listen-only mode. After administration’s ready remarks, there shall be a question-and-answer session. As a reminder, as we speak’s convention name is being recorded.

I might now like to show the assembly over to your host for as we speak’s name, Ms. Xiaojiao Cui. Please go forward, Ms. Cui.

Xiaojiao CuiInvestor Relations

Thanks, operator. Whats up everybody, thanks for becoming a member of Waterdrop’s fourth quarter and financial yr 2021 earnings convention name. Please be aware that the dialogue as we speak will include forward-looking statements made underneath the protected harbor provisions of the US Personal Securities and the Litigation Reform Act of 1995. Ahead-looking statements are topic to dangers and uncertainties which will trigger precise outcomes to vary materially from our present expectations.

Potential dangers and uncertainties embody, however are usually not restricted to these outlined in our public filings with the SEC. The corporate doesn’t undertake any obligation to replace any forward-looking assertion, besides as required underneath relevant legislation. Additionally, this name contains dialogue of sure non-GAAP measures. Please consult with our earnings launch for a reconciliation between non-GAAP and GAAP.

Becoming a member of us as we speak on the decision are Mr. Shen Peng, our founder, chairman, and CEO; Mr. Yang Guang, co-founder, director, and normal supervisor of insurance coverage market; Mr. Hu Yao, co-founder, director, and normal supervisor of medical crowdfunding and healthcare; and Mr.

Kevin Shi, our CFO. We shall be obtainable for a Q&A session after the remarks. Now, I want to flip the decision over to our CEO Mr. Shen Peng.

Please go forward.

Shen PengFounder, Chairman, and Chief Government Officer

[Foreign language]

Xiaojiao CuiInvestor Relations

Whats up, everybody. Thanks for becoming a member of our fourth quarter 2021 earnings convention name. Because the starting of the third quarter, the capital market has skilled additional volatility and the expansion of the insurance coverage {industry} has considerably slowed down. However irrespective of how the market modified, we’ve been holding our dedication to creating our enterprise in customer-centric method, leveraging know-how to enhance operational effectivity in insurance coverage and healthcare enterprise, solidifying enterprise fundamentals, and creating sustainable long-term worth for our shareholders.

Shen PengFounder, Chairman, and Chief Government Officer

[Foreign language]

Xiaojiao CuiInvestor Relations

Firstly, we shall be assured sooner or later and be affected person within the current. Whereas the insurance coverage {industry} has had varied challenges within the final half months, we see these challenges nearly as good alternatives for us to strengthen the basics of the corporate. Regardless of the working setting, we’ve stayed true to our commitments and given our utmost efforts extra proactively and relentlessly.

Shen PengFounder, Chairman, and Chief Government Officer

[Foreign language]

Xiaojiao CuiInvestor Relations

As a top-tier participant in China’s insurtech and on-line healthcare market, we try to make our enterprise methods extra responsive and transfer full steam forward. In This autumn 2021, we severely adjusted our enterprise technique and applied devotedly in response to the altering setting.

Shen PengFounder, Chairman, and Chief Government Officer

[Foreign language]

Xiaojiao CuiInvestor Relations

Beforehand, Waterdrop pursued a quick development in consumer base and complete income whereas holding ROI inside an affordable vary. Beginning within the second half of 2021, we’ve extra pragmatically pursued a better high quality growth. To attain wholesome and sustainable development, we’ve continued to put money into and strengthen our benefits in some companies, and in the meantime try to generate revenues and earnings on different companies.

Shen PengFounder, Chairman, and Chief Government Officer

[Foreign language]

Xiaojiao CuiInvestor Relations

Our fourth quarter outcomes have affirmed the execution capability and dedication of our administration workforce, and the corporate achieved non-GAAP revenue on this quarter. We’re nonetheless working laborious, and have additionally strengthened our ongoing dedication to creating worth for our clients. We urge our employees, of their each day work, to proceed specializing in sustainable growth in our established enterprise, and try to comprehend working earnings in non-GAAP phrases as certainly one of our goals in 2022. In the meantime, we are going to proceed to innovate by means of our cautious incubation initiatives in chosen new areas, in addition to staying specializing in areas tough however priceless to our clients in present companies.

The challenges are large, however we are going to stay steadfast to attain breakthroughs within the pursuit of innovation.

Shen PengFounder, Chairman, and Chief Government Officer

[Foreign language]

Xiaojiao CuiInvestor Relations

Our new tempo of operation additionally created a chance for our workforce to additional enhance our core competencies. It helps us develop stronger organizational capabilities whereas delivering higher enterprise efficiency. Considered one of my new goals is to optimize the management pipeline with excessive requirements, strengthen organizational capabilities, and improve administration capability, to put the muse for cultivating extra glorious managers in any respect ranges within the subsequent three years.

Shen PengFounder, Chairman, and Chief Government Officer

[Foreign language]

Xiaojiao CuiInvestor Relations

We’re assured concerning the future, and we are going to stay affected person as we speak. We firmly consider within the long-term development potential of China’s medical health insurance market and a extra affluent future for Waterdrop. In our earnings launch for the second quarter of 2021, we introduced a one yr share repurchase plan and since then, we’ve rigorously begun to implement the plan underneath the related compliance framework. From the launch of the repurchase plan to December 31, 2021, we’ve purchased again round 1.3 million ADSs in complete and this yr we are going to proceed to purchase again shares.

We plan to make use of these repurchased ADS for our worker incentive plan sooner or later. As well as, primarily based on our confidence within the firm’s future growth and our dedication to put money into the corporate in the long term, our administration additionally plan to make use of private funds to buy Waterdrop’s ADSs sooner or later, pursuant and topic to relevant legal guidelines and the corporate’s securities buying and selling coverage.

Shen PengFounder, Chairman, and Chief Government Officer

[Foreign language]

Xiaojiao CuiInvestor Relations

Secondly, we are going to proceed to function in full compliance and embrace 2022 with ardour. In 2021, a couple of new regulatory tips and {industry} insurance policies aiming to advertise wholesome growth of the {industry} had been launched, which is able to contribute to consolidation of the {industry} in the long run. As a listed firm, Waterdrop has continued to answer the brand new regulatory steerage proactively and preserve good communication with the regulators. We additionally took the initiative to pivot our enterprise mannequin to make sure that we adjust to the brand new guidelines.

The regulatory guidelines have supplied a clearer route for the longer term growth of the {industry}. In This autumn, Waterdrop performed enterprise mannequin improve, adjusted the portfolio-product portfolio and buyer acquisition mannequin. Trying forward, we are going to proceed to advertise the wholesome growth of the {industry} proactively and firmly.

Shen PengFounder, Chairman, and Chief Government Officer

[Foreign language]

Xiaojiao CuiInvestor Relations

With the distinctive positioning of Waterdrop in serving to promote inclusive insurance coverage, we additionally share the identical frequent prosperity path advocated by the federal government. We’ve established a stable enterprise infrastructure by means of our product growth capabilities, technological improvements, and distinctive synergies amongst our enterprise segments. These initiatives helped us reveal our resilience and stability because the {industry} experiences a interval of adjustment. With the current pandemic recurrences, we consider that the demand for insurance coverage safety will proceed to rise sooner or later and customers shall be extra inclined to show to on-line channels, which current extra alternatives for on-line insurance coverage platforms like us.

Regardless of the numerous short-term challenges that we’re confronted with, we’re dedicated to strengthening our value management and optimizing profitability, guaranteeing that we’re heading in the right direction to sustainable and high quality development within the years forward.

Shen PengFounder, Chairman, and Chief Government Officer

[Foreign language]

Yang GuangCo-founder, Director, and Common Supervisor of Insurance coverage Market

Thanks. Within the yr 2021, China’s insurance coverage {industry} underwent a interval of adjustment with draw back stress. Based on the statistics from the CBIRC, the annual development in gross written premium, or GWP, for the medical health insurance sector was solely 3% in 2021, and the bottom previously 10 yr. And the GWP noticed a lower of three% yr over yr for each the third and fourth quarters.

In 2021, the overall revenue of life and medical health insurance firms decreased by 47% yr over yr, 63 proportion factors decrease than the expansion within the yr 2020. So, to summarize in brief, transformation can be the key phrase that finest represents the present state of the insurance coverage {industry}. Regulatory authorities have issued a sequence of recent insurance policies that geared toward guiding the orderly growth of the {industry}. So, at present, many life insurance coverage firms are proactively present process enterprise restructuring and accelerating the tempo of high-quality transformations.

So, these insurance coverage firms are returning to the mission of offering safety for customers as an alternative of merely pursuing market scale. Apart from, they’re focusing extra on the revenue contribution on new insurance policies. So, in such setting, Waterdrop’s FYP elevated by13.4% yr over yr to RMB 16.3 billion within the yr 2021. In opposition to the backdrop of {industry} slowdown and new regulatory instructions, we’ve remodeled our consumer acquisition mannequin from the primary month low cost value merchandise to the primary month authentic value merchandise because the finish of the third quarter.

So, in This autumn, we targeted on adjusting and upgrading our companies in lots of areas. The preliminary outcomes confirmed that the substantial enchancment in our working effectivity has helped us flip working loss into revenue, with an RMB 4 million adjusted internet revenue in This autumn in comparison with RMB 453 million loss within the third quarter. So, subsequent, I’ll summarize the foremost progress we’ve made in This autumn from three-year views. Firstly, we’ve achieved preliminary success in our enterprise transformation and have considerably improved our working effectivity.

This autumn is the primary full quarter as of the primary month low cost value mannequin for our on-line short-term insurance coverage merchandise was terminated and changed by the first-month authentic value mannequin. This resulted in slowdown in our income development, however important enchancment in our key working effectivity indicators when put next with Q3. Our retention price elevated considerably, driving the take price of our short-term insurance coverage enterprise to 33% in This autumn. On the identical time, the one-year LTV of our new customers elevated materially.

Since we modified our enterprise mannequin in This autumn, the month-end consumer Web Promoter Rating has elevated, and the customers are grievance price has declined. So, in This autumn, we achieved exceptional ends in the administration of present customers. We established a unified consumer administration platform that integrates varied advertising channels, together with WeChat official accounts, WeChat mini-programs, apps and enterprise WeChat accounts. This allowed us to undertake a standardized strategy to participating customers of various profiles, lifecycles and from totally different advertising channels.

We’ve modified our service platform to give attention to insurance coverage insurance policies providers, content material inquiry providers, well being providers, and member providers. We’ve additionally elevated the consumer engagement charges, and on-line gross sales conversion charges of our customers. In This autumn, our three-year repurchase price for short-term merchandise stood at 59%, up by 14 proportion factors in comparison with Q3. And the variety of enterprise WeChat contact customers reached 5.41 million in This autumn, up by 14.6% in comparison with Q3.

This permits us to work together with our policyholders extra continuously and supply real-time providers by means of chatbot and customer support executives. And people enterprise WeChat contact customers contribute the acquisition of short-term insurance policies with a complete quantity of RMB 16.6 million, a rise of thrice in comparison with Q3. We made important progress-we additionally made important progress in our self-developed AI robotic for coverage renewal, particularly in recognition of customers’ intention in renewal and human voice simulation. Our short-term insurance coverage renewal price exceeded 78% in This autumn which reached the main place within the {industry}.

We additionally improved the conversion price of our short-term insurance coverage customers to long-term insurance coverage customers. And the common productiveness of our long-term insurance coverage consultants reached RMB 66,000 per thirty days, a rise of 66% in comparison with Q3. So, the contribution of long-term insurance coverage enterprise to LTV reached 27%, up by over 10 proportion factors in comparison with Q3, reflecting a rise in our effectiveness in maximizing the long-term worth of our present customers. In the meantime, aligned with the brand new regulatory necessities and adjustments in market situations, we optimized our key insurance coverage merchandise and we added 61 new merchandise within the fourth quarter, offering full-range medical health insurance safety for our customers.

And we additionally introduced a sooner and extra dependable declare settlement expertise to our customers. The shortest declare settlement interval was solely 18 seconds, and the best declare settlement quantity in a single case was RMB 1.5 million in This autumn. So, the enhancement of our buyer worth is our long-term dedication and can also be certainly one of our core competencies. By the transformation of our enterprise mannequin, the working effectivity enhancement of our present consumer administration, and the continued improve and improvements of our insurance coverage merchandise, we’ve made important enhancements within the high quality of our customers and varied working metrics.

We consider this may lay a stable basis for our matured companies to attain profitability in the long term. And secondly, we upgraded our technological capabilities and empowered digitalization of the {industry}. Along with the transformation of our personal enterprise mannequin, we strengthened our funding in our AI-powered applied sciences. In This autumn, for our AI-powered matching system which helps match essentially the most acceptable gross sales employees for potential long-term insurance coverage patrons, we performed greater than 20 rounds of system iterations and three algorithm architectural upgrades.

These helped improve our long-term insurance coverage premiums by greater than RMB 40 million. As well as, the self-developed display screen sharing interplay system utilized on the telemarketing eventualities broadly in This autumn. The system now covers greater than 2,000 gross sales employees, with roughly 1.5 hours of each day use per gross sales employees. The month-to-month productiveness of those gross sales staffs elevated by 34%, driving a rise in our month-to-month premiums by round RMB 20 million.

The extent of know-how used for this technique is at an industry-leading normal, and we’ve at present utilized for 5 patents on the know-how. Our funding in know-how has helped enhance our working effectivity considerably. In This autumn, our greatest performing gross sales employees achieved productiveness of RMB 94,000, whereas our common productiveness per salesforce was 2.5 instances that of the {industry} common. And I feel the development in working effectivity has given us much more confidence in our know-how funding.

So, we additionally made exceptional progress in exporting our know-how to the insurance coverage {industry} in This autumn. For instance, we’ve leveraged our SAAS-based CRM system and on-line buyer administration capabilities to offer consumer operation providers to insurance coverage firms. So, in This autumn, we entered into cooperation with three insurance coverage firms to make the most of our know-how and efficiently helped them obtain tens of thousands and thousands of RMB in premium revenue. Our subsequent plan is to combine our clever calling robotic system with present enterprise processes, thereby empowering the {industry} with stronger know-how utilization.

And thirdly, we continued to pursue new enterprise improvements. In This autumn, led by our newly joined and skilled workforce leaders, our on-line to offline brokerage enterprise additionally confirmed stable progress. As of December 31, 2021, our brokerage workforce has arrange three branches in Beijing, Guangdong, and Shenzhen and established a gross sales workforce of almost 300 folks. This workforce generated a complete premium revenue of roughly RMB 5 million in This autumn.

So, we’ve — we additionally empowered our brokerage workforce with a robust set of technology-driven instruments for enterprise growth by means of 4 techniques, together with the digital working system, the product system, the coaching system, and advertising system. On prime of our present brokerage mannequin, we’re additionally actively exploring a extra diversify and optimized offline brokerage mannequin. On this yr 2022, we plan to launch an unbiased agent mannequin for top finish clients. It will allow us to ascertain a multi-layered brokerage enterprise mannequin that may serve totally different goal buyer teams.

As well as, we’ve innovated new insurance coverage merchandise to serve particular buyer teams. For instance, for particular teams akin to tumor sufferers, we’ve launched a medication plus insurance coverage service mannequin, which permits these clients to get drugs in a really handy manner on the DTP pharmacies that we cooperate with and luxuriate in insurance coverage safety in accordance with their medical situations and safety towards medical security. We’ve additionally launched unintended insurance coverage merchandise overlaying the surgical sufferers. And we’re creating crucial sickness insurance coverage merchandise and insurance coverage towards recurrence danger, in addition to tailor-made many medical insurances for these of asymptomatic carriers.

So, in conclusion, as the primary full quarter for our enterprise mannequin improve, we’ve made a superb begin in This autumn 2021, by specializing in bettering the standard of our customers, optimizing the working effectivity, and strengthening long-term know-how capabilities. We’ve to say that the insurance coverage {industry} continues to be within the adjustment and transformation interval and our transformation will proceed. For the subsequent quarter or two, our insurance coverage enterprise will nonetheless be within the technique of transformation to the brand new development mannequin and the brand new working mannequin. As we proceed to face the ups and downs within the quick time period, we’re nonetheless optimistic concerning the long-term fundamentals of the insurance coverage {industry}.

And we consider that the aggressive panorama will enhance after additional {industry} consolidation. So, this, along with our give attention to long-term worth creation by means of stable consumer administration and technological functionality ought to assist enhance our working and monetary outcomes after adjustment of 1 quarter or two, together with reaching profitability in our matured enterprise strains. I feel that is all individually. Subsequent, I’ll hand it over to Hu Yao for the replace on the medical crowdfunding platform.

Hu YaoCo-Founder, Director, and Common Supervisor of Medical Crowdfunding and Healthcare

[Foreign language]

Xiaojiao CuiInvestor Relations

Subsequent, I provides you with an replace on the most recent growth of our Waterdrop medical crowdfunding and healthcare companies, in addition to the progress of our R&D and technological improvements.

Hu YaoCo-Founder, Director, and Common Supervisor of Medical Crowdfunding and Healthcare

[Foreign language]

Xiaojiao CuiInvestor Relations

Firstly, let me replace on our medical Crowdfunding enterprise. Our Waterdrop Medical Crowdfunding enterprise grew in an orderly method, additional reinforcing its market-leading place. As of the top of This autumn, the cumulative variety of donors reached 394 million, serving to 2.36 million sufferers and pushing the cumulative funds raised to over RMB 48.4 billion.

Hu YaoCo-Founder, Director, and Common Supervisor of Medical Crowdfunding and Healthcare

[Foreign language]

Xiaojiao CuiInvestor Relations

To help the frequent prosperity initiative, we started in-depth cooperation with native governments. Our cooperation with the Jinyun County authorities on [Inaudible], a medical insurance coverage poverty reduction undertaking has been working effectively. In 2021, Waterdrop has assisted Jinyun County within the lively identification and administration technique of greater than 15,000 folks in want of medical help. Based on our estimates, the platform helped cut back the out-of-pocket medical bills of the needy by over RMB 14 million in 2021 or a year-on-year decline in such bills of about 12%.

In 2021, the variety of folks in poverty brought on by ailments decreased by 77% yr over yr. The Jinyun undertaking was ranked No. 7 within the listing of finest purposes in digital society chosen by the Zhejiang Provincial Improvement and Reform Fee.

Hu YaoCo-Founder, Director, and Common Supervisor of Medical Crowdfunding and Healthcare

[Foreign language]

Xiaojiao CuiInvestor Relations

As well as, in This autumn, we cooperated with media and charity organizations together with China Social Help Basis, Folks’s Each day Well being App, Chinese language Pink Cross Basis, and Henan Charity Common Federation, to discover the institution of a supplementary medical help program. We additionally launched the Waterdrop Crucial Sickness Charity Support Mission, which operates underneath the self-aid plus charity-aid mannequin, to offer supplementary medical help funds to sufferers with crucial sickness and in want of monetary help. As of December 2021, there have been greater than 200 key hospitals taking part within the undertaking which helped cut back the monetary burden on healthcare bills.

Hu YaoCo-Founder, Director, and Common Supervisor of Medical Crowdfunding and Healthcare

[Foreign language]

Xiaojiao CuiInvestor Relations

Subsequent, I’ll replace you on the progress of our affected person recruitment enterprise within the fourth quarter.

Hu YaoCo-Founder, Director, and Common Supervisor of Medical Crowdfunding and Healthcare

[Foreign language]

Xiaojiao CuiInvestor Relations

By way of scale, by the top of This autumn, our Yifan Platform has undertaken greater than 300 scientific trial packages for brand spanking new drug registration. It has turn out to be one of many largest third-party affected person recruitment platforms for oncology scientific trials in China. The variety of sufferers enrolled in scientific trials for continual ailments and customary ailments has approached 100 in a single month and continued to develop quickly. Practically 10,000 sufferers flip to Waterdrop for assist each day, and they’re probably high-business candidates for scientific trial initiatives going ahead.

By way of cooperation with pharmaceutical firms, we’ve established partnerships with greater than 40 progressive pharmaceutical producers and CROs in China and worldwide, together with Chia Tai Tianqing, CSPC, Innovent, Zai Lab, and Labcorp Drug Improvement. We’ve been extremely acknowledged by our companions.

Hu YaoCo-Founder, Director, and Common Supervisor of Medical Crowdfunding and Healthcare

[Foreign language]

Xiaojiao CuiInvestor Relations

Affected person recruitment performs an necessary position in bettering effectivity and shortening the R&D course of in scientific growth. Based on the director of the Institutional Workplace of Peking College Most cancers Hospital on the 2021 Scientific Trial Symposium, affected person enrollment instantly impacts the success of scientific trials. About 85% to 95% of trial delays are as a result of failure to recruit certified sufferers as deliberate, particularly within the fields of oncology, cardiovascular, an infection, and so forth. Our Yifan Platform can shortly and precisely recruit sufferers which are appropriate for the trial initiatives.

Our key aggressive edge within the {industry} is constructed on a number of elements. First, as the biggest group of sufferers with crucial diseases in China, and the biggest medical Crowdfunding platform, Waterdrop has a large affected person database and the flexibility to achieve sufferers by means of varied on-line and offline channels. Second, we’ve run numerous high-quality initiatives. Powered by our AI know-how and digitalization, we are able to present correct matching and environment friendly providers on scientific trials, incomes us a superb status and belief amongst sufferers.

Hu YaoCo-Founder, Director, and Common Supervisor of Medical Crowdfunding and Healthcare

[Foreign language]

Xiaojiao CuiInvestor Relations

Based mostly on our giant affected person database, we are able to effectively goal sufferers with uncommon ailments. For instance, in This autumn, we collaborated with a number one multinational pharmaceutical firm on a world multi-center part three scientific trial of a drug for uncommon ailments. The variety of certified sufferers for this trial was restricted. Nonetheless, we managed to establish a whole bunch of potential candidates for this trial from our affected person pool.

Most of those candidates confirmed a excessive willingness to take part on this scientific trial after we reached out to them as there isn’t any notably efficient remedy for such illness in China. We’ve thus helped enroll the suitable sufferers for this scientific trial, and the primary affected person screened in China for that undertaking was beneficial by our platform.

Hu YaoCo-Founder, Director, and Common Supervisor of Medical Crowdfunding and Healthcare

[Foreign language]

Xiaojiao CuiInvestor Relations

As a platform pushed by technological improvements, we proceed to improve and optimize our clever affected person recruitment system and combine a number of sources of heterogeneous medical data databases. By leveraging our in depth medical data and main applied sciences, together with medical data mapping and AI deep studying, we’ve developed medical OCR options and digital medical report indexing methods. These enabled automated extraction of key info from totally different unstructured medical texts, together with varied illness names like hepatocellular carcinoma and cholangiocarcinoma, in addition to remedy like chemotherapy, focused remedy, and immunotherapy, thereby bettering affected person recruitment effectivity considerably.

Hu YaoCo-Founder, Director, and Common Supervisor of Medical Crowdfunding and Healthcare

[Foreign language]

Xiaojiao CuiInvestor Relations

Subsequent on know-how innovation. We’ve persistently elevated our funding in know-how to higher serve our clients and enterprise wants. In This autumn, we’ve optimized the operations of our chatbot platform to enhance consumer expertise and salesforce productiveness and utilized for eight invention patents. By making use of pre- and post-processing algorithms for our computerized speech recognition know-how, we’ve improved the accuracy thus lowering surrounding noises.

We’ve additionally utilized {industry} knowledge to conduct incremental pre-training on fashions in order that they’re tailored to our particular eventualities, thereby bettering the mannequin efficiency. We’ve utilized the handbook plus machine strategy to ascertain a bigger scale language database which additional strengthens the semantic evaluation and dialogue ways studying capabilities. We’ve additionally constructed a proprietary TTS engine to customise the voice tone of the chatbots and adopted the handbook plus machine strategy to synchronize the voice output to make the chatbot’s voice sound extra human-like.

Hu YaoCo-Founder, Director, and Common Supervisor of Medical Crowdfunding and Healthcare

[Foreign language]

Xiaojiao CuiInvestor Relations

Thus far, our chatbot platform helps varied enterprise strains, together with customer support, insurance coverage insurance policies search, and renewal reminder. Amongst them, our customer support chatbots can resolve greater than 65% of questions raised by customers. To enhance salesforce productiveness, we began to construct a handbook plus machine coupling system, which permits us to switch buyer requests from chatbot mode to handbook mode on a real-time foundation underneath varied eventualities, thereby bettering consumer expertise and productiveness. As well as, to advertise the general progress of the {industry}, we are going to export our AI functionality to our insurance coverage companions, serving to them improve their customer support capabilities and utilization of gross sales leads.

Hu YaoCo-Founder, Director, and Common Supervisor of Medical Crowdfunding and Healthcare

[Foreign language]

Xiaojiao CuiInvestor Relations

Our refining operations by means of AI applied sciences. Know-how has turn out to be the core driver in selling the transformation of insurance coverage companies. We’ve made constructive progress by way of our insurance coverage digitalization and clever transformation and are working to ascertain extra digital aggressive strengths.

Hu YaoCo-Founder, Director, and Common Supervisor of Medical Crowdfunding and Healthcare

[Foreign language]

Xiaojiao CuiInvestor Relations

Our proprietary AI-powered matching instrument between the gross sales groups and customers can match essentially the most acceptable employees to offer providers for every consumer, primarily based on LPs’ historic service knowledge and the consumer group they’re good at serving. In opposite, underneath conventional on-line advertising and telemarketing, service employees basically attain out to customers on a random foundation. We’ve upgraded our good matching system to model three. In model two, the system was primarily based on LPs’ primary attributes and historic outbound calling data to match essentially the most acceptable employees for every consumer.

As a result of limitation on the variety of calls LPs can dial out every day, this allocation module might solely obtain a partial optimum answer. In model three, we’ve launched timing info and preset allocation mechanisms for LPs, thus main the allocation module nearer to a complete optimum answer. This considerably improves our consumer satisfaction, additional will increase the worth of our gross sales leads, and enhances the effectivity of our whole service system.

Hu YaoCo-Founder, Director, and Common Supervisor of Medical Crowdfunding and Healthcare

[Foreign language]

Xiaojiao CuiInvestor Relations

By three changes to our algorithms structure and greater than 40 rounds of mannequin optimizations, we’ve created hundreds of information options and embedded seven patented applied sciences in our good matching system in 2021, making it an industry-leading, steady, and extremely environment friendly gross sales leads allocation system. In contrast with the normal gross sales leads allocation mannequin, our good matching system has improved the APL by 40%. Since its launch, the system has helped improve our long-term insurance coverage premiums by greater than RMB 60 million, which is equal to a each day improve of RMB 2 to RMB 300,000 per day. The good matching system has shaped a core technological benefit in Waterdrop’s good insurance coverage telemarketing service system.

Hu YaoCo-Founder, Director, and Common Supervisor of Medical Crowdfunding and Healthcare

[Foreign language]

Xiaojiao CuiInvestor Relations

From our in depth knowledge analysis, we discovered that some customers will even take note of different forms of merchandise once they buy a specific insurance coverage product. Therefore, within the course of of buying, we are going to predict whether or not the consumer is eager about different product sorts primarily based on the consumer’s profile. We are going to then present suggestions on extra insurance coverage merchandise in our platform for the consumer’s personal alternative. This try won’t solely tackle the customers’ ache factors in selecting a portfolio of insurance coverage merchandise that fulfill their safety wants, however will even assist improve our insurance coverage premiums by 7%.

Hu YaoCo-Founder, Director, and Common Supervisor of Medical Crowdfunding and Healthcare

[Foreign language]

Xiaojiao CuiInvestor Relations

This concludes my half, after which let me flip over the decision to Kevin, our CFO, to debate our fourth quarter monetary efficiency.

Kevin ShiChief Monetary Officer

OK. Thanks, Hu Yao. Whats up, everybody. I’ll now stroll you thru our key monetary outcomes for the fourth quarter of 2021.

Earlier than I’m going into particulars on the monetary efficiency, please be reminded that each one numbers quoted right here shall be in RMB, and please consult with our earnings launch for detailed info on our comparative monetary efficiency on a year-over-year foundation. Our internet working income decreased by 27.3% yr over yr to RMB 604 million from RMB 830 million and decreased by 25.6% on a comparable foundation, which suggests, with out bearing in mind the administration price revenue from mutual help enterprise which we already ceased within the first quarter of 2021. The decline in income was as a result of lower in FYP outweighing the development of our take price yr over yr. In current months, we’ve seen our take price stabilized and started to choose up ensuing from the development in our enterprise high quality.

Working prices and bills for quarter 4 decreased considerably by 38.6% yr over yr to RMB 678 million. On 1 / 4 over quarter foundation, working prices and bills decreased considerably by 47.5% in comparison with the final quarter, exhibiting our measures on value management have had a major impact. Within the fourth quarter, we took a sequence of measures to cut back working prices and bills, together with lowering spending and bettering the effectiveness and ROI of site visitors acquisition, optimizing our group construction, lowering the redundant headcount of workers, and bettering working effectivity. To interrupt it down, the working prices had been RMB 197 million, a lower of 21.4% yr over yr, primarily as a result of lower of RMB 66 million in skilled and outsourced customer support charges, partially offset by a rise of RMB 19 million in personnel value as our consultants and insurance coverage brokers workforce enlargement in comparison with final yr.

Gross sales and advertising bills decreased by 63.8% yr over yr to RMB 441 million for the fourth quarter of 2021. The lower was primarily as a result of lower of market bills to 3rd social gathering site visitors channels by RMB 485 million, partially offset by the rise in payroll and associated bills for worker concerned in gross sales and advertising features. As we introduced within the last-or final earnings name, we’d reveal such gross sales and advertising bills maturity, and we managed to ship these outcomes this quarter. On a quarter-over-quarter foundation, gross sales and advertising bills decreased by 69.2% from final quarter.

Together with gross sales modal upgrades, we’ve decreased reliance on third social gathering site visitors. So, extra refined operational administration and a strict value management. G&A bills elevated by 25.9% in quarter 4 to RMB 149 million yr over yr and by 33.5% quarter-by-quarter, primarily as a consequence of an impairment lack of RMB 39 million supplied for the prepayments and offset by a lower of RMB 2.5 million in share-based compensation bills in contrast with final quarter. R&D expense elevated by 34.4% to RMB 91 million yr over yr and decreased by 11.6% quarter-by-quarter.

We uphold technology-driven innovation and proceed to put money into R&D in a disciplined method. Within the fourth quarter, we incurred a internet lack of RMB 71 million on a GAAP foundation, whereas producing an adjusted internet revenue of RMB 5.9 million, in contrast with a internet lack of RMB 404 million and an adjusted internet lack of RMB 191 million in the identical quarter of final yr. Heading into 2022, we plan to repeatedly enhance our working effectivity and management our prices and bills. We anticipate to attain non-GAAP revenue for established enterprise, which suggests, present enterprise as of our IPO date, for the yr of 2022.

Such outlook relies on the present market situations and displays our preliminary view and estimates, that are all topic to adjustments. As of December 31, 2021, our money and money equivalents and short-term funding steadiness elevated to RMB 2,787 million, rising RMB 176 million or 6.7% from the top of the third quarter of 2021, as we began to generate constructive working money circulation within the fourth quarter. For detailed monetary knowledge, please consult with our press launch on our IR web site. This concludes our ready remarks.

I’ll now hand it over to the operator to open the decision for Q&A. Operator, we’re able to take questions now. Thanks.

Questions & Solutions:

Operator

Thanks. [Operator instructions] We are going to take our first query as we speak from Qingqing Mao of CICC. Please go forward. Your line is open.

Qingqing MaoCICC — Analyst

OK, thanks. That is Qingqing from CICC. Congrats on the outcomes. I’ve two questions.

The primary is concerning the operation of present clients. Might you discuss extra concerning the renewal price, what is the pattern? And what’s your technique to additional serve the prevailing clients? The second query is, what did you do to drive the numerous enchancment in profitability. Can we anticipate this working margin to proceed in 2022? That is all for me. Thanks.

Yang GuangCo-founder, Director, and Common Supervisor of Insurance coverage Market

OK. That is Yang Guang talking, thanks for the query. By way of renewal, the premium renewal price improved to 89% in December 2021 from 62% in September 2022 — 2021, up by 43%. So, we’ve achieved nice enchancment in our renewal price.

I feel our technique to enhance renewal price is give attention to three essential areas. And why is that we improved our renewal charges by upgrading our renewal merchandise. For instance, we elevated the protection for customers and offering premium reductions for custom-made policyholders. And secondly, we supplied renewal customers with extra product protection choices.

So, a differentiated add-on merchandise technique that made our premium renewal charges up by 5%. And thirdly, we help customers with numerous phrases of funds, akin to auto renewal, month-to-month fee or yearly fee and attain handbook renewal customers by means of message and telephone calls. So, by way of the LTV per consumer, we proceed to transform our customers and improve per consumer LTV primarily by means of enterprise WeChat and O2O mannequin. So, the LTV of This autumn was up by 93% in comparison with Q3.

Hope that solutions your query. And in your subsequent query concerning the working margin, I’ll hand it over to our CFO, Kevin.

Kevin ShiChief Monetary Officer

Thanks, Yang Guang. Thanks, Qingqing. Thanks in your query. As a profitable rollout of the fee management plan, we really — we’ve seen in two consecutive quarters, efficient value management and profitability enhancement.

In contrast with quarter three, our complete working prices and bills additional decreased considerably this quarter, and quarter over quarter declined 47.5% in complete prices and bills was primarily as a consequence of first, a lower of 69.2% saving in advertising expense, and the second is 33.5% lower in working prices quarter over quarter. By way of our advertising expense, if we have a look at our earnings launch in earlier quarters, we discover that our gross sales and advertising bills in quarter two exceeded RMB 1.2 billion, of which about 80% was site visitors acquisition value. In quarter three, gross sales and advertising bills was round RMB 781 million of which round 68% was our site visitors acquisition value. So, we are able to see that the assorted measures of our refined operation have produced sure ends in quarter three.

However with our steady efforts, we’ve achieved extra exceptional ends in the primary quarter. Gross sales and advertising bills considerably decreased to RMB 241 million, and solely lower than one third of gross sales and advertising bills had been incurred for site visitors acquisition. Relating to measures to regulate firm bills, by way of gross sales and advertising bills, our measures elevated however not restricted to first additional discount in advertising expenditure and stricter standards to pick out site visitors acquisition platforms. And second, we’re additionally leveraging our AI powered platform to come back again to extra intelligence and focused advertising.

And by way of working prices, particular measures embody, firstly, reviewing key activity and our enterprise procedures to establish the place and the way to optimize. And the second, integrating organizational features with increased synergies. And third, strengthening the management over collection of suppliers. And the fourth, measuring sure officers who’re transferring to areas with extra affordable rents.

So, we’re transferring sooner heading in the right direction to attain breakeven. And we’ve delivered good outcomes towards explicit goal for the 2 consecutive quarters. We initially plan to acquire by way of this yr — in 2023, we’ve already elevated our efforts to regulate prices and bills and now we’re already made earnings in non-GAAP phrases in quarter 4. Advertising and marketing bills, which was our largest expense merchandise have been considerably decreased within the third and fourth quarter.

And we additionally managed to regulate over prices and firm broad. So, going ahead, we anticipate this pattern to proceed in yr 2022. So, our aim is that our established enterprise will make earnings for the complete yr of 2022 on a non-GAAP foundation. Thanks.

Operator

Our subsequent query, from Michael Li of Financial institution of America. Please go forward.

Michael LiFinancial institution of America Merrill Lynch — Analyst

Thanks. Thanks, administration. That is Michael Li calling from Financial institution of America. And my query is concerning the high quality of your earnings and likewise the quantity development.

You see very robust high quality enchancment in fourth quarter final yr, and likewise the fee management final yr, and fourth quarter led to the primary worthwhile quarter of non-GAAP foundation. However we additionally see the decline, year-on-year decline and quarter-on-quarter decline of your fee revenue development. I do know there’s type of seasonality to this and I do know that final yr second quarter to fourth quarter sector premium development was weaker than first quarter final yr. And we nonetheless wish to know that what’s the goal of your quantity development as a first-year premium development subsequent yr, and the way are you going to attain that type of goal? That is my first query.

The second query is that we all know that you’re going to cost Waterdrop [Inaudible]. So, what’s the function of this type of change of insurance policies? Thanks.

Hu YaoCo-Founder, Director, and Common Supervisor of Medical Crowdfunding and Healthcare

Thanks for the query. I feel as talked about earlier, the whole {industry} is present process cyclical adjustment. So, I feel the important thing motive is that the outdated gross mannequin specializing in scale enlargement can not adapt to the present market situations. And the launch of stricter regulatory insurance policies has intensified the {industry} adjustment.

And so, the tightening rules and cyclical adjustment have made the aggressive setting of on-line insurance coverage providers extra favorable to our firm. So, for instance, the variety of friends have exited the market and our exterior buyer acquisition has improved. So, underneath this setting, our accrued human useful resource insurtech capabilities and benefits in decrease tier cities will allow us to welcome affected person to gasoline for future development, from over the whole insurance coverage {industry} exploring new development mannequin which is able to profit firms increase stronger innovation G&A, similar to us. So, within the meantime, we’ll create new development drivers by wanting on our open platform to supply extra providers to empower the {industry}.

I feel after 5 years of exploration, we’ve accrued robust know-how and capabilities within the insurtech space. Now, we’re constructing our open platform to supply all of the know-how service to the companions available in the market. So, we’ll be solely be firms with bigger consumer group and talent to faucet into the shopper value-able to navigate the unfavorable {industry} cycle to reveal their enterprise resilience and adapt capability. So, each member would be the ones that may remodel and improve the enterprise as early as potential, making needed strategic changes and truly reply to regulatory prices and instructions in future.

So, merely a pursuit throughout all development is just not within the present optimum answer. So, to reply the query concerning the SIP goal, I feel we anticipate our income development will stabilize this yr, when our minimal value management stays unchanged. And actually, our profitability enhancements will proceed to do. So, which means the slowdown development as a consequence of a bit smaller transformation and {industry} adjustment has principally reached an inflection level within the close to future, and the corporate will comply with these more healthy and most sustainable mannequin for the longer term growth.

Hope that solutions your query.

Operator

[Operator signoff]

Length: 70 minutes

Name contributors:

Xiaojiao CuiInvestor Relations

Shen PengFounder, Chairman, and Chief Government Officer

Yang GuangCo-founder, Director, and Common Supervisor of Insurance coverage Market

Hu YaoCo-Founder, Director, and Common Supervisor of Medical Crowdfunding and Healthcare

Kevin ShiChief Monetary Officer

Qingqing MaoCICC — Analyst

Michael LiFinancial institution of America Merrill Lynch — Analyst

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This text represents the opinion of the author, who might disagree with the “official” suggestion place of a Motley Idiot premium advisory service. We’re motley! Questioning an investing thesis – even certainly one of our personal – helps us all assume critically about investing and make selections that assist us turn out to be smarter, happier, and richer.





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Waterdrop Inc. (WDH) Q4 2021 Earnings Call Transcript

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