Waterdrop Inc.

Good morning, ladies and gentlemen, and thank you for standing by for Waterdrop Inc.' 's fourth quarter and fiscal year 2021 earnings conference call. At this time, all participants are in a listen-only mode. After management's prepared remarks, there will be a question and answer session. As a reminder, today's conference call is being recorded. I would now like to turn the meeting over to your host for today's call, Ms. Xiaojiao Kui. Please go ahead, Ms. Coy.

Thank you, operator. Hello, everyone. Thank you for joining WaterDrop's fourth quarter and fiscal year 2021 earnings conference call. Please note that the discussion today will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities and the Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results differ materially from our current expectations. Potential risks and uncertainties include but are not limited to those outlined in our public findings with ICC. The company does not undertake any obligation to update any forward-looking statement except as required under applicable law. Also, this call includes discussion of certain non-GAAP measures. Please refer to our earnings release for a reconciliation between non-GAAP and GAAP. Joining us today on the call are Mr. Shen Peng, our founder, chairman, and CEO, Mr. Yang Guang, co-founder, director, and the general manager of the insurance marketplace, Mr. Hu Yao, co-founder, director, and the general manager of medical crowdfunding and healthcare, and Mr. Kevin Shi, our CFO. We will be available for a Q&A session after the remarks. Now I would like to turn the call over to our CEO, Mr. Shen Peng. Please go ahead.

Hello. Thank you for participating in the fourth quarter of 2021. Since the third quarter of 2021, the capital market has been shaking. At the same time, the insurance industry is growing rapidly. However, no matter how the market changes, we use technology to continue to improve the efficiency of insurance and the medical industry, and do our best to do our job patiently. We continue to create long-term value for ordinary people, and we are determined to make changes.

Hello, everyone. Thank you for joining our fourth quarter 2021 earnings conference call. Since the beginning of the third quarter, the capital market has experienced further volatility and the growth of the insurance industry has somewhat slipped down. But no matter how the market changed, we have been keeping our commitment to developing our business in a customer-centric manner, leveraging technology to improve operational efficiency in insurance and healthcare business. solidifying business fundamentals and creating sustainable long-term value for our shareholders. Firstly, we will be confident in the future and be patient in the present. While the insurance industry has had various challenges in the last half year, we see those challenges as good opportunities for us to strengthen the fundamentals of the company. No matter the operating environment, we have stayed true to our commitments and given our utmost efforts more proactively and relentlessly.

As a top-tier player in China's insurtech and online healthcare market, we strive to make our business strategies more responsive and move full steam ahead.

In Q4 2021, we seriously adjusted our business strategy and implemented it devotedly in response to the changing environment.

In Q4 2021, we seriously adjusted our business strategy and implemented it devotedly in response to the changing environment. In Q4 2021, we seriously adjusted our business strategy and implemented it devotedly in response to the changing environment.

Previously, Waterdrop pursued a fast growth in user base and total revenue while keeping ROI within a reasonable range. Starting in the second half of 2021, we have more pragmatically pursued a higher quality development to achieve healthy and sustainable growth, We have continued to invest in strengthen our advantages in some businesses, and meanwhile strive to generate revenues and profits on other businesses.

In 2021, the fourth quarter of the financial report, the company also gave everyone a preliminary proof of the execution and determination of the management team. In the fourth quarter of 2021, the company has achieved a long-term profit. The company is still working hard. We have further strengthened the intention and awareness of continuing to create value for users throughout the year. We have continued to pay attention to and build the ability to be healthy and profitable in our daily work. We hope to achieve a healthy and sustainable development of mature businesses throughout the year in 2022. We will continue to develop mature businesses throughout the year and be a small target for the company in 2022. At the same time, our business innovation is still in progress. Our fourth quarter results have affirmed the execution ability and determination of our management team, and the company achieved a non-gap profit in this quarter.

We are still working hard and have also reinforced our ongoing commitment to creating value for our customers. We urge our staff in their daily work to continue focusing on sustainable development in our established business and strive to realize operating profit in long-term as one of our objectives in 2022. Meanwhile, We will continue to innovate through our careful incubation initiatives in selected new areas, as well as stay in focusing on areas difficult but valuable to our customers in existing businesses. The challenges are huge, but we will remain steadfast to achieve breakthroughs in the pursuit of innovation.

Our new pace of operation also creates an opportunity for our team to further improve our core competencies. It helps us develop stronger organizational capabilities while delivering better business performance.

One of my new objectives is to optimize the leadership pipeline with high standards, strengthen organizational capabilities, and enhance management ability to lay the foundation for cultivating more excellent managers at all levels in the next three years.

In the second quarter of last year, the company announced a recovery plan for the first half of this year. After that, we began to carry out the recovery under the framework of the agreement. From the start of the recovery, on December 31, 2021, we have recovered about 1.3 million shares of the company A.S. We plan to continue to carry out the recovery in the appropriate period of time this year. We plan to recover the A.S. of the company A.S. in the future. We are confident about the future and we will remain patient today. We firmly believe in the long-term growth potential of China's health insurance market and a more prosperous future for water jobs. In our earnings release for the second quarter of 2021,

We announced a one-year share repurchase plan, and since then, we have carefully begun to implement the plan under the relevant compliance framework. From the launch of the repurchase plan to December 31, 2021, we have bought back around 1.3 million ADS in total, and this year, we will continue to buy back shares. We plan to use these repurchase ADS for our employee incentive plan in the future. In addition, based on our confidence in the company's future development and our dedication to investing in the company in the long run, our management also plans to use personal funds to purchase Waterdrops ADS in due course, pursuant and subject to applicable laws and the company's securities trading policy.

Secondly, I would like to say that Waterdrops has already fully cooperated with the company to welcome 2022. In 2021, the new regulatory rules and industry policy materials are aimed at promoting industry-standardized health development, which has long been helpful for industry integration. WaterD as a listed company continues to respond to the direction of supervision, and is actively involved in supervision to maintain good communication, and actively replace the updated business model to ensure reliable and stable business. For the insurance industry-related policy system, the direction of future industry development, We will continue to operate in full compliance and embrace 2022 with passion. In 2021, a few new regulatory guidelines and industry policies aiming to promote healthy development of the industry were released.

which will contribute to consolidation of the industry in the long term. As a listed company, WaterDrop has continued to respond to the new regulatory guidance proactively and maintain good communication with the regulators. We also took the initiative to pivot our business model to ensure that we comply with the new rules. The regulatory rules have provided a clearer direction for the future development of the industry. In Q4, WaterDrop conducted business model upgrade adjusted the product portfolio and customer acquisition model. Looking ahead, we will continue to promote the healthy development of the industry proactively and firmly.

can show sufficient business resilience and stability in the industry adjustment period. Especially in the near future, with the repeated epidemic, I believe the demand for national security will continue to increase, and it is more likely to turn to online channels. For online platforms such as SuiDi, there are new opportunities. Even in the face of short-term challenges, we still insist on strengthening the control of cost and the optimization of profit and loss, but also on the right track of high-quality development,

With a unique positioning of WaterJob in helping promote inclusive insurance, we also share the same common prosperity path advocated by the government. We have established a solid business infrastructure through our product development capabilities, technological innovations, and unique synergies among our business segments. These initiatives helped us demonstrate our resilience and stability as the industry experiences a period of adjustment. With the recent pandemic recurrences, we believe that the demand for insurance protection will continue to rise in the future, and consumers will be more inclined to turn to online channels, which present more opportunities for online insurance platforms like us. Despite the many short-term challenges that we are faced with, we are committed to strengthening our cost control and optimizing profitability, ensuring that we are on the right track to sustainable and quality growth in the years ahead.

Thank you. In the year 2021, China's insurance industry underwent a period of adjustment with downside pressure. According to the statistics from the CBIRC, the annual growth in gross recent premium, or GWP, for the health insurance sector was only 3% in 2021, the lowest in the past 10 years. And the GWP saw a decrease of 3% year-over-year for both the third and the fourth quarter. In 2021, the total profit of life and health insurance companies decreased by 47% year-over-year. 63 percentage points lower than the goals in the year 2020. So to summarize, in short, transformation will be the keyword that best represents the current state of the insurance industry. Regulatory authorities have introduced a series of annual policies that aim at guiding the elderly development of the industry. So currently, many life insurance companies are proactively undergoing business restructuring and accelerating the pace of high-quality transformations. So these insurance companies are returning to the mission of providing protection for users instead of simply pursuing market scale. Besides, they are focusing more on the profit contribution of new policies. So in such environment, Water jobs FYP increased by 13.4% year-over-year to RMB 16.3 billion in the year 2021. Against the backdrop of industry slowdown and the new regulatory directions, we have transformed our user acquisition model from the first month discount price products to the first month original price products. since the end of the third quarter. So in Q4, we focused on adjusting and upgrading our business in many areas. The preliminary results show that the substantial improvement in our operating efficiency has helped us turn operating loss into profit, with RMB 4 million adjusted net profit in Q4, compared to 453 meeting laws in the third quarter. So next, I'm going to summarize the major progress we have made in Q4 from three perspectives. Firstly, we have achieved and have significantly improved our operating efficiency. Q4 is the first full quarter that the first month discount price model for our online short-term interest products was terminated and replaced by the first month original price model. This resulted in a slowdown in our revenue growth, but a significant improvement in our key operating efficiency indicators when compared with Q3. Our retention rate increased significantly, driving the take rate of our short-term influence business to 33% in Q4. At the same time, the one-year LTV of our new users increased materially. Since we changed our business model in Q4, the month-end user net promoter score has increased, and the users are convinced rate has declined. So in Q4, we achieved remarkable results in the management of existing users. We established a unified user management platform that can integrate various marketing channels, including WeChat official accounts, WeChat mini programs, apps, and enterprise WeChat accounts. This allowed us to adopt a standardized approach to engaging users of different profiles, left cycles, and from different marketing channels. We have modified our service platform to focus on interest policy services, content inquiry services, health services, and member services. We have also increased the user engagement rates and online sales conversion rates of our users. In Q4, our three-year repurchase rate for short-term products stayed at 59%, up by 14 percentage points compared to Q3. And the number of enterprise WeChat contact users reached 5.4 million in Q4, up by 14.6% compared to Q3. This will allow us to interact with our policyholders more frequently and provide real-time services through our chatbot and customer service executives. And those enterprise re-check contact users contribute the purchase of short-term policies with a total amount of RMB 16.6 million, an increase of about three times compared to Q3. We made significant progress. We also made significant progress in our self-developed AI robot for policy renewal, especially in recognition of our users' intention in renewable and human voice simulations. Our short-term interest renewal rate exceeded 78% in Q4, which reached the leading position in the industry. We also improved the conversion rate of our short-term interest users to long-term interest users. And the average productivity of our long-term interest consultants reached R&B 66,000 per month, an increase of 66% compared to Q3. So the contribution of long-term interest business to LTV reached 27%. up by over 10 percentage points compared to Q3, reflecting an increase in our effectiveness in optimizing the long-term value of our existing vendors. Meanwhile, aligned with the new regulatory requirements and the changes in the market conditions, we optimized our key insurance products, and then we added 61 new products in the fourth quarter, providing full range health and life interest protection for our users, and we also brought a faster and more reliable claim settlement experience to our users. The shortest claim settlement period was only 18 seconds, and the highest claim settlement amount in a single case was 1.5 million in Q4. So the enhancement of our customer value is our long-term commitment, and it's also one of our core competencies. Through the transformation of our business model, the operating efficiency enhancement of our existing user management, and the continued upgrade and innovations of our input products, we have made a significant improvement in the quality of our users and various operating metrics. We believe this will lay a solid foundation for our mature business to achieve profitability in the long run. And secondly, we upgraded our technology capabilities and empowered our digitalization of the industry. Even easy to be a transformation of our own business model, we strengthen our investment in our AI-powered technologies. In Q4, for our AI-powered matching system, which helps match the most appropriate sales step from potential long-term interest buyers, we conducted more than 20 long-term system iterations and three algorithm architectural upgrades. This helped increase our long-term interest premiums by more than RMB 40 million. In addition, the sales developed screen sharing interaction system applied on the highly marketing scenarios widely in Q4. The system now covers more than 2,000 sales staff with roughly 1.5 hours of daily use per sales staff. The monthly productivity of this sales staff increased by 34%. driving an increase in our monthly premiums by around RMB 20 million. The level of technology used for this system is at an industry-leading standard, and we have currently applied for five patents on the technology. Our investment in technology has helped improve our operating efficiency significantly. In Q4, our best-performing sales staff achieved productivity of RMB 94, Well, our average productivity for Salesforce was 2.5 times that of the industry average. And I think the improvement in operating efficiency has given us even more confidence in our technology investment. So we also made a remarkable progress in exporting our technology to the interest industry in Q4. For example, we have leveraged our SaaS-based CRM system and online customer measurement capabilities to provide user operation services to interest companies. So in Q4, we entered into cooperation with three interest companies to utilize our technology and successfully helped them achieve tens of millions of RMD in premium income. Our next plan is to integrate our intelligent coding robot system with existing business process and thereby empowering the industry with stronger technology utilization. Certainly, we continue to pursue new business innovations. In Q4, led by our newly joined and experienced team leaders, Our online to offline brokerage business also shows solid progress. As of December 31, 2021, our brokerage team has set up three branches in Beijing, Guangdong, and Shenzhen, and established a sales team of nearly 300 people. This team generated a total premium income of approximately RMB 5 million in Q4. So we also empowered our brokerage team with a powerful set of technology-driven tools for business development through our full system, including the digital operating system, the product system, the training system, and the marketing system. On top of our existing brokerage model, we are also actively exploring a more diversified and optimized offline brokerage model In this year, 2022, we plan to launch an independent agent model for high-end customers. This will enable us to establish a multi-layered brokerage business model that can serve different target customer groups. In addition, we have innovated new interest products to serve special customer groups. For example, for special groups such as tumor patients, We have launched a medicine plus insurance service model, which enables those customers to get medicines very conveniently at the DTP pharmacies that we cooperate with and enjoy insurance protection in accordance with their medical conditions and protections against medical safety. We have also launched accidental insurance products covering the surgical patients and we are developing critical units into the process and insurance against recurrence risk as well as tailored meeting medical insurance for those asymptomatic carriers. So in conclusion, at the first full quarter for our business model upgrade, we have made a good start in Q4 2021 by focusing on the improving by focusing on improving the quality of our users, optimizing the operating efficiency, and strengthening long-term technology capabilities. We have to say that the interest industry is doing the adjustment and transformation period, and our transformation will continue. For the next quarter or two, our insurance business will still be in the process of transformation to the new growth model and the new operating model. As we continue to face the ups and downs in the short term, we are still optimistic about the long-term fundamentals of the insurance industry, and we believe that the competitive landscape will improve after further industry consolidation. This together with our focus on long-term vital creation through solid user management and technological capabilities should help improve our operating and financial results after adjustment of one quarter or two, including reaching profitability in our mature business line. I think that's all for my part. Next, I'm going to hand it over to Yuyao for the update on the medical crowdfunding platform.

Thank you, Yuyao. Firstly, let me update on our medical crowdfunding business. Our WaterDog medical crowdfunding business grew in an orderly manner, further reinforcing its market-leading position. As of the end of Q4,

The cumulative number of donors reached 394 million, helping 2.36 million patients and pushing the cumulative funds raised to over 48.4 billion RMB.

In 2021, we have assisted more than 15,000 difficult patients in the Jiyun County to carry out the focus of marking and process management. According to the calculation, under the support of this model, the medical expenses of the difficult people in 2021 have reduced by more than 14 million yuan. To support the Common Prosperity Initiative, we began in-depth cooperation with local governments. Our cooperation with the Jinyun County government on Jingjingfang

a medical insurance poverty relief project has been working well. In 2021, WaterDrop has assisted Jiyun County in the active identification and the management process of more than 15,000 people in need of medical aid. According to our estimates, the platform helped reduce the out-of-pocket expenses of the needy by over 14 million RMB in 2021 or a year-on-year decline in such expenses of about 12%. In 2021, the number of people in poverty caused by diseases reduced by 77% year-over-year. The Jinyun Project was ranked No. 7 in the list of best applications in digital society selected by the Zhejiang Provincial Development and Reform Commission.

In addition, this season, we also cooperated with the China Resuscitation Foundation, People's Daily Health Business, China Red Cross Foundation, Henan Provincial Real Estate Association, and other relevant media and charity organizations to carry out operations around medical resuscitation and supplementation system construction. In December 2021, more than 200 key hospitals have participated in our project.

In addition, in Q4, we cooperated with media and the charity organizations, including China Social Assistance Foundation. The study helps us to explore the establishment of supplementary medical aid program. We also launched the Water Drop Critical Illness Charity Aid Project, which operates under the self-aid plus charity aid model to provide Supplementary medical aid funds to patients with critical illness and in need of financial assistance. As of December 2021, there have been more than 200 key hospitals participating in the project, which helps to reduce the financial burden on healthcare expenses. 接下来更新一下我们在患者招募业务在四季度的进展。 Next I will update you on the progress of our patient recruitment business in the fourth quarter.

First of all, in terms of scale, as of the end of the fourth quarter of 2021, general platforms under the water level have collected more than 300 registered rare clinical trials projects. It has become one of the largest third-party recruitment platforms in China in the field of intracranial clinical trials, which has become one of the largest third-party recruitment platforms in China in the field of intracranial clinical trials, which has become one of the largest third-party recruitment platforms in China in the field of intracranial clinical trials, And in rapid growth, there are nearly 10,000 patients who ask for water and water every day, and they are also a potential high-impact patient group that will continue to join clinical trials in the future. In terms of pharmacy cooperation, the company has established cooperation with more than 40 domestic and foreign innovation pharmacies, CIO institutions, including Zhengda Tianqing, Shiyao, Shinda, Zaiding, Covence, and other leading companies, and has received high recognition from the partners.

In terms of scale, by the end of Q4, our EFAM platform has undertaken more than 300 clinical trial programs for new drug registration. It has become one of the largest third-party patient recruitment platforms for oncology clinical trials in China. The number of patients enrolled in clinical trials for chronic diseases and common diseases has approached 100 in a single month and continues to grow rapidly. Nearly 10,000 patients turn to WaterDoc for help every day, and they are potentially high willingness candidates for clinical trials projects going forward. In terms of cooperation with pharmaceutical companies, we have established partnerships with more than 40 innovative pharmaceutical manufacturers and CROs in China and worldwide, including Zhongda Tianqing, CSPC Innovant, Zylab, and Labcorp Drug Development, We have been highly recognized by our partners.

especially in the field of tumor, vascular, and infection. And our general platform provides the ability to quickly and accurately complete the project matching recruitment. The reason why it can form a significant competitive advantage in the industry is mainly due to the fact that it is the largest large-scale fund-raising platform and large-scale patient community in the country. With a large number of patient databases and the ability to contact patients in multiple channels and multiple ways online, we have also operated many high-quality projects. With the help of AI and digitalization, we have been able to accurately match and cooperate with efficient services, and we have also established a good reputation and credibility in the patient community.

Patient recruitment plays an important role in improving efficiency and shortening the R&D process in clinical development. According to the Director of the Institutional Office of Peking University Cancer Hospital at the 2021 Clinical Trial Symposium, patient enrollment directly affects the success of clinical trials. About 85% to 95% of trial delays are due to the failure to recruit qualified patients as planned. especially in the field of oncology, cardiovascular infection, et cetera. Our e-fund platform can quickly and accurately recruit patients that are suitable for the trial projects. Our key competitive edge in the industry is built on several factors. First, as the largest community of patients with clinical illnesses in China and the largest medical crowdfunding platform, WaterDrop has a massive patient database and the ability to reach patients through various online and offline channels. Second, we have run a large number of high-quality projects. Powered by our AI technology and digitalization, we can provide accurate matching and efficient services on clinical trials, earning us a good reputation and trust among patients.

In the fourth quarter, the company cooperated with a global multi-center of three-stage clinical research. The treatment of the drug is a rare disease. The patient took it in hand. Through the excavation of the patient database on the platform, we found hundreds of potential victims of this disease. Through communication and follow-up with this part of the patient, we found that the patient group is very interested in this clinical study. Because this disease is currently not particularly effective in treatment in China, we have built a bridge that connects with the research center for the patient.

Based on our large patient database, we can efficiently target patients with rare diseases. For example, in Q4, we collaborated with a leading multinational pharmaceutical company on a global multicenter phase 3 clinical trial of a drug for rare disease. The number of qualified patients for this trial was limited. However, we managed to identify hundreds of potential candidates for this trial from our patient pool. Most of these candidates showed a high willingness to participate in this clinical trial after we reached out to them as there is no particularly effective treatment for such disease in China. We have thus helped enroll the appropriate patients for this clinical trial, and the first patient screened in China for that project was recommended by our platform.

As a platform driven by technology innovation and innovation, we continue to carry out optimization of the intelligent recruitment system, integrate and diversify the medical data and intelligence department, combine knowledge in the field of medicine, use medical knowledge to study deeply, and build the ability to identify medical documents. As a platform driven by technological innovations, we continue to upgrade and optimize our intelligent patient recruitment system

and integrate multiple sources of heterogeneous medical knowledge database. By leveraging our extensive medical knowledge and the leading technologies, including medical knowledge mapping and AI deep learning, we have developed medical OCR solutions and electronic medical record indexing techniques. These enable the automated extraction of key information from different unstructured medical texts, including various disease names like hepatocellular carcinoma, and cholangiocarcinoma, as well as treatments like chemotherapy, targeted therapy, and immunotherapy, thereby improving patient recruitment efficiency significantly.

From the perspective of service users and service businesses, Water滴 continues to increase technical investment, optimize the optimization of the robot platform, and apply for 8 days of invention patent, which increases user experience and service efficiency. By increasing the processing algorithm of the front and rear, increasing the accuracy rate of ISR, and reducing the impact of environmental noise, by using business data to do model increase pre-training to make it suitable for the situation of Water滴, Next on technology innovation.

We have consistently increased our investment in technology to better serve our customers and the business needs. In Q4, we have optimized the operations of our platform to increase user experience and productivity and apply for eight invention patents. By applying pre- and post-processing algorithms for our automatic speech recognition technology, we have improved the accuracy without reducing surrounding noises. We have also applied industry data to conduct incremental pre-training on models so that they are adapted to our specific scenarios, thereby improving the model performance. We have applied a manual plus machine approach to establish a larger scale language database which further strengthens the semantic analysis and dialogue tactics learning capabilities. We have also built a proprietary TTS engine to customize the voice tone of the chatbot and adopted the ManuPlus machine approach to synchronize the voice output to make the chatbot voice sound more human-like.

Today, our chatbot platform supports various business lines,

including customer service, insurance policy search, and renewal reminder. Among them, our customer service chatbot can solve more than 65% of questions raised by users. To improve Salesforce productivity, we started to build a manual plus machine coupling system, which enables us to transfer customer requests from chatbot mode to manual mode on a real-time basis under various scenarios. thereby improving user experience and productivity. In addition to promote the overall progress of the industry, we will export our AI capability to our insurance partners, helping them enhance their customer service capabilities and the utilization of sales needs.

Our final operations through AI technology. Technology has become the core driver in promoting the transformation of insurance businesses. We have made positive progress in terms of our insurance digitalization and intelligent transformations.

and are working to establish more digital competitive strength.

We are working to establish more digital competitive strength. In the 2.0 version, based on the basic attributes of LP and historical data, the user is matched. Due to the limited number of LPs that are broadcasted daily, the overall distribution of system models is limited in part. In version 3.0, by introducing continuous information, by pre-distributing LPs, the model is able to jump out of the maximum limit of the maximum limit of the maximum limit of the maximum limit of the maximum limit of the maximum limit of the maximum limit of the maximum limit of the maximum limit of the maximum limit of the maximum limit

Our proprietary AI-powered matching tool between the sales team and the users can match the most appropriate staff to provide services for each user based on LP's historical service data and the user group they are good at serving. In contrary, under traditional online marketing and telemarketing, service staff essentially reach out to users on a random basis. We have upgraded our smart matching system to version 3. In version 2, The system was based on LPs' basic attributes and historical outbound calling records to match the most appropriate DAW for each user. Due to the limitation on the number of calls LPs can dial out each day, this allocation module could only achieve a partial optimal solution. In version 3, we have introduced timing information and preset allocation mechanisms for LPs, thus leading the allocation module closer to a comprehensive optimal solution. This substantially improves our user satisfaction, further increases the value of our sales leads, and enhances the efficiency of our entire service system.

In 2021, the smart clue matching system of水滴 has been adjusted three times, with 40 times of model optimization, and it has built thousands of features, and it has become a stable and efficient clue distribution device, which has reached the leading level in the industry. Through three adjustments to our algorithm's architecture and more than 40 rounds of model optimization,

we have created thousands of data features and embedded seven patented technologies in our smart matching system in 2021, making it an industry-leading, stable, and highly efficient sales lease allocation system. Compared with the traditional sales lease allocation model, our smart matching system has improved the APL by 40%. Since its launch, the system has helped increase our long-term insurance premiums and more than 60 million RMB, which is equivalent to a daily increase of 200,000 to 300,000 RMB per day. The Smart Matching System has performed a core technological advantage in WaterJava's Smart Insurance Tally Marketing Service System.

Regarding the recommendation of additional insurance, after a large number of data surveys, it was found that when some users buy a certain insurance product, there will still be attention to other types of products. As a result, when Shady buys insurance from users, it will also rely on the characteristics of the user, whether the user is interested in other types of insurance, and what other types of insurance are they interested in, to make predictions, and through page recommendations to the user's own choice.

From our extensive data research, we found that some users will also pay attention to other types of products when they purchase a particular insurance product. Hence, in the process of purchasing, we will predict whether the user is interested in other product types based on the user's profile. We will then provide recommendations on additional insurance products in our platform for the user's own choice. This attempt will not only address the user's pain points in choosing a portfolio of insurance products that satisfy their protection needs, but will also help increase our insurance premiums by 7%. That concludes my part, and then let me turn over the call to Kevin, our CFO, to discuss our fourth quarter financial performance.

Okay. Thank you, Huyao. Hello, everyone. I will now walk you through our key financial results for the fourth quarter of 2021. Before I go into details on the financial performance, please be reminded that all numbers quoted here will be in R&D. and please refer to our earnings release for detailed information on our comparative financial performance on a year-over-year basis. Our net operating revenue decreased by 27.3% year-over-year to RMB $604 million from RMB $830 million and decreased by 25.6% on a comparable basis which means without taking into account the management fee income from mutual aid business which was already seized in the first quarter of 2021. The decline in revenue was due to the decrease in FYP outweighing the improvement of our take rate year-over-year. In recent months, we have seen our tick rate stabilized and began to pick up resulting from the improvements in our business quality. Operating costs and expenses for quarter four decreased significantly by 38.6% year-over-year to R&D 678 million. On a quarter-over-quarter basis, operating costs and expenses decreased significantly by 47.5% compared to the last quarter, showing our measures on cost control have had a significant effect. In the fourth quarter, we took a series of measures to reduce operating costs and expenses, including reducing spending and improving the effectiveness and ROI of traffic acquisition, optimizing our organization structure, reducing the redundant headcount of employees, and improving operating efficiency. To break it down, the operating costs were RMB 197 million, a decrease of 21.4% year-over-year, mainly due to the decrease of RMB 66 million in professional and outsourced customer service fees, partially offset by an increase of RMB 19 million in personnel costs as our consultants and insurance agents' team expressions compared to the last year. Sales and marketing expenses decreased by 63.8% year-over-year to RMB $441 million for the fourth quarter of 2021. The decrease was mainly due to the decrease of market expenses to third-party traffic channels by RMB $485 million partially offset by the increase in payroll and related expenses for employees involved in sales and marketing functions. As we announced in the last earnings call, we would reduce sales and marketing expenses maturely, and we managed to deliver the results this quarter. On a quarter-over-quarter basis, sales and marketing expenses decreased by 69.2% from last quarter. Along with sales model upgrades, we have reduced reliance on third-party traffic through more refined operational management and strict cost control. G&A expenses increased by 25.9% in Q4 to RMB 149 million year-over-year. and by 33.5% quarter by quarter, mainly due to impairment loss of RMB 39 million provided for the pre-payments and offset by a decrease of RMB 2.5 million in share-based compensation expenses compared with last quarter. R&D expenses increased by 34.4% to R&D 91 million year-over-year and decreased by 11.6% quarter-by-quarter. We uphold technology-driven innovation and continue to invest in R&D in a disciplined manner. In the fourth quarter, we incurred a net loss of R&D 71 million gap basis while generating an adjusted net profit of RMB 5.9 million compared with a net loss of RMB 404 million and an adjusted net loss of RMB 191 million in the same quarter of last year. Heading into 2022, we plan to continuously improve our operating efficiency and control our costs and expenses We expect to achieve non-GAAP profit for established business, which means existing business as of our IPO date for the year of 2022. Such outlook is based on the current market conditions and reflects our preliminary review and estimates, which are all subject to changes. As of December 31st, 2021, our cash and cash equivalents and short-term investment balance increased to RMB 2787 million. Increasing RMB 176 million was 6.7% from the end of the third quarter of 2021, as we started to generate positive operating cash flow in the fourth quarter. For detailed financial data, please refer to our press release on our IR website. This concludes our prepared remarks. I will now hand it over to the operator to open the call for Q&A. Operator, we are ready to take questions now. Thank you.

Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Please limit yourself to two questions at a time so that others can ask their question. In addition, for those who speak Chinese, would you please ask your questions in Chinese first, followed by the English translation. Again, press star 1 to ask a question. We will pause for just a moment to allow everyone an opportunity to signal. We will take our first question today from Jing Mao of CICC. Please go ahead. Your line is open.

Okay, thanks.

This is Jingjing from CICC. Congrats on the results. I have two questions. The first is about the operation of existing customers. Could you talk more about the renewal rate? What's the trend? And what's your strategy to further serve the existing customers? The second question is, what did you do to drive the significant improvement in profitability? Can we expect this operating margin to continue in 2022? That's all for me. Thanks.

Okay.

This is Yangbao speaking. Thank you for your question. I think in terms of renewal, the premium renewal rate improved to 89% in December 2021 from 62% in September 2021 up by 43%. So we have achieved a great improvement in our renewal rate. I think our strategy to improve renewal rate focus on Three main areas. One is that we improve our renewal rates by upgrading our renewal products. For example, we increase the coverage for users and providing premium discounts for customized policyholders. And secondly, we provided renewal users with more product coverage options through our differentiated add-on products strategy that made our premium renewal rate up by 5%. And thirdly, we support users with diverse terms of payment, such as auto renewal, monthly payment, or annually payment. and reach the manual renewal users through message and phone calls. So in terms of the LTV per user, we continue to convert our users and increase the user LTV mainly through enterprise WeChat and O2O model. So the LTV on Q4 was up by 93% compared to Q3. I hope that answers your question. And for the next question regarding the operating margin, I'm going to hand it over to the camera.

Thank you. Thank you, Qingqing. Thank you for your question. As a successful rollout of the cost control plan, we actually have seen two consecutive quarters in effective cost control and profitability enhancement. Compared with quarter three, our total operating costs and expenses further reduced significantly this quarter. The quarter-over-quarter decline of 47.5% in total costs and expenses was mainly due to, first, a decrease of 69.2% saving in marketing expense, and second, a 33.5% decrease in operating costs quarter-over-quarter. In terms of our marketing expense, if we look at our early release in previous quarters, we may find that our sales and marketing expenses in quarter two exceeded RMB 1.2 billion, of which about 80% was the traffic acquisition cost. In quarter three, sales and marketing expenses was around RMB 781 million, of which around 68% was our traffic acquisition cost. So we can see that the various measures of our refined operation have produced certain results in quarter three, but with our continuous efforts, we have achieved more remarkable results in the first quarter. Sales and marketing expenses significantly reduced to R&D 241 million, and only less than one-third of sales and marketing expenses or incurred for traffic acquisition. Regarding measures to control cost and expenses, in terms of sales and marketing expenses, our measures include, but are not limited to, first, further reduction in marketing assemblies and use greater criteria to select traffic acquisition platforms. And second, we are also leveraging our AI-empowered platform to conduct more intelligent and targeted marketing And in terms of operating costs, specific measures include, first, reviewing key tasks and all business procedures to identify where and how to optimize. And second, integrating organizational functions with high synergies. And third, strengthening the control over selection of suppliers. And fourth, merging certain offices or moving to areas with more reasonable rents. So we are moving faster on the right track to achieve breakeven, and we have delivered good results towards the breakeven objective for the two consecutive quarters. We originally planned to breakeven in the year 2023, but we have already increased our efforts to control costs and expenses, and now we already make profits in non-GAAP terms in quarter four. Marketing expenses, which used to be our largest expense item, have been significantly reduced in the third and fourth quarter. And we also managed to control our costs company-wide. So going forward, we're really excited this trend to continue in 20 years, 2022. So our goal is that our established business will make profits for the full year of 2022 on a non-gas basis. Thank you.

Next question from Michael Lee of Bank of America. Please go ahead.

Thank you. Thank you, Benjamin. This is Michael Lee calling from Bank of America. My question is about the quality of your earnings and also the volume growth. We see very strong quality improvement in fourth quarter last year, and also the cost of control last year in fourth quarter led to the first profit per quarter. on a non-GAAP basis. But we also see the decline, year-on-year decline, quarter-on-quarter decline of your commission income growth. I know there is kind of seasonality there, and I know that last year's second quarter to fourth quarter sector premium growth was weaker than first quarter last year. And we still want you to know that what is the target of your volume growth as the first year premium growth next year, and how are you going to achieve that kind of target? This is my first question. The second question is that, I know that you are going to charge on water job, upon raising, so what is the purpose of this kind of change of policies?

Thank you.

Thank you for the question. I think, as mentioned earlier, the entire industry is undergoing cyclical adjustment. So I think the key reason is that the old growth model focusing on scale expansion cannot adapt to the current market conditions. And the launch of stricter regulatory policies has intensified the industry adjustment. And so the tightening of regulations and cyclical adjustment have made the competitive environment or online insurance services more favorable to our company. So for example, a number of peers have accessed the market and our external customer acquisition environment has improved. So under this environment, our accumulated user resource, insurtech capabilities, and brand advantages in lower tier cities will enable us to be well-positioned for the future goals. So moreover, the entire interest industry exploring new growth model, which will benefit companies with stronger innovation DNA just like us. So in the meantime, we'll create new growth drivers by developing our open platform to offer more services to empower the industry. I think after five years of exploration, we have accumulated strong technology and capabilities in the insurtech area. We are building our open platform to offer our technology service to the partners in the market. So we believe only the companies with larger user group and the ability to tap into the customer value are able to navigate the unfavorable industry circle to demonstrate their business resilience and adaptability. I think the winners will be the ones that can transform and upgrade their business as early as possible, make necessary strategic adjustments, and actively respond to regulatory calls and do the right things in the long run. So simply a pursuit of girls is not the current optimal solution. So to answer the question regarding the FIP target, I think we expect our revenue growth will stabilize this year while our terminal cost control remains unchanged. And the effect of profitability improvement will continue to deliver. So this means that the slowdown in growth due to this model transformation and the industry adjustment has basically reached an inflection point in the near future. And the company will follow the healthier and more sustainable model for the future development.

Hope that answers your question.

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