Huize Holding Limited

Thank you for standing by and welcome to RAISA Holding Limited's third quarter 2020 earnings call. At this time, all participants are in a listen-only mode. After the management has prepared remarks, we will have a question and answer session. Today's conference call is being recorded and a webcast replay will be available. Please visit RAISA's IR website at ir.rasa.com under the Events and Webcast section. Now I'd like to hand the conference over to our speaker host today, Ms. Harriet Hu, Ways and Venture Relations Director. Please go ahead, Harriet.

Thank you, Operator. Hello, everyone, and welcome to our third quarter 2020 earnings conference call. The financial and operating results were released earlier today and are currently available on our IR website as well as on Newswire. Before we continue, I would like to refer you to our safe harbor statement in our earnings press release, which also applies to this call, as we will be making forward-looking statements. Please also note that we will discuss non-GAAP measures today, which are more thoroughly explained in our earnings release and filings with the SEC. Joining us today are our founder and CEO, Mr. Chen Junma, COO, Mr. Li Jiang, and co-CFO, Mr. Ronald Chen. Mr. Ma will start the call by providing an overview of the company's performance and operational highlights for the third quarter of 2020. Mr. Chen will then provide details on the financial results for the period before we open up the call for questions. Now I will turn the call over to Mr. Ma.

I am the CEO of Huize, Ma Chengjun. Thank you for attending the third quarter of Huize 2020 press conference. Looking back at the third quarter, the domestic epidemic has also gradually disappeared. According to the data released by the National Security Bureau, the income of the people who can afford it is the same as that of the rich and the poor. Social security awareness has also been further improved. Consumers' acceptance of online insurance products has also continued to rise. In the context of economic recovery and industry rebound, will grasp the opportunity to go up in time. A unique and differentiated long-term strategy and advanced speed development concept realized the growth of total cost and income double. Created a new high in the quarter. In the third quarter, the platform produced a total cost increase of 41.2%. 41.2% reached RMB 7.79 billion. Total income increase of 22.9% to RMB 3.48 billion. Hello everyone, and thank you all for joining Hui Ze's third quarter 2020 earnings conference call. As China gradually recovers from the COVID-19 epidemic,

The year-over-year growth rate of per capita disposable income reversed from negative to positive in the third quarter of 2020, according to the National Bureau of Statistics. At the same time, we continue to observe a steady increase of people's insurance awareness, as well as increasing adoption of online purchase of insurance products by consumers. In light of the industry's and broader economy's recovery trends, we continue to focus on executing our unique long-term insurance process strategies, as well as our leading digital development capabilities. As a result, we achieved double-digit year-over-year growth in both total GWP and total operating revenue, hitting record quarterly highs. During the quarter, total GWP facilitated on our platform increased by 41.2% year-over-year to RMB $779 million, while total operating revenue increased by 22.9% year-over-year to RMB $348 million, once again exceeding the high end of our previously announced guidance range. Such growth and profitability during the period of uncertainty continue to showcase the viability of our business model, as well as the efficacy of our strategic focus on transforming the distribution of long-term life and health insurance products. 首先,我想花些时间和大家详细讲讲我们专注长期险费后的逻辑所在。

The ratio of long-term health insurance to total health insurance is 92.9%. The ratio of long-term health insurance to total health insurance is 47.1%. The ratio of long-term health insurance to total health insurance is 6.49 billion yuan. From being an expert in long-term health insurance to becoming an expert in this field, we believe that we have the advantage of selling long-term health insurance online. Thank you. Thank you. Before providing additional updates on our quarterly business progress,

I would like to first discuss why we focus on long-term insurance projects. During the third quarter, long-term life and health GWP accounted for 92.9% of total GWP, a ratio which has stayed above 90% for the past four consecutive quarters. At the same time, GWP for long-term health insurance increased by 47.1% year-over-year to RMB $649 million. Our ability to maintain such strong rates is largely driven by our first mover advantage in the online long-term insurance space, where we have formed many competitive strengths in brand influence and professional capabilities, which we believe are also difficult for other industry players to replicate. Our focus on long-term insurance process has a number of advantages. On the one hand, Long-term insurance products generate higher commission rates as well as recurring revenues via policy renewals. On the other hand, our long-term product focus enables us to form more long-standing relationships with clients and cultivate better client loyalty. Our persistence ratio for long-term life and health insurance in the 13th and 25th months of the policy remains stable at 94%, a relatively high level in the industry. The high client retention rates provide us an opportunity to maximize customer lifetime value as we are able to explore and serve the evolving protection needs of clients in different stages of life.

If long-term development has chosen the best track, then the other key point is to newly build our own energy chain. As pioneers of Chinese insurance e-commerce, we have accumulated a large number of multi-dimensional real-time user data and insurance transaction data for 14 years. More complete data means a more comprehensive user image and more precise wind control. It can continue to deepen our users' specific protection needs, product design mechanisms, and understanding of risk and price, and output more valuable insurance customized products. In the third quarter, we launched the customized heavy-duty insurance product, Darwin 3. Once launched, it quickly gained the market's attention. In September, Darwin 3 won the 2020 Popular Health Insurance Product Award. It is worth noting that This is already the sixth time that HuiZhe has won the Grand Prize of Industry in the heavy-duty series of Darwin products, and has repeatedly verified the good reputation and outstanding product customization capabilities of the series of products. At the same time, the value and position of HuiZhe in the industry have also been further recognized. In September, HuRen Research Institute released its first online insurance intermediary service platform in China in 2020. In line with our focus on developing long-term insurance projects,

we also concentrate on building our core competencies. As a pioneering insurance e-commerce platform in China, we have accumulated a massive amount of multi-dimensional client data and transaction data over the past 14 years. By harnessing our superior data resources, we have been able to develop more comprehensive client portraits, employ more precise risk management practices, and deepen our understanding of client-specific insurance needs, product design mechanisms, and risk-adjusting pricing to provide clients with more valuable and customized insurance products. For example, we officially launched a critical illness insurance product referred to as the Darwin 3. Soon after its launch, this product became exceedingly popular. In September, Darwin 3 won the Popular Health Insurance Products of 2020 award. This was the sixth time that our Darwin Critical Illness Series of Insurance Products has won such an award in the industry, further illustrating the series' exceptional reputation as well as our first-rate product design capabilities. value and positioning also continue to gain recognition in the third quarter. For example, in September, Hui Ge was included in Hulun's China Digital Insurance Agency's 2020 list and was grouped among the first-tier level of companies in terms of innovation capabilities and market performance throughout the past two years. Going forward, we firmly believe that the market will increasingly understand the importance of online insurance products and their service channels, as well as the steady trend of separation between insurance underwriting and distribution in the industry as China's insurance market matures. As such, we are eager to capitalize on these opportunities and advance our development with the wind at our backs.

Next, I would like to share our vision for the future development strategy. Among the insurance customers who will serve, high-value customers from high-end and low-end cities will be better satisfied with these high-quality and diversified insurance needs of customers. We will have a selective opening and closing in core cities, set up high-end customer service centers, enhance service experience, and increase the conversion rate of high-value family customers and high-end products. In the next three years, Huize will implement a strategic upgrade. We will use the opportunity of the upgrade of insurance products to target the needs of the digital transformation of insurance services, and use cloud computing, big data, artificial intelligence, and other new technologies as the core to build an insurance product and service cloud platform. The new platform will break the boundaries of the business model, integrate online and offline, and use technology and data to replenish the industry. Huize's insurance products and services I would also like to talk about our future development strategies.

Many of the insurance clients we have served come from families in first and second tier cities with high customer lifetime value potential. We will be rolling out offline service centers in select first and second tier cities in order to better serve their differentiated demands for higher quality products and premium insurance services in order to maximize these customers' lifetime values. Over the next three years, we will take the opportunity to invest in a comprehensive strategic upgrade for the core Huize platform as we evolve into the post-COVID era. where consumers demand further innovation in insurance products and digital transformation of the insurance purchase and service experience. By targeting to build an insurance product and service cloud platform, incorporating core technologies such as cloud computing, big data analytics, and artificial intelligence, we emphasize the upgraded platform will accelerate the integration of online and offline channels, further empower upstream and downstream partners in our ecosystem with data and technology, and ultimately enable the industry as a whole to reach insurance clients in all scenarios and provide them with a fuller range of personalized insurance products and services throughout their entire lifecycle more efficiently. This concludes my prepared remarks for today. I will now turn the call over to our CFO, Mr. Ronald Tan. He will provide an overview of our key financial highlights for the quarter.

Thank you, Mr. Ma and Eric, and hello, everyone. In summary, our third quarter results show a very clear recovery trend. in China's insurance industry as a whole, and in particular, picked up in underlying growth momentum, as shown in the quarter-on-quarter growth across the long-term and short-term product spectrum, as economic activity resumed and domestic travel activity picked up steam following the successful containment of COVID in the country. In particular, during the quarter, we have achieved record quarterly highs for both total GWP facilitators as well as our total operating revenues. For Q3, we added 259,000 new insurance customers, taking our total accumulated insurance clients to 6.7 million. GWP's associated during the quarter totaled RMB 779 million, which was a record quarter, up 41.2% year-over-year and 30.7% on a sequential basis. GWP's contribution to our two largest product segments, long-term health and long-term life, grew by 47.1% and 49.4% respectively year-over-year. In particular, in terms of first-year premiums, long-term health, our largest product segment, increased by 68.1% quarter-and-quarter, amounting to RMB $250 million, which accounts for 70% of total first-year premiums of RMB $358 million for the quarter. The strongest sequential growth is primarily attributable to our latest hot-selling critical illness product, Darwin 3, which we have co-developed with CMSA Life Insurance. The successful product launch also helped contribute significant growth in GWP for co-developed insurance products with our insurer partners, which increased by 65% to RMB $436 million, and accounting for 56% of our total GWP facilitated during the quarter. This metric continues to demonstrate the deepening engagement we have with our upstream insurance companies' partners as we continue to deliver strong consistency ratios from our long-term insurance customers, with 13-month and 26-month consistency ratios averaging 94% during the quarter. Now, things about revenues. Total operating revenue for Q3 was RMB $348.5 million, again, a record quarterly high, which was up by 32.9% year-over-year, and outperform our guidance previously given to the market in our Q2 results. The increase in revenue was primarily driven by the increase in brokerage income, due to the 41.2% increase in total GWP percentages during the quarter. Cost of revenue for Q3 increased by 24% year-over-year to RMB 234.7 million, primarily due to increased service fees paid to our user traffic channel partners, which is generally in line with our revenue growth. Selling expenses for the quarter increased by 43.9% year-over-year to RMB 57.9 million, which was primarily attributable to the increase in our sales and marketing headcount in the past 12 months, as well as an increase in advertising marketing spend during the third quarter, which increased by 78% year-over-year as we looked at the increased spend in line with the improving industry fundamentals along with the overall recovery in the economy. G&A expenses for the quarter decreased by 0.6% year-over-year to RMB $3.5 million. This decrease was primarily due to the decrease in share-based compensation expenses, which amounted to RMB $2.8 million in the third quarter, as compared to RMB $10.5 million in the previous year. Excluding the effect of SBC from our GNA in Q3, GNA expenses grew by 37% from 1% year-over-year to RMB $27.5 million. RMB expenses for the quarter grew by 41.7% year-over-year to RMB $11.5 million, as we continue to increase our headcount in areas of data analytics and AI-related RMB efforts. During the third quarter, we achieved a gap net profit of RMB 14.7 million, while non-gap net profit for the quarter was RMB 24 million. We continued to maintain robust liquidity in a strong financial position. During the quarter, we recorded a net operating cash flow of RMB 72 million, and at the quarter end, we had a combined balance of cash and cash equivalents of approximately 65.7 million US dollars. Now with regards to our Q4 outlooks, we currently expect total operating revenue to be in the range of RMB $330 to $315 million. This forecast reflects the company's current and preliminary views on the market and operational conditions, which are subject to change caused by various uncertainties, including those related to the ongoing COVID pandemic globally. This concludes our prepared remarks for today. We will now open up the call to Q&A. Thank you, Operator.

Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, please press star 1 on your telephone and wait for me to be announced. If you wish to cancel your request, please press down the hash key. When asking a question, please state your question in Chinese first, then immediately repeat your question in English for the convenience of everyone in the call. Your first question comes from a certain Tefu from Citigroup. Your line is open.

Thank you. Then another question related to this is to ask us about our business in 2021. Will our focus be on the part of growth or the part of profit? Then the third question is to ask because we may have So I three questions primarily. The first one is we would like to ask management regarding the guidance on the FYP growth outlook in 2021, especially regarding annuities and health insurance. And related to that, we would also like to know whether growth or profit generation would be quite the focus for 2021. And also I'm interested to know what are your arrangements or preparations regarding to exits of your pre-IPHO principal shareholders since we understand the lockup period should have expired. Thank you.

Okay, thanks for the questions. And I think there are three questions here. I think I'll take the first question first regarding the full year outlook for, I guess, first year premium for the business. I think that what we've seen overall in the first half was a relative deceleration in terms of overall industry growth. And as a result, I think the business has also shown a consistent trend along with the industry. I think in the second half of the year, you can see that sequentially there was a a relatively strong rebound in terms of new business in the third quarter. And in the fourth quarter, I think that despite being a seasonally weak, traditionally seasonally weak season, we are still seeing a relatively good momentum going through the fourth quarter as general market conditions rebound. So overall, I think for the full year, I think we'll be relatively flat versus last year in the first year premiums. But obviously, next year will show re-energized growth within how the industry dynamics have been improving in the second half of the year. The second question was regarding the growth focus for next year. I think that the question was really on whether we'll be prioritizing overall top-line growth versus profitability. I think that for us, I think the next year will be a year for us for not just, you know, continue to execute on our existing business strategy on our long-term products, which we then will see definitely improvement next year, even the market conditions have been rebounding. We will also be going to a new product segment, and as you have noted in your remarks, that will be scaling up our annuities or savings-related products, etc. in the next year, and we'll be looking to target a contribution from this new product vertical, approximately 20% of the total FYP for next year from savings-related products, and particularly annuity products, which we've seen also a very sharp focus from the insurance companies as a whole in terms of the new year product launch initiatives. And the third question is regarding the IPO, pre-IPO investors' intentions towards the lockup. Obviously, we as a company, we focus on offices' execution, but we're making good and consistent dialogues with our existing shareholders, and particularly the larger shareholders. And we believe that both of the shareholders have been indicating to us that they remain very confident in their long-term growth potential, and there would be opportunities for maybe monetization for some of the shareholders and when they have seats, when they arrive. So I think we'll be keeping close dialogue with investors and should there be any opportunities, we'll be in close coordination with investors to make sure that there will be an orderly market for these potential monetization of stakes, help these investors.

Thank you very much, Ron.

Once again, if you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press the pound or hash key. When asking the question, please state your question in Chinese first. Then immediately repeat your question in English for the convenience of everyone in the call. If there are no further questions at this time, I'd like to hand the conference back to our management for closing remarks.

Okay. Thanks for joining the call today, and we look forward to sharing our results in the next time. And during the period, keep safe and healthy, everyone. Thank you very much.

Ladies and gentlemen, that concludes our conference for today. Thank you for participating. You may now all disconnect.