Cheche Group Inc.

Good morning and welcome to the CHACHA group's fourth quarter and 2024 results call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Crocker Colson, Investor Relations for Chaichung Group. Mr. Colson, the floor is yours.

Thank you so much, operator. Good morning, everyone, here in the U.S. Good evening to those of you joining us from Asia. And thanks to all of you for joining us to review Checha's 2024 fourth quarter and full year results. This morning, Checha posted both the earnings release and a related investor presentation to our website, which you can find at ir.chechagroup.com. I'm pleased to say that with me on the call today are Lei Zhang, Checha's founder and chief executive officer, and Sandra Gee, Checha's chief financial officer. After their prepared remarks are concluded, we're going to open up this call to your questions. But before we begin, some statements in this teleconference are for looking within the meaning of federal securities laws. Although we believe these statements are reasonable, we can provide no assurance that they will prove to be accurate because they are perspective in nature. Actual results could differ materially from those that we discussed today. So we encourage you to review the most recent filings with the SEC for the risk factors that could materially impact our results. As I mentioned, the earnings release is available on ir.chechegroup.com, and we encourage you to review the reconciliations of certain non-GAAP measures contained within. With those formalities now out of the way, it's my pleasure to turn the call over to Lei Zhang, Chief Executive Officer. Lei, take it away.

Thank you, Carl. Greetings, everyone. Thank you for joining us today to review Churchill Group fourth quarter and the full year 2024 results. I am pleased to report the Churchill Group continues to perform positively in the rapid involving insurance life gap, driven by the increasing relevance of new energy vehicles. Our expanding partnerships and technological advancements within our platform. Overall, China's NEV sector is seeing continued momentum with penetration rates hovering around 50% of total passenger vehicle sales. For the full year of 2024, the number of embedded Churchill policies were up 159% year-over-year to 1.1 million. with corresponding NEV writing premiums growing 128% from prior year to $452 million USD over the same period. As a leading player in this space, Churchill is well positioned to capitalize on the industry positive trends as we expand our insurance offering for NEV workers to capture renewal and policies for used workers. This is a critical step in growing our customer base and increasing our revenue streams from existing policyholders. The platform grows as the largest auto insurance technology platform by digital auto insurance transaction premiums. continues to lead the industry, providing customized systems and embedded insurance products. As we continue to block strategic partnerships and leverage our innovative solutions, our reach among the NEV manufacturers has grown to 15 as of the fourth quarter. The need for advanced technology, data-driven systems, and caster-tailored insurance products in the NEV space drives improved margins. As the NEV industry continues to match and underwriting becomes more accurate, the higher margins of our NEV policies will continue to positively shift the overall revenue mix. We continue to deepen our partnership with both traditional and NEV automakers. positioning Churchill as a key player in this space. These partnerships provide us with valuable data, insights, and access to customs that will allow us to further expand our presence and enhance our offerings. We are particularly excited about our ongoing innovation in the realm of autonomous driving. In collaboration with automakers and insurers, we are working to launch new suite of products on our independent third-party platform. Their products are designed to help provide forensic reports that connect all parties involved in an accident and assign a sliding scale of responsibility. We plan to launch selected products on a test basis in certain cities later this year. We are also incorporating AI and machine learning into our business by partnering with a leading computer model to enhance efficiency and reduce costs. Currently in development are products that focus on fraud detection in claims management and on rapidly assessing vehicle damage. which we believe will significantly improve customer experience and operation efficiency. Last month, Churchill announced that its innovative Tianmu insurance anti-fraud and risk control model has been recognized in the prestigious top 100 AI products of 2024 list, highlighting Churchill's commitment to leverage cutting-edge technology in the insurance industry. The award-winning TEMU model integrates advanced technologies such as big data, AI, and biometrics to construct an intelligent anti-fraud and risk control system. As a company, we are actively broadening our revenue streams by diversifying across different product types. with a focus on increasing our market share through more tailored and flexible policies. Additionally, we are launching new SaaS and data analytics tools to enhance the value of our technology and further improve our margins. Looking ahead, our unique insights and broad capabilities help drive a growth of the digital insurance industry. delivering great value to our partners and customers. Churchill, alongside our network of insurance companies and intermediaries, will continue to innovate the insurance tax best to offer users more personalized and cost-effective coverage options. We are proud of that what we have achieved and excited these new opportunities that lie ahead. I will now turn the call over to our CFO, Sandra. Thank you.

Thank you, Lei. Firstly, I'd like to begin by touching on our first quarter operational and financial highlights before taking questions. Our total return premiums placed for this quarter increased 15.6%. to RMB 7.4 billion or US dollar 1 billion. While total rates and premiums placed for the fourth year of 2024 increased by 7.5% over the prior year to RMB 24.3 billion or US dollar 3.3 billion. The total number of policies issued increased from 4.8 million for the prior year quarter to 5.1 million in the fourth quarter this year. while the total number of policies issued over the full year of 2024 increased from 15.8 million of the prior year to 17.3 million. As Leigh already mentioned, for 141,000 policies and RMB, 1.4 billion of corresponding premiums were embedded in NEV deliveries, growing 184% and 171% respectively year over year. Embedded policies and the corresponding rates and premiums for the full year of 2024 reached 1.1 million and RMB 3.3 billion, which is US dollar for 152.4 million, respectively, representing growth of 159% for policies embedded and 128% for rates and premiums compared to the prior year. In terms of our net revenues, we generated RMB 983.6 million or US dollar 134.8 million in the first quarter, an increase of 13.4% year over year. Well, net revenues for the fourth year of 2024 increased by 5.2% over the prior year to RMB 3.5 billion, or US dollar, for 175.8 million. The growth was driven by increase in insurance transactions conducted through our platform by referral partners and third-party platform partners. The cost of revenues in the quarter was RMB 932 million, or US dollar, 127.7 million, up 13%, from the prior quarter. Cost of revenues increased by 4.8% to RMB 3.3 billion, or US dollar, for 154.1 million from the prior year, which was consistent with the growth of business volume and net revenues. We also reported a drop of 20.1% in selling and marketing expenses in the quarter to RMB 19.7 million, or US dollar, 2.7 million, primarily due to decrease in staff cost and the lower marketing expenses. For the fourth year, selling and the marketing expenses decreased 28.7% to RMB, 79.5 million or US dollar 10.9 million from RMB 111.5 million in the prior year. General and administrative expenses were also lower this quarter, declining 53.2% to RMB 25.7 million, or US dollar, 3.5 million, from RMB 54.9 million in the prior year quarter, largely due to decreased share-based compensation expenses and partially offset by increase in post-listing professional services fees and staff costs. As for the fourth year of 2024, general and administrative expenses decreased by 22.6% to RMB 107.9 million or US dollar 14.8 million. Research and development expenses decreased 25.3% in this quarter to RMB 9.3 million or US dollar 1.3 million and decreased 33.6 million to RMB 38 million or US dollar 5.2 million from RMB 57.2 million in the prior year. The operating loss in this quarter decreased by 93.7% year-over-year to RMB 3 million or US dollar 0.4 million. If we excluded Non-GAAP expenses, the adjusted operating income for this quarter was RMB 1.3 million, which was US dollar 0.2 million, compared to an adjusted operating loss of RMB 12 million in the prior year quarter, which resulted in the growth of our net revenues and the improvement of our operational efficiencies. operating loss for the full year of 2024 decreased by 60.3% year-over-year to RMB 66.5 million or US dollar 9.1 million, excluding non-GAAP expenses. The adjusted operating loss decreased by 40.2% year-over-year to RMB 28.2 million or US dollar 3.9 million. Land loss in the quarter also improved 67.4% to RMB 10.4 million or US dollar 1.4 million over the first quarter of 2023, while improving 61.6% for four year to RMB 61.2 million or US dollar 8.4 million from RMB 159.6 million over the prior year. Adjusted net loss for the quarter improved to RMB 3 million or US dollar 0.4 million, which is down 38.6% from the adjusted net loss the prior year quarter, mainly due to foreign exchange losses of RMB 5.3 million. Adjusted net loss was only RMB 24.8 million or US dollar 3.4 million in 2024. which decreased by 25.3% from RMB 33.2 million for the prior year. Turning to our balance sheet, we reported RMB 152.9 million, or US dollar 21 million, in cash, cash equivalents, and short-term investments in the first quarter. Next, looking ahead to our four-year, or 2025, guidance, we expect The net revenues to range from RMB 3.6 billion to RMB 3.8 billion, representing an increase of 3.7% to 9.4% compared to the full year of 2024. With total return premiums placed to range from RMB 25.5 billion to RMB 27.0 billion, representing a year-over-year increase of 4.9% to 11.1%. And the return premiums placed are expected to range from RMB 7 billion to RMB 8 billion, representing a year-over-year increase of 112% and 142% growth. We also anticipate our adjusted operating results shifting from a loss to a profit for the year of 2025. I think this concludes our remarks. Next, we will be happy to take your questions. Thank you.

We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question, comes from Alan Klee with Maxim Group. Please go ahead.

Yes, hi, good evening. Congratulations on the quarter where your revenues and bottom line results were better than my projections and also your outlook is better than my projections. So great job. If I could start off on some of the, one of the first things I heard you say on this call was you're looking, you expect to increase revenue streams from existing partners. Could you talk a little bit about how you think that's gonna happen?

Okay. Currently, we have more than 15 new energy vehicles. Our future business growth comes from two aspects. On the one hand, we will increase the number of new customers in OEMs. On the other hand, our existing customers, such as Xiaopeng Ideal, Xiaomi, etc., and some other important vehicles, will increase the number of customers. the existing policy renewal service will continue to be handed over to us. So this will also bring us a continuous increase in business scale. Then from the point of view of risk management, not only from the point of view of risk management, we will also extend from the point of view of giving risk management around its asset risk business, as well as some responsibility risk and accident risk business. will also become our new product line. Okay. On the third aspect, we have the model. Under the different brands of the car, some of the new models, including pure electric, and some of the oil-electric mixed models, are the target of our service. These are the three main aspects.

I'll help translate. Firstly, our revenue growth in the NEV market will come from the below aspect. Firstly, in terms of the partners, we already have 15 partners currently and we will try bring more partners into our business and that's the first pathway to increase our revenue stream. Secondly, during the current partnerships in the past few years, the main growth driver was for the new car deliveries and we already started to do business with our auto makers to to provide service for their used vehicles, for their existing car owners to help them to do the insurance renewal business. So that's the second pathway. And thirdly, apart from the traditional car insurance, auto insurance business, we are already starting to provide non-auto insurance service along with the auto insurance, to constitute a service product package to the car owners. That's the third pathway. And beyond that, we're also trying to provide service to cover more car types within the same partners, because only in Even in the current partnership, automaker can produce a lot of types of cars. Currently, we only cover the parts of their car types. We are trying to cover more and more in the future. Thank you.

Thank you. Could you give, you talked about different ways you're using artificial intelligence. Could you maybe describe some of the examples of how you're using that today and how you might expand it?

Okay. Let me give you an example. In China, most of the new energy vehicles are smart networked. Smart driving has a very high popularity rate. For example, Huawei's Hongmeng Zhixing announced that the price of Zhijia is 35%. Through smart driving, the number of collisions has been reduced to 1.62 million times. This is the latest data. So when smart driving starts, if there is a traffic accident, the owner will think that this accident is not caused by people, but by the stability and safety of smart driving products. So in this case, the insurance industry, we are actually first promoting a new product responsibility line. So the product responsibility line is based on smart driving, the stability, safety and maturity of the product itself. These factors are developed, So now many car companies are actively promoting this kind of product. Our role in Car Technology is to be a third-party witness platform for traffic accidents. So when we come to witness an accident, we are led by the car owner or the intelligent driver. So we do the judgment and division of people and equipment. So we provide the corresponding This is a very typical technology solution in the field of AI, especially in the field of intelligent driving.

So basically in China right now, the percentage of intelligent driving in smart connected EUVs is very high. For instance, among Huawei, how many intelligent driving users? The intelligent driving accounts for about 35% of the total mileage, reducing collision incidence by about 1.6 million times. So when an accident occurs, The car owners would typically think it is caused by the stability and safety of the autonomous system rather than themselves. So under this scenario has urged the insurance industry to introduce a new type of insurance product, which is product liability insurance. This insurance product is designed based on factors such as the stability, safety and maturity of the intelligent driving system. So many automakers are now actively rolling out this product liability insurance, which may be purchased either by the vehicle owner or the automaker. So Churchill's role comes into play when a traffic accident occurs. We as a third party, we can determine whether the vehicle owner or the intelligent driving system was in control at the time of the incident. So we provide an independent third-party platform and SaaS solution with blockchain technology for provision and AI-powered analysis and reasoning. So this is our AI-based technical solution in the intelligent driving area.

Thank you.

That's very interesting. Thank you. And then just maybe two more questions, one on revenues, and we'll all combine them in one big question. On the revenues, I'm curious for your guidance for 2025, how should we think about your projection for revenue growth? How much is because you think the market's going to be growing? like at a certain rate versus how much is relative to your thinking that it's going to be an expansion of what you're offering of, you know, your partners and your new products and upselling and all that. And then, sorry to make this so long, the other one is just, you've been able to increase your gross margins around 50 basis points a year. Does that seem like with more NEVs that's probably that should continue? And you've also been doing a great job on operating expense control and how to think about that in 25. Thank you so much. Sorry for so much.

Okay, yeah. the logic for the revenue growth. If we see the whole market, for the traditional car insurance market, for the past couple years, the year-over-year growth rates are remaining at only 4% to 5% a year. I think for the ICE market, i.e. traditional car market, we will keep growing along with the total industry. So we won't expect big price from that. And for the NEB market, the industry growth rate for the past two years is around 40 to 50 percent. Definitely we are going way faster than the whole industry and we already keep the momentum of growth of over 100 percent growth rate for three or more consecutive years. We expect the trend will continue and as we we showed in the guidance, yeah, we are quite confident that we can enjoy a way faster growth rate in any industry than the, in any market than the whole industry grows. Yeah, that's the logic. And as for the margin, I think I talked before For the traditional car insurance, the gross margin is relatively low, which was only around 3% to 5%. But for the EV insurance, because we provide the system service to our business partners, i.e. those automakers, and we also provide operational and other service, renewal service like we mentioned before, to them, we can enjoy a way higher growth margin in the market, which was around 20%, you know, compared to 3% to 5% for the traditional car market. So that's why we are confident we can, you know, improve our profitability going forward and achieve break-even or even make profits. So thank you.

Thank you very much.

The next question comes from Steve Silver with Argus Research. Please go ahead.

Thanks, operator, and thanks for taking my questions. So the company's exiting 2024 in a very strong capital position in terms of cash. With the expectation of the company turning profitable in 2025, I'm curious if there are any areas that you've identified for capital investments to continue this growth trajectory.

Actually, we don't think we will invest too much in this year besides in the AI sector. R&D sector because, you know, as they mentioned, we are developing certain new types of products like AI claim management and damage assessment tour and also for the third-party platform for the autonomous driving insurance. Yeah, since we are still developing those new products, We will invest some funds into this area, like to increase the service or increase staff investment. Other than that, we don't expect we will invest in other sectors. Thank you.

Great. And so the press release mentions that you're now aligned with the majority of significant NEV manufacturers in China. I'm curious as to whether there are any other groups that will now make up the majority of new partnerships that the company may form, just other areas you might have identified there.

虽然我们目前合作的现在已经有15家的OEMs, 但是我们今年预计还会增加一些。 但这些大家都知道中国的主流的OEMs, Oh, yeah, I'm just not yet. Yo, how can she get to you? So you know, I'm just not trying to do that. I mean, she wants to eat some of her food. I'm a very, I know. I mean, can I get out of this? Oh, yeah, I don't know. I should I see you. I'm not sure. I'm not sure. I'm not sure. As we just mentioned, currently we have been cooperating with 15 AUV makers.

So we expect that in this year, this number will still grow. But as we all know, in China, there are around 20 to 30 AUV makers. and we just take 70% of the total OEMs on the market. So basically in the future, we think the growth will mainly come from the auto insurance renewal services from our existing partners. Because in China, you need to renew your auto insurance each year. So with the NUV keeps growing, each year and this is a big growth.

Thank you very much and best of luck in 2025.

The next question comes from Mark Long with Prime Impact Capital. Please go ahead.

Hi, Lei and Sandra. Congratulations on a strong quarter and strong 2024 momentum and the outlook for profitability in 2025. Very impressive results. And my question, Lei, is around how you plan to leverage the new low-cost open source AI models that are available in China for your new products and what you see in terms of the ability to deploy cost-effective solutions across your portfolio.

Okay. Thank you, Mark. We can actually see from the first quarter of this year, we can see more large models appearing, especially the demand for computing power is getting lower and lower, which means that many industries will be to use the AI model to repeat the process, reduce costs and increase efficiency. Therefore, in the insurance industry, we believe that there will be a corresponding AI application at the two ends of Hebao and Hebei. Hebao is on the pricing side. We can rely on AI technology to implement dynamic data through the vehicle to help the vehicle achieve real-time calculation and real-time pricing. It will use a large number of user behaviors and driving data. This kind of real-time calculated insurance product uses AI technology. It is more accurate than the traditional car insurance pricing, and it is more compatible with the difference in pricing of drivers and thousands of people. In the case of Li Pei's He Pei, we are also based on the vehicle data of the smart network of new energy vehicles. When a traffic accident occurs, to extract the corresponding radar and cameras, including collision data. This series of data will use AI large models to perform intelligent checks and certifications. This kind of solution of intelligent compensation will subvert the traditional insurance compensation process. We have completed the five processes of checks, certifications, compensation, settlement, and payment. So this is an exploration of the two ends of AI.

As we can see, in the first quarter of this year, they show a lot of big models on the market, and a lot of industries are using AI to reshape the industry workflow to reduce the cost and improve in first thing. So about application or AI in the insurance industry, we believe it will play a big role in both underwriting and claim settlement. So on the right side, which is about pricing, we will use AI to help automakers achieve real-time actual area calculations and dynamic pricing. By utilizing a big amount of driving data, including user behavior data, our approach is far more precise than traditional auto insurance pricing methods, which can better reflect the difference among drivers. While on the claim segment side, we are researching solutions that can utilize data from smart connected NUVs. So in the event of accidents, relevant driving data such as the radar readings, camera footage, and collision data can be extracted and analyzed using AI large models for investigation and assessment. So this intelligent claims solution will revolutionize the traditional claims process by integrating five key steps, which are investigation, damage assessment, claims, log calculation, and payment, these five steps into one similar system. So this is our exploration in intelligent claims processing, and we believe it will reshape the entire industry workflow to achieve cost effectiveness and risk mitigation.

Thank you, Mark.

Was there a follow-up, Mr. Long?

No, that's excellent. And it sounds like you're well-positioned to leverage the open source models, which will give you a huge advantage given your relationships with the large NEV OEMs. So that's great. That sounds like you're going to leverage your leadership position and become one of the leaders in how AI reshapes the auto insurance industry in China. Thank you.

Thank you.

Again, if you have a question, please press star then one. The next question comes from Fei Zhang Gao with CITIC Securities. Please go ahead.

Thank you, Mr. Guan. I'm Gao Feixiang from CITIC. So let me translate it. We know that we have some partners such as Xiaomi, Li Auto, and so on. So my question is that why does this OEM prefer to cooperate with us? Could you give some information about this question? And what is our AI products and the future plan? That's all, thanks.

Thank you. These are two questions. The first one is about In the future, Xiao Feng Ideal, Xiaomi, and some traditional car companies like Dongfeng, Guangqi, etc., they chose us to cooperate for two reasons. The first is that we are the most leading digitalized and online-based integrated platform in China. We have integrated the API interface of multiple insurance companies, so that we can help car companies realize online pricing, payment, and order. This series of services is completely digitalized. The second reason is that we have a lot of experience in the operation of car insurance users. So far, we have served more than 20 million car owners in the car insurance market in China. So, whether it is the relationship with the insurance company's contract or the operation of car insurance users on the C-end, we are their best choice. This is the first question. Please translate it for me.

So, as for the first question, why, as you can see, we have been cooperating with the main ANV partners on the market. So basically, there are two main reasons, I think, why they chose us. So the first one is we are the leading digital platform in China. So after 10 years of experience, we have been connected our co-system with multiple insurance companies. So we can help them to realize an online co-occupation and policy insurance. So we provide a full stop services for our partners. And that's the first one. The second one, because we have a rich amount of auto insurance operation experiences. During the past years, we have been providing services for more than 20 million car owners. So whether it comes to operational or technology, we are always the best choice for them.

Okay. The second question is our understanding of AI. In addition to the application I just answered about Hebao and Hebei, the most important point is that The current new energy vehicles are all smart networked. In other words, the current smart driving and smart networked technology of Chinese new energy vehicles is leading the global market. This actually represents the big data behind it. Whether it's driving behavior data or vehicle behavior and collision data, it can all be the best soil for AI applications. So, with the maturity of our open source model, As for the second question about AI, so apart from what I just mentioned,

about the AI application in the claims and on the writing. We think, because right now in China, most of the NUVs are smart connected NUVs, so the internal driving skills in China are leading globally. So basically, on the base, behind base, there we produce a large amount of data, no matter they are driver, user's data, or collision data. All of this data can be utilized in the AI. So that's why right now we are investing in AI techniques. So basically in auto insurance, especially in the smart connected, in the smart AUV insurance, AI will be fully utilized in this industry. So this is our future and this is the direction of our future of our future strategic investment. Thank you.

Was there a follow-up?

Okay, well, clear. Thank you.

The next question is a follow-up from Alan Klee with Maxim Group. Please go ahead.

Oh, hi. I hit the button by accident. I'm sorry.

This concludes our question and answer session. I would like to turn the conference back over to Leigh for any closing remarks.

Thank you. We appreciate you taking the time to join us on the call today. If you have any follow-up questions, please reach out to Investor Relations. Have a great day. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now