This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk00: Good morning, ladies and gentlemen, and thank you for standing by for WaterDrop, Inc.' 's first quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. After the management's prepared remarks, there will be a Q&A 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. Please proceed, Ms. Xiaojiao.
spk03: Thank you, all participants. Hello, everyone. Thank you for joining WaterDrop's first quarter 2022 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 to differ materially from our current expectations. Potential risks and uncertainties include but are not limited to those outlined in our public findings with SEC. The company does not undertake any obligation to update any forward-looking statements 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 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.
spk04: Hello, everyone. I would like to thank everyone for attending the first quarter of the Q&A conference in 2022. Since 2022, the capital market has gone down further. The political and economic movements in the past areas have brought new challenges to the domestic epidemic. Since last year, changes have been made in the global capital market and the financial environment. The company is also moving in the direction of re-adjusting the route to seek better development in the future. We have encountered challenges and adjusted strategies. Hello, everyone. Thank you for joining our first quarter 2022 earnings conference call. Since the beginning of this year, the capital markets have further plunged amid a volatile geopolitical environment
spk03: and the COVID resurgence. Since last year, both the global capital markets and domestic insurance industry have transformed in profound ways. So we adjusted our pace and promoted the strategic alignment in order to pursue a healthier development. We have seen new opportunities emerging at the same time. Looking at our operating results and business trends over the past two quarters, we are tipped to have a good overall performance for the full year. Apart from consistently establishing our competitive strengths, we have also improved our operational efficiency and profitability, thereby securing a healthier and more sustainable development for the company.
spk04: This year is the 16th year of the establishment of QT. But I think QT is now at a new stage. Every week, we see Last year, we made a breakthrough on the foundation of 5G. This year, we achieved 5.05 billion RMB in total operations. At the same time, under the low growth of the overall growth of the industry, we have seen an increase of 7.4% in total growth. Next, we will continue to maintain the very confident goal of achieving the overall operations of the entire company.
spk03: The company is reaching the six years milestone since its inception. Nonetheless, I believe we are currently standing at a new beginning. We are pleased to report that after turning profitable on a non-debt basis in Q4 2021, we made further breakthrough that we now for the first time delivered a debt net profit of 105 RMB million in Q1 2022. While against the backdrop of industry downturn situation, We resume the positive growth and our net operating profit achieved an increase of 7.4% quarter over quarter. We will maintain this positive momentum and have confidence in meeting the goal we set at the beginning of the year, which is to accomplish a healthy and sustainable profit for the entire WaterDrop Group for the year of 2022.
spk04: We need product capacity, innovative capacity, and the structure of the trade union in the trade union. So that we can be in the face of change, we can break through the waves and continue to maintain the original momentum. Especially now, in the face of the pandemic and the growing demand for health insurance and medical care, the health insurance and medical care have given us the opportunity to develop day by day. For a online platform like Huiji, it also opens up a wide range of technical skills.
spk03: Most reviews around our product designs, innovation capabilities, and synergies within various business segments have enabled us to maintain vitality and resilience to counter challenges and navigate the tough times. The resurgence of the pandemic and the ever-growing demand for healthcare protection solutions have brought more opportunities for insurance and healthcare services providers, especially the online insurance platforms like us. Under this dynamic environment, we will be committed to creating values to customers, solidifying our business, and delivering better results.
spk04: to reduce the size of the business, and to implement a new business strategy. In the past, the subject company was based on reasonable control of R&D, to reduce the rapid growth of the number of users and the amount of revenue. Such a development model has been successful in both China and the United States. Based on the previous development model, the subject company grew rapidly from 2016 to 2021, and accumulated nearly 400 million users. Of which, the number of insurance users exceeded 1.1 billion, which laid the foundation for our short-term persistence. We have made the necessary adjustments in business, engineers, and organizers. The audience showed excellent system and hardware capabilities. Not only did we complete the adjustment of product management in a short time, but also greatly improved business data, and the supply of insurance products is more abundant.
spk03: That will give a recap of our business operations and compliance efforts. In Q1, we continued with the transformation of our business strategy and firmly implemented our realigned strategy from a new starting point. Previously, OrderDrop pursued a fast growth in user base and the total revenue while keeping ROI within a reasonable range. Such a development path has been verified by successors in the tech industries in both China and the U.S., Based on this model, we achieved a rapid growth from 2016 to 2021 and accumulated approximately 400 million users, including more than 111 million insurance customers, which is an indispensable factor for our business transformation. We have taken the initiative in changing our business operations, personnel, and organizational structure. Our team has demonstrated a strong collaboration capability and adaptability, thereby enabling us to complete our product operational realignment within a short time period. Simultaneously, we are improving the quality of our business sustainability and enriching the supply of our insurance products. 与此同时,水平公司始终将公司管制作为企业监控的重要事项。
spk04: We are committed to corporate governance and regard it as an important part of our corporate values.
spk03: We consistently improve our internal control system and strengthen our self-inspection and compliance efforts. We have launched the various compliance training programs to promote the best practices, enhance awareness of compliance, and create a culture of compliance, thereby ensuring that we operate within the most stringent corporate governance framework. Looking ahead, we will continue to promote the healthy development of the industry proactively and firmly.
spk04: In the beginning of this year, we received the approval of the China Procurement Commission to become its member unit. Recently, we joined the UN Convention on Global Contracts, UNCCC, and officially signed up to become a member enterprise. Together with more than 16,000 enterprises in 161 countries around the world, we will build a sustainable future together. And in early September, I attended the 2022 UN Convention on Global Contracts. We have always adhered to the core principle of doing business for good and continually improving our ESG governance. Hence, we have been proactively undertaking corporate social responsibility
spk03: development goals and making efforts to encourage more stakeholders to share the responsibility for sustainable development. Earlier this year, we became a member of the China Charity Federation. More recently, we have also joined the United Nations Global Compact or UNGC as a participant. joining hands with more than 16,000 companies in 161 countries around the world to shape a sustainable future. Earlier this month, I was invited to the 2022 Senior Summit of UNGC. On behalf of the China's insured tech companies, I joined the panel discussion and shared our thoughts on the best practices for local enterprises, multinational corporations, and the various stakeholders during the move of the 2030 Agenda for Sustainable Development.
spk04: For the poor, the elderly, and the low-income workers, we have donated more than $1 million worth of supplies. Including myself in the central administration, I signed up to become a protester. Since the COVID-19 pandemic, companies and multi-industrial institutions and industrial organizations have raised funds. We have collected more than $65 million in relief funds for protests.
spk03: The volatile pandemic situation has posed a huge challenge to the containment efforts in China. We have been proactively helping alleviate the impact on our community, leveraging its position as a leading strategy platform Our water job charity has reallocated various resources and provided support to Shanghai and other areas on their pandemic containment. We also collaborated with charity organizations to provide donations of over 1 million RMB in supplies to the people with financial difficulties, the elderly living alone, and the frontline workers. Our senior management, including myself, also took the lead in volunteering to help fight the pandemic. Since the outbreak of the pandemic, we have partnered with several charities and nonprofit organizations to raise anti-pandemic funds of more than 65 million RMB. When we received the appreciation letter from a wide range of groups and organizations, we were not only encouraged but also hopeful that we could set an example and inspire more and more to support from the society.
spk04: The company participates in a wide range of medical insurance to reduce the risk of severe illness and chronic disease. The target class is to properly establish and promote the development of health services. The target class is to protect people and cities. The target class is to promote the development of the insurance industry with the innovation of technology.
spk03: We remain committed to our mission of leveraging Internet technologies to make insurance protection more inclusive and accessible to the public, and bring insurance and healthcare service to billions. We also proactively leverage our competitive strength and the digital service capabilities to promote, implement, and achieve our Sustainable Development Goals. We also continue to promote the United Nations Sustainable Development Goals, or SDGs, For example, for goal one, no poverty. We joined China's multi-level medical insurance system to help reduce risk for those with critical diseases to fall into or slip back into poverty due to illness. For goal three, good health and well-being. We actively explored a new benchmark for the government-backed health protection model in serving the purpose of inclusive insurance. For goal nine, industry, innovation, and infrastructure. We focus on promoting the development of the insurtech industry by leveraging technological innovation.
spk04: In terms of recovery and capital market, the company's cash flow is stable, and my colleagues and I are very optimistic about the future. By the end of March 2022, the company's cash, including cash deposits and transfer investments, will be totaled at about 29.2 billion yuan. We have maintained a strong cash position
spk03: and the team and I have united confidence about our future. As of March 2022, our cash and cash equivalents and short-term investment balance totaled approximately 2.92 billion RMB. We continue to implement our share repurchase plan while exploring innovative investment opportunities in the insurance and healthcare sectors at the same time. As of the end of March, we repurchased cumulatively 3.09 million ADS in total, and we'll continue to prudently buy back shares. We plan to use these repurchased ADS for our employee incentive plan in the future.
spk04: In this new environment, we hope to pursue more information development. We need to change the paradigm.
spk03: As a top tier player and a pioneer in China's insurtech and online healthcare market, we strive to pursue higher quality development and insist on creating value for our customers and shareholders. In terms of business innovations, we will enhance user value in an enduring and proper manner and maintain our enthusiasm for technological innovations. We are confident in the long-term prospects of China's healthcare insurance market and also our own business. Moving ahead, we are well-positioned to grow stronger in future economic cycles and join hands with more tech talents, investors, and partners.
spk04: I'll pass to Yang Guang to discuss the development of the water job insurance business for Q1.
spk06: China's insurance industry has experienced a period of profound adjustment in Q1 due to various factors, notably the COVID resurgence and the equity market breakup. Publicly traded insurers suffer from a setback on both their assets and their liabilities. In Q1, listed China insurance companies recorded an average of 3.2% decline in new business premiums. and an average of a 36% decline in net profit year-over-year, and NBV also reduced by more than 30%. While demand for individual insurance remained sluggish, the growth from our insurance agents was also weak. The traditional insurance business that carries out onsite is human. Thereby, it was especially slow for the sales of protection products, primarily health insurance, to recover. This should be partially due to the high case for comparison last year that was triggered by a speculative sales of critical illness health insurance. Meanwhile, there is a clear industry trend that insurers adopting the less efficient traditional service model are facing more challenges. while those capable of pioneering diversified and innovative channels are enjoying a faster recovery. Indeed, the business performance of top tier players has shown some signals of stabilization following the recent adjustment period. Against this industry backdrop, in Q1 2022, we continue to formally execute the strategy we set out in the third quarter last year. wishes to reform our business model and optimize our business operations. This has helped us achieve significant improvements in our operational efficiency and in other business metrics. In Q1, we recorded and adjusted net profit of RMB 127 million, increasing by 2,054% quarter-over-quarter. And for the first time, we achieved a net gap profit of RMB 105 million in this quarter, on top of a non-gap profit in the previous quarter. I will now walk through our insurance business updates in three aspects. Firstly, regarding the ongoing progress with our business model transformation. In Q1, we optimized and upgraded our operating system across platforms. multi-product supply and multi-service models. By revamping the transaction process and enhancing the accuracy of matching customer needs with the proper insurance products, our operating performance has improved in Q1. While keeping the one-year LTV of our business at a relatively high level, our one-year ROI increased by 55% in Q1 compared with Q4 last year. Our long-term insurance business has followed the advocates or regulators and switched to an integrated sales model of internet plus telemarketing. We thereby promptly add on products that are eligible under this model and started to provide differentiated services to customers sourced from different channels. We also optimized our algorithm models by the user group's profile. As a result, in Q1, the average premiums per lease for the long-term insurance increased by 4%. The average productivity of long-term insurance of our in-house consultants reached two times the industry average, boosting the net income of our long-term insurance business by 18% in Q1 quarter over quarter. We consistently strengthen our user lifetime management by utilizing different scenarios on cross-marketing platforms, such as WeChat official accounts, WeChat mini programs, Enterprise WeChat accounts, and Waterdrop apps. Thereby, we have made some new breakthroughs in user acquisitions on these platforms. For instance, the number of Enterprise WeChat contact users increased to 6.5 million, and the number of active app users increased by 10% quarter-over-quarter. Short-term insurance premiums originated from those private traffic were approximately 30 million in Q1, up by 60% quarter-over-quarter. Meanwhile, leveraging our innovative operating scenarios, we have effectively reactivated many dormant users. which helped improve our user engagement rate, repurchase rate, as well as policy renewal rate. In Q1, our user repurchase rate for short-term products stood at 73%, up by 16 percentage points, and the short-term interest renewal rate reached 19.8%, up by 18 percentage points compared to Q4, respectively. Our proactive exploration of different customer acquisition models has also started to bear fruit in Q1. We have consistently polished up our output capability of insurance content. Leveraging all forms of marketing tools, including graphic ads, videos, and live streaming, we have successfully acquired many high-quality new insurance customers on various social media platforms. and provided services to them through our financial planners. During its pilot phase in Q1, this model has generated millions of premiums. Going forward, we will continue to expand our insurance content generation and financial planning team, aiming at achieving more sizable expansion of business. In addition, leveraging our highly efficient long-term insurance users conversion capability We collaborated with many external traffic partners to convert leads into long-term insurance sales. This approach has effectively expanded our sources of leads for long-term insurance products. Secondly, with respect to promoting product diversification and business information, in Q1, in terms of short-term insurance product offerings, We now have seven cost-effective versions of median medical insurance products, including one type for patients with chronic disease and another specialized for patients with kidney disease to meet the diversified protection needs of users. We also upgraded one type of our median medical insurance product to include CAR-T therapies in the coverage. In terms of critical illness products, We have launched a series of multi-level CI protection plans for users of different age groups and price sensitivities. For example, we jointly developed Waterdrop CI Policy, a product tailored for the protection needs of the younger generation with our insurer partners. We have lowered the threshold for purchasing this product by focusing on quality of the coverage. thereby allowing more users to have access to a more appropriate and affordable CI policy. Meanwhile, with the rising popularity of ice and snow sports brought about by the Winter Olympics, we have introduced a sports accident insurance policy that covers the liability for accidents in skiing and other high-risk sports. In Q1, the premium contribution of our cost-effective innovative insurance products increased significantly, and the sales conversion rate of users of these products has increased by more than 30%. Going forward, we strive to develop more cost-effective products for other categories. Regarding products for customer units, we launched a customized product against breast cancer recurrence and also an inclusive health insurance product for people with illness. Those products have achieved strong initial sales. Looking ahead, we will continue expanding our user acquisition channels and developing new products, satisfying the protection needs of people with illness. We have also made great progress in our O2O brokerage business. In Q1, we have recruited more workforce and built a sales team of over 400 people, including directors and a salesperson. And our product offering has been enriched to about 200. This sales team generated a total premium income of over $10 million in Q1, up by 150% quarter-over-quarter. We have empowered the team with our huge online customer database and technology code scans, therefore helping them with customer acquisition and assist performance improvement. Following the introduction of our O2O brokerage service, the LTV contribution of our existing online users converted to offline services has also increased by 50%. Going forward, We will refine our customer segmentation and user conversion tools. We should gradually enhance the capability of our brokerage team to unlock the value of our existing customers. In addition, we are exploring a different offline brokerage service model in different regions and cities, aiming at increasing the geographic footprint and the user outreach of this business. Thirdly, to talk about strengthening our robot platform capabilities and exploring new models to empower the industry. In Q1, we continue to ramp up the insurance robot platform and achieve key breakthroughs for our intelligent chatbot capabilities. We made significant progress in upgrading our sales robot for short-term insurance products. especially in the areas of user intention recognition and human voice simulation with improved accuracy in detecting user intention. This allows the robot to identify potential customers more effectively and transfer the inquiry to our insurance consultants who can then take over the data and provide more in-depth service to inquirer. Meanwhile, we launched our proprietary outbound calling robot plus customer service business model in January. This, coupled with our service capability in online marketing and telemarketing, has helped generate an increase in total interest premiums of 60% in March from January. Recently, we have unveiled our first digital stack, BonBon, a human-like virtual employee that was developed based on our business scenarios and empowered by AI technologies. So far, BonBon has already been well-acquainted with more than 100 water job insurance products, including product introduction, interest coverage, renewable process, claim settlement, etc., Based on its semantic understanding feature, BonBon can recommend solutions for our online insurance consultants in real time so that they can provide feedback to our customers with higher accuracy and a greater response rate more easily. BonBon can also help our online insurance consultants with tedious and repetitive tasks such as data processing analysis, online user management, and customer services thereby reducing the response time, improving the response quality, and broadening the scope of our services. Our analysis shows that BonBon processed 86% of the user sessions, building a high-intention recognition accuracy rate of 97%, which helps free up 37% of the customer service manpower. Our next goal is to enable BonBon to independently complete tasks for more complex and interactive scenarios and play an important role in the process of search inquiry, underwriting review, risk control, and claim settlement. Currently, we are well equipped with robotic process automation and sanction initiation protocol capabilities. which serves as a solid foundation for us to export our technology to the industry. Several companies have confirmed their intention to advance cooperation with us, of which two companies are now at the stage of technical integration, and our cooperation is expected to go live as early as in Q2. Our technology export products are expected to bring in tens of millions of RMB or premium this year. Moreover, we are exploring operating agency products to empower interest companies on their digital customer management capabilities by providing them with a comprehensive one-stop user operation solution that covers online customer acquisition, existing user management, and user conversion in private domain, as well as offline agent empowerment, thereby promoting the overall digital operation capability of the interest industry in China. In conclusion, we started Q1 of 2022 with remarkable progress in terms of operation, innovation, and technological capabilities. We are highly confident in the long-term fundamentals of China's insurance industry. We will firmly proceed with our strategy while actively designing new business innovations. In this transition period of the insurance industry, we strive to complete our business transformation and achieve an overall improvement in our operational capabilities as soon as possible time. Above is the brief on insurance business, and let me hand over to Mr. Huyao for the update on our medical crowdfunding business, healthcare business, and technology.
spk05: Thank you, Huyao. For start, let me give you an update on our medical crowdfunding business. Despite the COVID-19 has kept resurging,
spk03: Our water draw medical crowdfunding business maintains steady growth, and we are persistent in serving patients during these challenging times. As of the end of Q1, the cumulative number of donors reached 403 million, helping 2.5 million patients with a cumulative fund rate of RMB 50.9 billion.
spk05: Next is our patient recruitment business. In the first quarter of 2022, the general recruitment platform under the water level increased more than 50 projects that are injected with new drugs for clinical trial cooperation. Project advisors include Tianjin, Shiyao, Xinda, etc., the leading pharmaceutical companies in China and abroad. The rapid growth of the water supply is due to the excellent project management capabilities and the improvement of the clinical trial and development of the best clinical trials. Not only does the quality of the medicine in cooperation with the water supply continue to increase, but it also attracts the leading medicine in the domestic and foreign countries such as Bayer, Fuqing, Baiji, Jinshi, Shangyao Guokang, and Kerun. In the first quarter, we successfully admitted more than 500 patients and continued to grow rapidly in the previous quarter.
spk03: Next, let me talk about the progress of our patient recruitment business. In Q1, our e-fund platform newly enrolled over 50 clinical trial programs by partnering with leading innovative pharmaceutical manufacturers in China and worldwide, including Qipai Qianqing, CSPC, and InnoVent. Leveraging our excellent project delivery capabilities and our ability to accelerate the process of CRO clinical trials, Not only have we received a steady flow of new orders from existing pharma partners, but also attracted leading domestic and foreign pharmaceutical companies such as Bayer, Folsom Pharma, Beijing, Junshi, Shanghai Pharma, BioCat, and Colon to establish long-term business relationships with us. In Q1, we successfully recruited more than 500 patients in clinical trials, maintaining solid growth compared with the previous quarter.
spk05: Let me give you two examples. Firstly, in our strategic partnerships with Qi Tai Tianxing and CSPC, we completed more than 20 clinical trials projects
spk03: which greatly accelerated their R&D progress. In addition, we have also established extensive collaboration with many top biotech companies and are highly recognized by them. Another example is the project with Henleus. Within a time span of less than half a year, we have successfully enrolled more than 50 candidates who are in need of financial assistance and have the willingness to participate in heavy and key clinical trials, which dramatically promoted its R&D efficiency and trial program.
spk05: As we continue to deepen our efforts in the patient recruitment segment,
spk03: We have accumulated increasingly premium resources with our partners, which also promotes the high-quality and sustainable development of other business segments. In the meantime, we will continue to maximize our competitive advantage in the crowdfunding business and patient recruitment business to explore more CRO services and develop more high-value services for the R&D of new drugs.
spk05: Next on technology innovation.
spk03: As we continue to increase our investment in technology, we optimize the pre- and post-processing algorithms for our speech-to-text software and reduce the surrounding noises disturbance, thereby improving the accuracy of our ESR technology and the intention recognition capabilities. Meanwhile, by analyzing mass industry data, our R&D team conducted incremental pre-training on our models to make them adaptive to our specific scenarios, such as improving the model's performance.
spk05: Through the optimization of the previous series, the problem-solving rate of our customer robot users has exceeded 80%, and the accuracy of the robot platform's overall intention recognition rate has exceeded 90%. In the context of external robot implementation, the first-in-the-industry human-machine-compatible loss control model can improve the efficiency of sales and also improve the user waiting experience.
spk03: Our customer service chatbot can solve more than 80% of questions raised by users, and their intentional recognition capability achieves an accuracy rate of over 90%. For transferring customer requests from chatbot mode to manual mode on a real-time basis, we have built a first-of-its-kind phone call loss control model based on our manual plus machine coupling system, which enables us to improve Salesforce productivity and user rating experience.
spk05: In terms of promoting the industry development, we also have increased our efforts in exporting our AI capability to our traditional insurance partners and other online insurance platforms.
spk03: helping them enhance their customer service capabilities on the utilization of sales leads.
spk05: In our patient recruitment business scenario, we extract the data from non-structural patient materials and extract the patient's medical history, surgery history, medical history, etc. in order to assist the artificial collection of patient information. At the same time, we provide reference for medical personnel to determine whether the patient belongs to the window period. The algorithm has currently completed the collection of the disease disease information of two types of cancer and gastrointestinal cancer patients, and achieved a large-scale improvement for almost 30% of the business process.
spk03: In patient recruitment for clinical trials, we extracted patients' data such as their medication history, surgical history, and the pathological analysis from unstructured patient documents through an event extraction algorithm. Such data will serve as a supplement to manual data collection and provide a reference for medical staff to decide whether a given patient is currently in the window period. So far, the algorithm has extracted the brief medical history of patients with liver and gastric cancer, which improves the efficiency of the operation flow for about 30%.
spk05: In the case of Hebao Li Pei, Hebao's assistant is a tool that provides Hebao's pre-examination for patients. It can help customers select and match Hebao's products in a large number of health insurance products on the water platform. At the same time, it provides the best Hebao保湿 for customers, which is more suitable for the progress of contract products and provides more and better services. Then we use the algorithm to automatically extract and calibrate non-significant patients' documents, standardize them, and analyze them.
spk03: We adopted an underwriting assistant tool to conduct underwriting pre-reviews for our customer groups with illness. It helps screen those insurance products for which eligibility criteria a customer could meet and then select the one which provides the most affordable underwriting funds. To facilitate the growth process and also better user experience, we applied the AI algorithm to automatically extract the data from a huge number of non-standardized disease questionnaires and then standardize and normalize these data points to produce a structured map which fits well to the optimal logic of our underlying data. It has significantly improved the efficiency of product allocation and the accuracy of product recommendations. For claim segments, we've adopted algorithms to improve the accuracy of extracting various data, including names, ID cards, and stamp account numbers, from claim application forms to above 95%. The algorithm allowed us to effectively extract relevant structured data from bank cards and electronic invoices.
spk05: That's all for my introduction. Next, I'll let Kevin introduce the financial performance of our E-City.
spk03: This concludes my part, and then let me turn over the call to Kevin, our CFO, to discuss our first quarter financial performance.
spk05: Thank you. Thank you, Xiao.
spk06: Hello, everyone. I will now walk you through our key financial results for the first quarter of 2022. Before I go into details on your financial performance, please be reminded that all the members quoted here will be in R&D, and please refer to our earnings release for detailed information compared to your financial performance. on both the year-over-year and quarter-over-quarter basis respectively. Despite the challenging external environment from industry slowdown and the micro headwinds, our net operating revenues from that quarter-over-quarter basis which benefited from our strategic goal of business reform to focus on quality revenue. Our net operating revenue decreased by 26.6% year-over-year to RMB $649 million from RMB $883 million year-over-year, mainly due to the decrease in FIP, but offset by the improvement of our particular rates. After the strategic realignment in Q3 and Q4 last year, there have been positive indications for the growth recovery of operating revenue. which demonstrated a quarter-over-quarter increase of 7.4% in Q1. This take rate stabilized at around 34% level, which was primarily driven by the quality enhancement in our insurance business. Updating costs and expenses for Q1 decreased by 60.4% year-over-year to RMB $532 million. On a quarter-over-quarter basis, operating costs and expenses further decreased by 21.5%. Demonstrating our cost control measures have had a significant effect, laying a solid foundation for our high-quality growth down the road. In quarter one, we remain highly disciplined on cost control, including spending reductions, improving the effectiveness and ROI of traffic acquisition. optimizing our organizational structure, reducing redundant headcounts, and improving operating efficiency. To break it down, the operating costs were RMB 155 million, a decrease of 48.5% year-over-year, mainly due to the decrease of RMB 39 million in professional and outsourced customer service fees, a decrease of RMB 35 million in personnel costs, and a decrease of under 77 million in relation to the completion of the water job mutual aid business compared to the last year. A quarter-over-quarter basis operating cost decreased by 21.4%. Sales and marketing expenses decreased by 75.6% year-over-year from RMB 837 million to RMB 204 million for the first quarter of 2022. The decrease was primarily due to the decrease of marketing expenses to third-party traffic channels by RMB 620 million, partially offset by the increase in payroll and the related expenses for employees involved in sales and marketing functions. Again, we delivered satisfactory results controlling our expenses as we promised starting in the third quarter of last year. Over quarter basis, sales and marketing expenses still decreased by 15.2%. T&A size decreased by 15.9% in quarter one to only 102 million year-over-year, and by 31.4% quarter-by-quarter. mainly due to the decrease of impairments of RMB 27 million provided for the receivables and the prepayments, and the RMB 16 million in personnel costs and the share-based compensation expenses compared to the last quarter. RMB expenses decreased by 16.6% to RMB 21 million year-over-year, and it decreased by 22.1% quarter-by-quarter. resulting from the optimization of our organization structure. In this quarter, we continued to have realized a non-GAAP profit of RMB $127 million on the basis of Q4 2021, and for the first time made a US GAAP net profit of RMB $105 million, compared with the net loss in the same quarter of last year. Thus far, we have reinforced our last year financial guidelines of achieving a non-gap profit. Going forward, we will continue our efforts in restructuring our business, enhancing revenue quality and profitability, as well as constantly instilling a rigid cost discipline. As of March 31, 2022, our cash and cash equivalents and short-term investment balance increased to RMB $2,924 million, increasing RMB $137 million, or 4.9% from the end of last quarter, despite that we have implemented shared repurchase under complex frameworks. For detailed financial data, please refer to our press release on our IR website. This concludes my part. Thank you, and now let's turn to Q&A session.
spk00: Thank you, we will now begin the question and answer session. To ask a question, you may press star then one on your touchstone phone. 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. Please limit to two questions at this time so others can get their questions in as well. In addition, for those who speak Chinese, Would you please ask your questions in Chinese first, followed by the English translation by yourself? At this time, we will pause momentarily to assemble our roster. Our first question will come from Michael Lee with Bank of America. Please go ahead.
spk01: Thank you. 谢谢管理层给我这样一个提问的机会。 我是来自美国银行证券的分析员Michael。 我有两个问题。 第一个问题是关于疫情对于我们一季度的表现的影响以及对于之后二季度的一个表现的影响。 因为我们注意到中国不少城市包括上海在内从大概三月份开始也经历了一段时间的一个封城或者内封城的这样一个措施。 那么这样一个措施的话对于现下的那些公司的影响应该还是相对比较大的。 I would like to ask about the impact of this kind of business on the online water supply. Where does it show up? Or we can actually benefit from it. The second is that we noticed that the SEC of the United States, in the past, has listed the water supply and other more than 100 Chinese companies in this confirmation list. In other words, if they do not meet their requirements in three years, they may be forced to withdraw. I would like to ask about the management level. Thank you, management, for giving me this opportunity to ask questions. My name is Michael Li, and I'm from Bank of America Securities. I have two questions. The first question is about the impact of COVID on our business in first quarter and also second quarter. We noticed that Shanghai and some other cities in China were under lockdown from March until April and May. So we believe that a lot of offline insurance companies have been actively impacted. And what is the impact on our business model and whether we could actually benefit from this kind of lockdown? The second question is about the SEC's list. We noticed that Waterjob and other more than 100 Chinese ADRs are now on the list of SEC issuers identified under the HFCAA. So that means if we cannot meet the requirement of PCAOB or FEC in the next three years, we will be forced to delist from the U.S. market. Manlo, if you have any comments on this and if any measures we could take. Thank you.
spk06: Thank you, Michael, for the question. This is Yanguang speaking. I'm going to answer your first question. I think the pandemic resurgence caused a temporary impact and held back the operations of our offline business, such as our medical crowdfunding business, as many patients reduced the frequency to visit the hospital. However, after going through the pandemic two years ago in 2020, our medical crowdfunding business has shown strong resilience. and it is already in the dominant leading position through the industry, ups and downs. The pandemic will not have a significant negative impact on our market position. Also, the COVID-19 resurgence to some extent has given our users a better understanding about the advantage of our omnichannel business model. Particularly, it helped improve the user acceptance of our online business and cultivate user habits gradually. The result is it accelerated the development of our users' awareness and made the traditional users' companies more inclined to rely on online channels. It will benefit the development of our omnichannel model in the long run. In addition, it also provides a precious opportunity for our O2O business to expand the sales force and prepare ourselves for future business growth. While the pandemic slowed down our offline operations, we seized the window of opportunity to recruit outstanding professionals. For example, by doing that, we established two new branches in Q1, and a number of new local branches are also underway. Our sales team attracted over 100 new staff and expanded the team to over 400. A lot of them are veterans of the industry. The category of products sold by this team has reached about 200, and these factors directly help increase the average productivity per use efficiency to reach two times the industry average. This team generated a total premium income of over RMB 10 million up by 150% quarter-over-quarter. That's all for the first question, and I'm going to leave the second question to Kevin Hsu. Kevin Hsu. Kevin Hsu. Kevin Hsu. Kevin Hsu. Kevin Hsu. Kevin Hsu. Kevin Hsu. Kevin Hsu. Kevin Hsu. April 28, 2022, Waterdrop filed an annual report from 20F for fiscal year 2021 with SEC. On May 6, it was identified by the SEC under the HFCAA. About 80 other Chinese ADRs were identified as well in the same batch. In fact, as you may know, Almost all tennis companies listed in the United States were included in the list after filing their annual report to the SEC. Being identified is not being listed. According to applicable rules, only if a company has been identified by SEC for three consecutive years due to the PCOD's inability to inspect and register public accounting firms working paper related to the company. the company's share or American depository shares would be prohibited from being traded in U.S. stock exchange. We believe this is a normal administrative matter and a common issue encountered by almost all the Chinese companies listed in the States. It doesn't materially affect companies' business operations. And we noticed that CFRC has issued multiple statements this year signaling that progress has been made in negotiations with SEC. At the same time, we will continue to comply with applicable laws in China and the States and maintain our listing status on the OIC. We never think of voluntarily delisting from this exchange. As of date, our business and operations are running as usual and we are actively exploring feasible options to protect our shareholders' interest in our best efforts. Hope this answers your question, Michael, and thank you.
spk00: Thanks, John. Thanks, Kevin. Again, if you have a question, please press star then 1. Our next question will come from King King Mayo with CICC. Please go ahead.
spk02: Thanks, operator. This is from CICC. Congrats on the results first. I have only one question. Can you elaborate more on the financial guidance and how the company balance revenue growth with profitability objectives? That's all for me.
spk06: Thank you, Professor. It's a good question. Actually, it's difficult to do a financial outlook for the full year at this point due to the external factors, including COVID-19 and the macroeconomic uncertainty. But considering various factors, including industry trends, the development stage of our company, and our business strategy adjustment, we will seek a balance between business growth, efficiency improvement, and cost management. We regard Q4 last year and Q1 this year as a new starting point for our growth. which will serve as the solid foundation for a healthier, more solid, and more resilient growth path against the various external factors. We expect that our business will stabilize and recover from this new starting point quarter by quarter. In the meanwhile, we will actively explore and innovate, pursue further progress in our health care business, and develop additional growth momentum in our new business initiatives. In terms of profitability, last quarter we announced our goal to achieve non-GAAP operating profit for our established business for the full year of 2022, and we continue to deliver on this promise. In this release, we further provided the guidance on overall profitability for our group on a non-GAAP basis for the year. Our plan is that we keep investing in our established business as a new initiative. We have been seeing positive results in cost control since Q3 last year. as we strictly manage our expenditure and have squeezed out the part of revenue which is less constituted. Our revenue decreased year-over-year in Q1. Nevertheless, there have been signs of stabilization in this trend, and we've seen the positive growth in revenue quarter-over-quarter. On the industry landscape, the infrastructure industry is undergoing profound regulatory change and the cyclical fluctuations. Against this backdrop, the old growth model focusing on the scale extension can no longer adapt to the current user demands and market conditions. And the amount of regulatory policies has intensified industry adjustment. The competitive environment of the insurance industry is evolving in a direction that is more favorable for water drought. For example, a number of peers has exited from market, and our external customer acquisition environment actually has improved. In terms of business operations, as we drive our business transformation towards higher quality development, we have seen a significant improvement in our retention rate and the various operating metrics, as well as ongoing increase in the renewal rate and the repritus rate. All of these improvements will provide a strong force for our further sustainable growth. Looking ahead, we believe that as we continue to transform and upgrade our business model and invest more in the management and the services of our existing users, when the next booming phrase comes, we will emerge stronger with healthier and more solid business fundamentals and achieve higher quality growth. And as a top player in the industry and with our large user base, combined with the robust operations and the wide competitive amount, we believe that we will benefit more during the transition period. I hope this answers your question. Thank you.
spk00: We are now approaching the end of the conference call. Thank you for your participation in today's conference. You may now disconnect. Have a good day.
Disclaimer