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spk08: Good morning, ladies and gentlemen, and thank you for standing by for WaterDrop, Inc. Third 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 Ms. Shae J. Stey. Please proceed, Ms. Stey.
spk10: Thank you for joining WaterJobs Fair 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 Education 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 filing with SEC. 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. This refers to our earnings release for 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 VP, Mr. Hu Yao, co-founder, director, and VP, Mr. Yang Wei, partner and the general manager of the insurance market base, Mr. Zhu Ze, partner and general manager of medical crowdfunding and patient services, Mr. Richard Chen, board secretary and VP. They will be available for Q&A session after the remarks. Now, I would like to turn the call over to our CEO, Mr. Shen Peng. Please go ahead.
spk00: Hello, everyone. Thank you, Mr. Chen. This is the third quarter of 2020. Although the global economic downturn is more dangerous in the third quarter of this year, domestic economic recovery is the top priority. However, the recent domestic effective demand recovery is very dangerous. I believe that after the optimization of the policy of defense, it will promote consumer mobility and speed of production. Hello, everyone. Thank you for joining our third quarter 2022 earnings conference call. During the third quarter, we have seen increasing downside risks in the global economy as well as uncertainty regarding the domestic economic recovery.
spk03: Nonetheless, the recovery in domestic demand has recently gained momentum, and we believe that the fine-tuning of COVID control measures will unleash a rebound in private consumption, providing solid support to revive the domestic economy. This trend will enable the insurance industry to return to a value growth cycle and improve the business outlook for the medical and pharmaceutical industry.
spk00: In the third quarter, the water supply industry is facing challenges and continues to show a stronger will and adaptability, and the development continues to be good. The income is 10.1% compared to Q2. Since last year's fourth quarter, every quarter has maintained a high level of health performance since this year. The performance of this quarter has reached 1.7 billion yuan, which has improved the water supply's stable performance.
spk03: Against this backdrop, Waterdrop continued to exhibit strong resilience and adaptability and maintain good business momentum in the third quarter, with revenues increasing by 10.1% on a quarter-over-quarter basis. Following our turnaround in the final quarter of last year, we have managed to achieve a healthy level of profitability in every quarter of this year. In the third quarter, our gap net profit reached 170 million RMBs confirming that our business has entered into a phase of steady profitability. As of the end of September, our cash and cash equivalents and short-term investments increased to 3.6 billion RMBs. Even taking into account our share repurchases, we were able to generate a positive cash inflow of 300 million RMBs in the third quarter. Our ample cash reserves and our ability to generate positive cash flow put us in a strong position to withstand the changing external environment.
spk00: From the results of the recent three seasons and the trend of business, the company's development has entered a healthier and more sustainable growth trajectory. The business base has increased rapidly, and the efficiency and quality of business have increased together, and it has surpassed the target of the year-end set by the water company, which has a healthy profit and sustainable profit in the previous year. This reflects the strategic position and efficient execution of the management team.
spk03: Our remarkable operating results and evolving business trends over the past three quarters demonstrate that we have entered into a phase of healthier and more sustainable business growth, establishing a solid foundation for future business development. Our operating efficiency and business quality have also improved steadily. We have delivered on our commitment to achieve healthy and sustainable profitability ahead of schedule, based on the timeline we set at the beginning of this year. This reflects management's determined strategic planning and efficient execution.
spk00: We will continue to make steady progress in the long-term. We will continue to make steady progress in the long-term. We will continue to make steady progress in the long-term.
spk03: Looking into the fourth quarter and beyond, we will continue to pursue steady progress in our business development efforts, deepen reform of our business, and make appropriate investments in new businesses, while proactively exploring new business models to achieve healthy growth. Through these efforts, we aim to achieve top-notch and sustainable long-term business growth.
spk00: We continue to actively link the public health law, the hospital, the industry, and the multi-party power in this quarter, which is also responsible for the obligation to regulate the industry order and lead the health development of the industry. We continue to actively link the public health law, the hospital, the industry, and the multi-party power in this quarter, which is also responsible for the obligation to regulate the industry order and lead the health development of the industry order and lead the health development of the industry. Our control team, through strict R&D integration and contact algorithms and artificial intelligence technology, established a mechanism that can quickly and effectively detect malicious promotion. After several months of investigation and investigation, we collected a large number of clues and evidence, successfully cooperated with the police to crack down on the case. In addition, under the influence of this, the malicious promotion effect of the water and earth platform has been completely eliminated. It has been implemented for several months in a row.
spk03: As a leader in the medical crowdfunding industry, our subsidiary, Waterstop Medical Crowdfunding, is committed to maintaining disciplined operations and driving the healthy development of the ecosystem. In this quarter, we continue to collaborate with the judiciary, hospitals, and industry partners to crack down unauthorized fundraising activities. At the end of August, Waterjob once again worked closely with the police in Shandong Province to crack down on a case of fundraising fraud perpetrated by malicious intermediaries. Through our stringent review process, together with the big data algorithms and AI technologies developed by our risk management team, we have developed a system that can identify unauthorized fundraising activities instantly and effectively. After several months of investigations and on-site visits, we collected a large volume of evidence which successfully helped the police to solve the case and take legal action. Following various effective crackdown measures, there has been no malicious unauthorized fundraising activity detected on our platform for several consecutive months. In the third quarter, we deepened our efforts to reform the business strategy for our water job insurance marketplace. As a result, we improved our business quality and continued to upgrade our product and service offerings. While further accelerating our pace of technological innovation, This strategy adjustment enabled us to achieve higher quality operating results. We are also proactively pursuing broader innovation opportunities in the medical and healthcare industry. We continue to expand our outreach by leveraging the strength of existing businesses, including our high-performing patient recruitment business and our nascent CRO business, which we continue to explore and develop. Through this effort, We aim to provide our users with lifetime products and service coverage to enrich our ecosystem.
spk00: In the third quarter, we continued to carry out the stock return plan. The total return is about 1.9 million shares, and it continues to be carried out. As of the end of September 2022, the company has returned about 8.5 million shares in the public market, with a cost of about $8.5 million.
spk03: In the third quarter, we carried out our share repurchase program firmly. We repurchased approximately 1.09 million ADS in total, and we are continuing to execute the program prudently. As of the end of September 2022, we had cumulatively repurchased approximately 5.8 million ADS from the open market for a total consideration of approximately 8.5 million US dollars.
spk00: We will continue to focus on the interests of our shareholders. In this September, we announced the one-year extension of our repurchase program, with the maximum repurchase amount increased to US$80 million.
spk03: This demonstrates our strong confidence in our corporate value and our long-term sustainable development. 总而言之,不论大环境如何,公司现今有保持充足,我们对行业及自身发展既有信心也有耐心,会坚持以用户价值为出发点稳扎稳挡航水业务,为水地迈入新的发展阶段确立。 To conclude, we will continue to maintain ample cash liquidity regardless of the industry environment. We continue to have a competent and patient outlook on the industry and our own development. We will remain committed to our mission, stay focused on user value, solidify our business fundamentals, and pursue continuous advancement, thereby building up our strength to enter a new phase of development I will pass to Ran Wei to discuss the development of the water job insurance business for Q3.
spk06: Thank you, Shen Peng. Hello, everyone. Let me give you an update on our insurance business development. In the third quarter, the market for life and health insurance in China remains balanced. We know the significant improvement in premium growth. The continued resurgence of COVID-19 has hampered both business fashion and policy reforms in the life and health insurance industry. At the same time, the demand for protection-type products remains soft, which implies that both the demand and supply sides of the market are somewhat subdued. Meanwhile, future volatility in equity markets and interest rates and average growing operating The overall earnings of the insurance industry declined in the first three quarters of 2022. Against this backdrop, we continue to improve our operational efficiency, boost the quality of our business, and optimize existing offerings. We have proactively explored new customer acquisition channels and have persistently engaged in product innovation to achieve long-term sustainable business growth in spite of the industry's downturn. We achieved an industry-high net profit of $170 million in Q3, and our key operating metrics continue to reflect the high quality of our business relative to the industry. Now, I will walk you through the performance of our insurance business on forefront. The first, steady progress on our business model upgrade. In quarter three, the quality and profitability of our insurance business continue to improve, thanks to our persistent optimization of product and user experiences. Our first year premium increased by 8.4% from Q2. We revamped transaction processes and data analysis, resulting in improved user perceptions of our service quality. The number of long-term insurance policyholders have renewed their policies and the LTV contributions of our products have both increased steadily in terms of existing user management We further refined our multiple platform operational models and calls, coordinating the sales conversion chain across all channels to satisfy the lifetime protection needs of users. We have enhanced the overall genetic efficiency. As such, the user report change rate remained above 50% and further increased in quality rate. At the same time, to identify user leads more accurately and efficiently, we continue to optimize the algorithm model based on hundreds of millions of user profiles. The number of user conversions from short-term interest products to long-term products increased by 14% from Core 2, and the sales productivity for in-house LPs on internet and internet marketing was 2.5 times the industry average. Our new customer acquisition model has achieved an initial breakthrough in Part 3. The number of followers of our video account increased by 110% of the quarter, and the total interest premiums related from this account increased by 290% sequentially. Leveraging our video content and the sales conversion capability across the supply chain, we have acquired a large volume of directed traffic. And with this, our brilliant traffic from data channel, this helps increase our by 180% cost of culture. In addition, with improvements of our capabilities in both the long-term insurance planning and our long-established sales experience. We have cooperated with more external technical providers to acquire a greater number of high-quality leads, which have helped to drive sales conversions for our long-term insurance products in Code 3, the sales productivity per lead underneath Code 3. partnership increased by 177% sequentially. Second, exploring new customer acquisition channels to drive sustainable business growth. In Core 2, we set up a dedicated second level business unit, which adopts the issues planner model to promote the online brokerage service. In Core 3, mainly focused on building up the standards and their capability within the team, targeting the characteristics of customer needs under the insurance planning model. We developed operational standards for our product-o-way user management system. We also leveraged our major leading streaming and software video platform and our in-depth video conference to facilitate the customer acquisition and explore a one-on-one customer service model. These efforts have helped to diversify our channels to enhance both user reach and user experience. Compared to the last quarter, the preview and the revenue generated from it in units increased by 42% and increased by 4% respectively. Going forward, we will continue to expand our online working team and strengthen our content creation capabilities. We will gradually expand the commercial footprint on a larger scale based on the proven model. Since the beginning of this year, we have stepped up our efforts to develop the offline working team. we launched the W-5, or Water Drop Family Insurance Lease Diagnosis, which is a sophisticated system that can help workers diagnose customer needs and provide appropriate insurance plans. The customer-centric W-5 system empowers workers to identify the protection of each family based on family size, household income and expenditure, and then guide them to offer more professional and objective customized insurance solutions that can satisfy each family's protection needs. At the end of September, our offline purchase team expands to more than 1,000 staff. that are reaching the total interest premium of more than 100 million RMB, all up by 62% quarter-of-quarter. We have expanded our offline brokerage business to line 15 core centers, including Beijing and Shanghai. Going forward, we will optimize the elite economics of our established network and steadily expand our offline brokerage business to other 3G core sectors. The third, production innovation. To meet the protection needs of customers with pre-fitting conditions, in part two, we launched WaterJob Blue Ocean, a series of critical healing products with a waiver of health declarations. Further expanding the user group of our CI insurance products by removing the major for the elderly and the patients with chronic disease. The product series has won wild recognition in the market and has generated sizable sales. Similarly, in the third quarter, we launched a series of leading IMB coverage medical insurance products, weaving on health care declaration. These innovative products showcase our commitment to expanding our offerings to customers with pre-existing conditions while keeping our underwriting risks under control. To satisfy the protection needs of different age groups in the third quarter, we worked with our insurer partners to develop a customized credit insurance product for children, which offers additional medical services benefits for leukemia. We also rolled out various low premium clinical insurance products designed to meet the protection needs of the younger generation. In the third quarter, the insurance premium originated from customers under the age of 14 increased 20% quarter of quarter. Meanwhile, to meet customers needs for asset allocation in a low-interest rate environment, we continue to enrich our saving product matrix and improve the professional capability of our sales team. In quarter three, target premiums of saving products originated from our self-operated channels increased by 23% quarter-on-quarter. insurance technology. In addition to launch W512, we also upgraded the whole process of insurance claims assistance services to optimize user experience. Based on our analysis of a large number of claims cases, we have integrated the best practices into the whole process of our online claims assistance services. Empowered by our digital capability, we upgraded eight plate assistance services and launched four new plate-settlement tools within our one-stop solution, which help users handle various issues during the plate-settlement process. For example, our intelligent document management system leverages our OCR-based extraction technologies effectively improve the accuracy of document upload. Our product customization assistant uses our late settlement insights to generate innovative insurance product recommendations for users demanding more customized protection. In the future, we will continue to invest our claim service system and tries to deliver a better claim security for our users. This concludes my briefing on our issues business. Now let me hand over to Dr. Ho for an update for our medical crowdfunding and patient recruitment business.
spk12: Thank you, David. I would like to share some updates on our medical crowdfunding business. At the end of Q3, a cumulative total of 420 million donors helped exceeding 2.69 million patients grade over only 55.3 million on our platform. Our user number and fundraising amount have remained stable even after we implemented the service team. In the third quarter, The Operational Transparency Committee continues to enhance our operational control related to the testing and transparency on our medical card funding platform and launched new initiatives to increase the transparency of fund votes for each donation. For example, we have enhanced fund flow disclosure by adding bank statements and more refined visual data on the platform's fundraising pages. When a patient withdraws money, the bank will issue payment slips for both the platform and the patient. The fundraising page will also disclose other information such as how much cash has been resold by the patient, the service fee charged, the third-party payment channel fee, and the amount of funds available for resold. The funds related to each donation are thus easily traceable. Meanwhile, after several months of efforts, we worked closely with the police in Shandong to crack down on a case of fundraising fraud perpetrated by malicious intermediaries, resulting in the arrest of 17 suspects. Leveraging various the platform realized zero malicious fundraising activities for several consecutive months. It's notable that our water job medical crowdfunding platform was successfully selected into the classic case of jointly building a community of shareholders in cyberspace initiated by the World Internet Conference. From a global perspective, Most average families are due to a high risk of financial crisis caused by critical units, especially the people in remote areas who lack social security. When they, unfortunately, encounter crisis units or accidental injuries, they often have to choose to give up the necessary medical treatment or even their lives because of the heavy financial burden. While our water drug medical cloud body utilized internet to bring the acts of mutual health to social media networks, which facilitated the efficiency of talking on time, water drug has been a life protection network for millions of people in thousands of countries and regions, and thereby gained a wide-ranging recognition. For the patient recruitment in the third quarter, Our C-5 patient spectrum sustains its high growth momentum, recruiting more than 900 patients for clinical trials with Q-on-Q growth rate of 36%, and bringing our total number of clinical trial programs to more than 400. We have collaborated with more than 100 innovative pharmaceutical companies and CROs in China and worldwide, and a number of partners continue to increase this quarter. In particular, our E5 platform has established collaboration with a number of leading global CROs. has allowed us to work on several international non-dental critical trials initiated by multinational pharmaceutical companies. In a long-term circling child project initiated by a leading domestic pharmaceutical company, our e-fibration platform demonstrated its unique strength in digital patient recruitment and successfully recruited 42 patients for the critical child with only nine months. Despite the growing COVID lockdown in China, the pharmaceutical companies subsequently honor us with the best recruitment team award and we are set to become exclusive patient recruitment partner in the project to launch next year. Our unique digital patient recruitment capability has helped us to build up an excellent reputation in the industry. This concludes my talk, and then we turn it over to the call to discuss our technical innovation update.
spk01: Thank you, Zitao. Hi, everyone. I'm going to talk about our third quarter technology innovation update across five important platforms. This platform can not only be used as the ears and mouth of digital employees, but also have this thinking mode in the insurance industry. First of all, on the ears of the robot, we have listed the optimization algorithms for the accuracy of voice recognition in this quarter, including the use of background noise detection and filter algorithms to further increase the accuracy of user intent recognition. Through the algorithm of long-term multi-round intent recognition, the user will have a comprehensive understanding of the reply content to achieve the recognition of the user intent. In addition, in the hands of the robot, we use the sound of the customer technology, so that it can use the best sound of the server to improve the smoothness and user-friendly conversation time for the user service. In addition, combine the self-talking model, we developed a single-send pre-purchase, free-of-charge time selection, and investment warning model. Our chatbot not only serves as the ears and voice of our virtual employee, but also features as a human-like mindset developed for the insurance marketing scenario. First, regarding the years of the chatbot,
spk03: In the third quarter, we launched a set of optimization code algorithms that enhanced the accuracy of our ASR, automatic speech recognition technology, to improve our chatbot's ability to accurately recognize users' intentions. We deployed two algorithms, one which provides background noise identification and filtration, and another which is especially adapt for analyzing multi-sentence user responses, therefore enabling our chatbots to understand users just like humans. Second, as for the voice of our chatbots, we have equipped it with a voice-closing technology that enables it to speak to our users while illuminating the tones of our best sales staff. thereby enhancing the smoothness of the dialogue and improving the overall user experience significantly. Meanwhile, on top of our proprietary intelligent risk control model, we have also developed additional chatbot functionalities which enable the estimation of our sales conversion rates. The selection of optimal outbound calling times and the generation of complaint alerts. This model helps the chatbot communicate with users at the most appropriate time with advanced dialect skills and with a more human-like mindset, thereby maximizing our sales conversion rates and minimizing the potential disturbance to our users.
spk01: Second, through AI's mechanized operation, the smart marketing that needs to be followed up, the smart clue matching system is one of the important modules of smart marketing, including clue first allocation, clue return and clue adaptation. In this quarter, we have folded the clue first allocation to the 4.0 version, and this version will be carried out by AI with more character rights. to give AI more space to match and match. Compared to the previous version, now the API has increased by 12%. We can use AI to select the right time to avoid disturbing the user. It also greatly improves the user experience, and thus increases the yield. In addition, we can use AI to limit the change. In the process of change, the API also increased by 16% before the sale. In short, the 4.0 version of the water-based intelligent construction comparison system has become a stable and efficient construction comparison system, reaching the leading level of the industry, and also increasing the potential of water-based long-term development.
spk03: Second, I will address our efforts to refine our intelligent marketing operations through AI technologies. Our AI-powered matching system performs a number of functions, including the first-time allocation of leads, scheduling follow-up calls, and reassignment of leads. The system is one of the most important components of our intelligent marketing operation. In the third quarter, we upgraded the module which performs first-time allocation of leads to version 4.0, which enables more flexibility in AI-based decision-making, including lead sorting and matching. As a result, our ATL efficiency improved by 12% compared with version 3.0. We used AI to select the most appropriate callback time has significantly improved our user experience and the sales conversion rate. Finally, we have also applied AI to determine the reassignment of leads, which helped enhance our ATL efficiency by around 16%. In summary, version 4.0 of our AI-powered matching system is highly stable and efficient in lead matching and has reached an industry leading position. The system continues to play an important role in enhancing our sales conversion rates for long-term insurance products. Next, I will discuss our medical algorithm platform. Our proprietary extraction algorithm for medical records makes filing out medical records almost more efficient and speeds up our patient recruitment process. The classification algorithm implemented in our medical data center has significantly improved our data governance efficiency. with an accuracy rate of about 95%. In addition, our intelligent verification algorithm, which is capable of answering more than 20 types of questions, automatically has significantly improved the efficiency of insurance claims.
spk01: In this quarter, we officially rolled out the AI video production function in our Waterdrop Broker app.
spk03: That means our brokers can now access customized AI-powered video production services within minutes, helping them build their personal brand. Through these exclusive video generation tools, we have enhanced our brokers' customer acquisition capabilities by empowering them to easily create original marketing content
spk01: Finally, we have the smart air-conditioning platform. This year, we have upgraded all the air-conditioning projects. We have a unified air-conditioning platform. Through this, we can provide air-conditioning protection for the entire business, and avoid the potential risk of pollution, mainly in one or two directions. First, under the premise of getting the user's permission, we have built a model of air-conditioning for maliciously transmitting and detecting. We can accurately detect the maliciously transmitting person from the user. in order to guarantee the benefit of the card users, and maintain the user's reputation of WaterDash, from the source to calculate the time of the malicious promotion. Secondly, in terms of protecting users' privacy, in addition to the conventional method, this season, we have also carried out privacy protection processing for the information of card users that is uploaded and needed to be publicized. Finally, I will give an update on our intelligent risk control platform. We upgraded all of our risk control products and integrated them into a unified algorithmic risk control platform.
spk03: The platform's integrated algorithmic capabilities not only provide strong risk control support to all of our businesses, but also greatly mitigate potential PR risks. I will give you two examples of its application. First, being in compliance with users' right to know requirements. We have developed models which can recognize unauthorized fundraising activity and identify the malicious intermediaries with a high degree of accuracy. This helps us better safeguard the interests of fundraisers, maintain the reputation of water job medical crowdfunding platform, and stamp out malicious fundraising activity from the very beginning. In order to protect user privacy, we have gone above and beyond the conventional methods to provide additional protections for public-facing information uploaded by our fundraising users. We use a sensitive information masking model to automatically identify and mask personal information contained in uploaded image to avoid exposure of sensitive information and fulfill our duty to protect user privacy. Thank you. I will now hand over to Yang Guang to discuss our third quarter financial performance.
spk12: Hello everyone. I will now walk you through our financial highlights for the third quarter of 2022. Before I go into details on the financial performance, please be reminded that all numbers quoted here will be R&D, and please refer to our earnings release for detailed information on our comparative financial performance on both the year-over-year and quarter-over-quarter basis. Despite the challenging external environment brought by the pandemic and the self-economic growth, we have spread forward in the profit-making phase with four consecutive orders of profitability further expanding the momentum as we have practically pursued a high quality operational strategy since the third quarter of 2021. The net operating revenue increased by 10% quarter over quarter and decreased by 0.9% year over year to RMB 772 million. which was primarily due to the decrease in insurance-related income. For Q3, operating costs and expenses decreased by 50% year-over-year to R&D $639 million due to the effective cost control measures taken since the third quarter of 2021. For the over-quarter basis, operating costs and expenses increased by 17% To break it down, proper in-house were RMB $341 million, up by 15% year-over-year, mainly due to the decrease in professional and outsourced customer service fee of RMB $22 million. The recording of certain crowdfunding-related service fee direct cost of RMB $63 million from system marketing to operating costs as we started to charge cost funding services since April 2022. And an RMB 19 million increase in the estimated cost of one year health insurance coverage related to the termination of mental aid plan last year based on the final settlement information. And partially offset by the RMB 85 million decrease in personnel costs. On all quarter visits, operating costs increased by 40% primarily due to professional and also customer service fee increased by RMB 64 million as compared to the second quarter of 2022. Sales and marketing expenses decreased materially by 82% year-over-year to RMB 137 million for the third quarter of 2022. The decrease was primarily due to an RMB 500 million decrease in marketing expenses to third-party traffic channels and an RMB 122 million decrease in all-source sales and marketing services to third parties. On a quarter basis, sales and marketing expenses remain stable compared with RMB 144 million for the second quarter of 2022. G&A expenses decreased by 26% in Q3 to RMB 82 million year-over-year due to the combined impact of a decrease of RMB 8.7 million in share-based compensation expenses, a decrease of RMB 9.9 million in personnel costs, and a decrease of RMB 5.4 million in rental expenses. On quarterly basis, the G&A expenses remain stable compared with RMD 86.1 million for the second quarter of 2022. RMD expenses decreased by 23% to RMD 78 million year-over-year. The decrease was primarily due to RMD 19 million decrease in research and development personnel costs and share based compensation expenses. And the increase by 11% quarter by quarter, which is primarily due to RMB 7.7 million increase in research and development personnel costs and share based compensation expenses. So in Q3, we reported a non-GAAP profit of RMB $215 million and a US GAAP net profit of RMB $169 million, compared with an adjusted net loss of RMB $453 million for the same period of 2021. The profits we have generated over the last four fiscal quarters illustrate the achievements of cost discipline and profit enhancement. As of September 30, 2022, our cash and cash equivalents and the short-term investment balance increased to RMB $3,588 million, an increase of RMB $300 million, of 9% from the end of the quarter, as we continue to generate positive operating cash flow, possibly offset by the investing and financing cash outflow. So far, we have once again reinforced our financial guideline on achieving a non-debt profit in the year of 2022. Going forward, we will continue our efforts in cultivating our business, enhancing our revenue quality, and is still in optimization. Thank you, everyone. Let's now turn to our Q&A.
spk08: We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then 2. Please limit to two questions at a 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. Thank you. At this time, we will pause momentarily to assemble our roster. The first question today comes from Mei Kunping with CICC. Please go ahead.
spk09: Thanks, Dr. Edhut. First of all, congrats on the results. We noticed that you have a sufficient cash reserve. My question is, what's your plan for utilizing it? That's all from me.
spk02: This is Yang Hong speaking.
spk12: I'm going to answer the question. As mentioned earlier, as of the end of September, our cash and cash-incluence and short-term investment totaled RMB 3.6 billion. Even taking into account our sales repartees, we were able to generate a positive cash inflow of RMB 300 billion in the third quarter. Our ample cash reserve and our ability to generate positive cash flow put us in a very strong position to deliver our strategic goals and withstand the involving external environment. I think we'll continue to maintain a reasonable and sufficient cash reserve. Meanwhile, we provided that we have ample working capital needed for our daily operations. They will use an appropriate amount of funds to build our medium and long-term competitive edge to achieve healthy and sustainable development. I think, firstly, we will use our funds to implement our shared expertise program. Since our IPO, we have used our own funds and accumulatively bought back 5.8 million ADA from the open market for a total consideration of approximately US dollar 8.5 million. Based on our strong confidence in our corporate background and our long-term sustainable development, in September we announced the one-year extension of our repurchase program with the maximum repurchase amount increased to USD We plan to reserve the repurchased shares for share incentive plans, which will align the interest of our employees with the growth of our company. Secondly, we will consider strategic investment at the right time. We will use a portion of the funds to pursue super strategic investment and acquisition opportunities. The purpose will be centering around the solid framework formed by our product innovation capability, technological innovation, and the synergies created among various unique business segments, all to penetrate deeper into the industry and strengthen our robust ecosystem of insurance plus healthcare plus technology, and thereby further expanding our presence in the industry. Certainly, we are in a new direction in the healthcare sector, relying on our established advantage in doctor-patient relationship and intelligent big data analytics. breakthroughs in the medical innovation space. As mentioned by Tao earlier, our patient recruitment business is gradually becoming an industry leader, and our CRO business has also made remarkable progress. Going forward, we will continue to allocate an appropriate amount of funds to pursue innovation opportunities in the medical and healthcare industries. Although the new business initiatives may not generate significant revenue and profit in the short term, we believe that it will help the company create a new competitive edge in the long run and inject new momentum into the long-term growth of the company. I think that's all for the questions.
spk08: The next question comes from Edwin Lu with CLSA. Please go ahead.
spk05: Thank you for giving me the opportunity to ask this question. I have two questions here. One is about the water supply. Because the water supply has already started a complete quarter of a fee. Can you please help to disassemble this part of the water supply? Thanks for the opportunity to ask questions. I have two questions here. First one is regarding the crowdfunding platform. Since we just finished the first full quarter of this crowdfunding where it started to charge the service fee, can you provide a breakdown of the revenue and profit for this segment and any color on the trend? And my second question is regarding the guidance. Appreciate it if management can provide guidance in terms of operating revenue and net profit for this year and next year. Thank you.
spk12: Thank you for the question. To answer the first question, our water job medical crowdfunding platform has ceased to fully subsidize its service fee and has started to charge a service fee of 3% since April of this year. Up to a maximum amount of RMD is $5,000 for a single campaign. This is to cover part of the operational costs and help more patients with critical The user number and fundraising amount on our platform has been unstable after the charge of the service fee. We also regularly and transparently disclose our service fee regularly in our financial reports and through our other communication channels. Since April, when we started to chart the crowdfunding service fee, we have generated around RMB 120 million in service fee, relatively, as of the end of September. For Q3, our revenues from service fee were RMB 59 million, accounting for around 3.8% of the fund rate during Q3. The rate is below 3% because we are still subsidizing campaigns for critically ill patients in some cases. The direct operating cost for our crowdfunding platform was only $64 million. In addition, there are also indirect costs formed by our company, including IT, middle office, risk control, and other functions. So the service fee was fairly sufficient to cover most of the direct operating costs. Overall, our workshop medical crowdfunding platform remains on a healthy and stable growth track. However, we did not intend to charge the service fee for profit purposes. So for our platform to maintain steady operations sustainably and to better serve our users, Our future plan will remain unchanged, and that is to make the service fee cover the operational cost. So we will keep our crowdfunding platform on a healthy and steady development path, and continuously upgrade the service and explore more monetization scenarios in an orderly and healthy manner. We will strive to provide premium fund rates fundraising service for more patients in need and help establish a strong health system for the public. To talk about the guidance for the four-year profit, at the beginning of this year, we set the goal to achieve non-GAAP profit for our established business for the full year of 2022. So far, we have achieved good progress with our strategic transformation and we have continued to see improvements in our operating and financial performance. Since earlier this year, our revenue has gradually stabilized and returns to be a close track quarter over quarter. Since we first achieved and adjusted net profit in Q4 last year, we have maintained a healthy level of profitability in each quarter of 2022. In Q3, our net profit on gas basis reached R&D 170 million. Despite the external uncertainties, we have established the foundation for a more healthy, more solid, and more resilient growth path against the various external factors. We have entered into a phase of healthier and more sustainable gold business growth with a more solid foundation for future business development. For our 2022 four-year profit, we expect to maintain a profitable trend in Q4 and achieve a net profit of around RMB 500 million for the full year of 2022. Outperforming the goal set at the beginning of the year. I hope that answers your question.
spk05: Yes, thank you very much.
spk08: The next question comes from Thomas Lane with Goldman Sachs. Please go ahead.
spk07: Thank you. Thanks for the opportunity. A quick question on the increase in operating costs in the third quarter um so just want to try to understand what's driving uh that increase um um
spk12: I think the increase in the operating cost is due to the recording of certain crowdfunding-related service direct costs of RMB 63 million switched from a sales and marketing incentive to operating costs as we started to charge crowdfunding services since April this year.
spk07: Because we only started the chart starting from April this year. It didn't cover the whole quarter.
spk12: And also, we increase costs on the professional and also customer service fee.
spk02: That's mainly related to the California business.
spk03: Operator, do we have the last question?
spk08: Yes, we do. If you'd like to ask a question, please press star, then one. The next question comes from Susie Liu with Bank of America. Go ahead.
spk11: Thanks, operator. Thanks, operator. Thanks, operator. Thanks for taking my question. This is Suzie Liu from Bank of America Securities. My question is about future expansion strategy. We see that Waterdrop has already established competitive advantage in Tier 3 cities or below. But which is the area you've been focused on? And going forward, are there any strategy to expand business in tier one and tier two cities? And could you share more details on your strategy, please? Thanks.
spk06: Okay, thanks. This is Jaiwei speaking. I want to talk something about interest in expanding our business to first and second tier cities. Right now, more than 80% of our current users are from tier 3 and below cities, which is consistent with China's population distribution. From the perspective of absolute number of our users in tier 1 and tier 2 cities, we have an advantage in industry. So to expand the users to the first and the second tier cities, we think we have four strategies. First, our online O2O brokerage business mainly focuses on Tier 1 and Tier 2 cities. We provide diversified business models such as the organization-based model, the independent-based model, and the community-stored model according to the local conditions. sophisticated systems that help brokers diagnose customer needs and provide appropriate insurance plans this way. We can serve the middle class family in the first and second tier cities with a more professional and objective insurance solution. Second, we will leverage our custom design to continuously enrich our product offerings and develop product lines to better this diversified list of users in Tier 1 and Tier 2 cities. Third, we will use the Eastern Climate Model, which features in deep content and ability marketing to facilitate customer acquisition. This will enhance our user experience and expand our reach among users in T1 and T2 CDs who already have a deeper awareness of insurance in the fall. And we are going to work with PitShow, which are popular among emerging white-collar workers, and invest in a promotion campaign with a higher recognition to deepen our brand awareness among customers in T1 and T2 CDs. That's all. Thank you.
spk08: We are now approaching the end of the conference call. Thank you for your participation in today's conference.
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