Huize Holding Limited (NASDAQ:HUIZ) Q1 2022 Earnings Conference Call June 24, 2022 8:00 AM ET Company Participants Harriet Hu - Investor Relations Director Cunjun Ma - Chairman and Chief Executive Officer Ronald Tam - Co-Chief Financial Officer Conference Call Participants Amy Chen - Citigroup Mindy Gao - CLSA Operator Ladies and gentlemen, thank you for standing by, and welcome to Huize Holdings Limited First Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. A ...

Part I [Item 3. KEY INFORMATION](index=7&type=section&id=Item%203.%20KEY%20INFORMATION) Huize's corporate structure, relying on a VIE in China, faces significant risks from PRC regulations and potential delisting, alongside presenting key consolidated financial data - Huize Holding Limited operates as a Cayman Islands holding company, conducting business in China through a Variable Interest Entity (VIE) due to PRC foreign investment restrictions, meaning investors purchase equity in the holding company, not PRC operating entities[12](index=12&type=chunk)[13](index=13&type=chunk) - The company's VIE structure faces significant risks, including potential PRC government non-compliance rulings and uncertain enforceability of contractual arrangements in PRC courts[13](index=13&type=chunk)[127](index=127&type=chunk)[128](index=128&type=chunk) - The company holds necessary PRC licenses but faces risks from potential future CSRC approvals for offshore offerings and CAC cybersecurity reviews, which could impact financing and operations[17](index=17&type=chunk) - In 2020 and 2021, the Cayman holding company transferred a total of **RMB 196.7 million** to its PRC subsidiary and VIE subsidiaries for operations, with no dividends paid to the holding company or U.S. investors[18](index=18&type=chunk) [D. Risk Factors](index=21&type=section&id=D.%20Risk%20Factors) The company faces significant business, structural, and operational risks, including regulatory challenges, VIE enforceability, and potential delisting under the HFCAA - Key business and industry risks include operating in a highly regulated and competitive online insurance industry, historical net losses, dependence on user traffic channels, and data privacy and cybersecurity risks[39](index=39&type=chunk)[40](index=40&type=chunk) - Key corporate structure risks include reliance on VIE contractual arrangements, potential conflicts of interest with VIE shareholders, and uncertainties regarding PRC Foreign Investment Law and equity pledge enforceability[41](index=41&type=chunk)[42](index=42&type=chunk) - Key risks of doing business in China include the PCAOB's inability to inspect the company's auditor, potentially leading to ADSs trading prohibition under HFCAA by **2024**, and significant PRC government oversight and regulatory uncertainties[43](index=43&type=chunk)[145](index=145&type=chunk)[146](index=146&type=chunk) - Key risks related to the company's ADSs include high price volatility, the founder's **76.5%** decisive voting influence through a dual-class structure, and no expected dividends in the foreseeable future[44](index=44&type=chunk)[182](index=182&type=chunk)[187](index=187&type=chunk) Selected Consolidated Financial Data (2019-2021) | Financial Metric | 2019 (RMB thousands) | 2020 (RMB thousands) | 2021 (RMB thousands) | | :--- | :--- | :--- | :--- | | **Total operating revenue** | 993,319 | 1,220,222 | 2,245,016 | | **Operating (loss)/profit** | 1,639 | (25,911) | (114,411) | | **Net (loss)/profit** | 14,968 | (18,292) | (107,717) | | **Total assets** | 508,805 | 1,335,976 | 1,857,454 | | **Total liabilities** | 362,831 | 867,293 | 1,496,541 | | **Net cash provided by/(used in) operating activities** | 118,024 | 137,666 | (175,917) | [Item 4. INFORMATION ON THE COMPANY](index=74&type=section&id=Item%204.%20INFORMATION%20ON%20THE%20COMPANY) This section outlines Huize's history, business model as an online insurance platform, strategic acquisitions, and its operational reliance on a VIE structure - Founded in **2006**, the company reorganized in **2019** to establish its VIE structure and completed its IPO on Nasdaq in **February 2020**, raising approximately **US$47.7 million** in net proceeds[219](index=219&type=chunk)[220](index=220&type=chunk) - In **December 2021**, the company acquired **100%** equity in Shanghai Senhao Insurance Agency Co., Ltd. to expand its business network[222](index=222&type=chunk) Key Business Metrics (2019-2021) | Metric | 2019 | 2020 | 2021 | | :--- | :--- | :--- | :--- | | Cumulative insurance clients (million) | 6.3 | 6.8 | 7.5 | | Cumulative insured (million) | 53.2 | 57.6 | 62.5 | | GWP facilitated (RMB million) | 2,014.3 | 3,019.9 | 5,018.2 | - The company partners with **109 insurer partners** as of December 31, 2021, with the top five accounting for **78.4%** of total operating revenue in **2021**, up from **63.0%** in **2020**[237](index=237&type=chunk)[352](index=352&type=chunk) - Life and health insurance products are the primary revenue driver, contributing **97.2%** of brokerage income in **2021**, with annuity and endowment products accounting for **46.8%** within this category[222](index=222&type=chunk) [Item 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS](index=115&type=section&id=Item%205.%20OPERATING%20AND%20FINANCIAL%20REVIEW%20AND%20PROSPECTS) This section analyzes Huize's financial performance from 2019-2021, highlighting significant revenue growth, increased operating losses, and liquidity status, along with key accounting policies Results of Operations Summary (2019-2021) | Metric (RMB thousands) | 2019 | 2020 | 2021 | | :--- | :--- | :--- | :--- | | **Total operating revenue** | 993,319 | 1,220,222 | 2,245,016 | | **Total operating costs and expenses** | (991,680) | (1,246,133) | (2,359,427) | | **Operating (loss)/profit** | 1,639 | (25,911) | (114,411) | | **Net (loss)/profit** | 14,968 | (18,292) | (107,717) | - Operating revenue increased by **84.0%** in **2021**, driven by a **66.2%** increase in total GWP facilitated and **99.2%** growth in first-year premiums (FYP)[361](index=361&type=chunk)[362](index=362&type=chunk) - Cost of revenue increased by **107.5%** in **2021**, primarily due to higher channel costs for user traffic to expand the client base and boost sales[362](index=362&type=chunk) - The company's liquidity is supported by **RMB 381.2 million** in cash and cash equivalents and **RMB 227.8 million** in restricted cash as of December 31, 2021, despite net cash used in operating activities of **RMB 175.9 million** in **2021**[387](index=387&type=chunk)[390](index=390&type=chunk) [Item 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES](index=133&type=section&id=Item%206.%20DIRECTORS%2C%20SENIOR%20MANAGEMENT%20AND%20EMPLOYEES) This section details the company's leadership, executive compensation, dual-class share structure, and employee breakdown by function - In **2021**, aggregate cash compensation for executive officers was **RMB 17.9 million (US$2.8 million)**, and for non-executive directors was **RMB 1.0 million (US$0.2 million)**[409](index=409&type=chunk) - As of **February 28, 2022**, Chairman and CEO Mr. Cunjun Ma held **76.5%** of total voting power through a dual-class share structure, granting him decisive control[187](index=187&type=chunk)[429](index=429&type=chunk) Employee Headcount by Function (as of Dec 31, 2021) | Function | Number of Employees | % of Total | | :--- | :--- | :--- | | Insurance consulting | 379 | 23.1% | | Sales, marketing and training | 599 | 36.4% | | Client service | 89 | 5.4% | | Product management | 50 | 3.0% | | Research and technology | 376 | 22.9% | | General and administrative | 151 | 9.2% | | **Total** | **1,644** | **100.0%** | - The company operates two share incentive plans, with significant options and restricted shares granted to directors, executive officers, and employees as of **February 28, 2022**[411](index=411&type=chunk)[414](index=414&type=chunk)[415](index=415&type=chunk) [Item 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS](index=142&type=section&id=Item%207.%20MAJOR%20SHAREHOLDERS%20AND%20RELATED%20PARTY%20TRANSACTIONS) This section outlines major shareholders and key related party transactions, primarily focusing on the VIE contractual arrangements and shareholder registration rights - The most significant related party transactions are contractual arrangements with the VIE and its shareholders, enabling the company to control and consolidate the VIE's financial results[431](index=431&type=chunk) - A shareholders' agreement grants certain investors registration rights, including demand and piggyback rights, which terminate five years after the IPO[432](index=432&type=chunk)[433](index=433&type=chunk)[434](index=434&type=chunk) - In **2021**, the company incurred **RMB 11.8 million** in service fees to Xiaoke Huixuan (Shenzhen) Technology Co., Ltd., a company under Huize's significant influence[439](index=439&type=chunk) [Item 8. FINANCIAL INFORMATION](index=144&type=section&id=Item%208.%20FINANCIAL%20INFORMATION) This section confirms the inclusion of consolidated financial statements, absence of material legal proceedings, and the company's dividend policy of retaining earnings for growth - The company is not currently involved in any material legal or administrative proceedings[440](index=440&type=chunk) - The company has no present plan to pay cash dividends, intending to retain future earnings for business expansion, with dividend payments also subject to PRC profit distribution regulations[440](index=440&type=chunk)[441](index=441&type=chunk) [Item 10. ADDITIONAL INFORMATION](index=145&type=section&id=Item%2010.%20ADDITIONAL%20INFORMATION) This section details the dual-class share structure and tax implications for the company and investors across Cayman Islands, PRC, and U.S., including PFIC risk - The company operates a dual-class share structure where Class B common shares carry **15 votes** per share compared to **one vote** for Class A shares, with Class B convertible to Class A[444](index=444&type=chunk) - As an exempted company in the Cayman Islands, the company is not subject to local profits, income, gains, or appreciation taxes there[454](index=454&type=chunk) - There is a risk that PRC tax authorities could classify the Cayman Islands holding company as a PRC resident enterprise, subjecting it to a **25%** enterprise income tax on global income and potential dividend withholding tax[455](index=455&type=chunk)[456](index=456&type=chunk) - For U.S. investors, there is a risk of the company being classified as a Passive Foreign Investment Company (PFIC), which has increased due to ADSs market price fluctuations and could result in adverse U.S. federal income tax consequences[215](index=215&type=chunk)[462](index=462&type=chunk) [Item 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=155&type=section&id=Item%2011.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) This section addresses the company's market risks, primarily foreign exchange risk due to RMB-USD exposure, minimal interest rate risk, and business seasonality - The company's primary market risk is foreign exchange, with a **10%** RMB depreciation against the U.S. dollar resulting in a **US$5.2 million** decrease in cash and cash equivalents as of December 31, 2021[468](index=468&type=chunk)[469](index=469&type=chunk) - Interest rate risk is not material as all company borrowings bear a fixed interest rate[470](index=470&type=chunk) - The business experiences seasonality, with life and health insurance sales typically stronger in the first quarter and travel insurance sales higher in the third quarter[471](index=471&type=chunk) Part II [Item 15. CONTROLS AND PROCEDURES](index=159&type=section&id=Item%2015.%20CONTROLS%20AND%20PROCEDURES) This section reports on the ineffectiveness of internal controls as of December 31, 2021, due to a material weakness in accounting personnel, and outlines remediation efforts - Management concluded that the company's disclosure controls and procedures were not effective as of December 31, 2021[480](index=480&type=chunk) - A material weakness in internal control over financial reporting was identified due to a lack of sufficient and competent financial reporting and accounting personnel with U.S. GAAP and SEC reporting knowledge[117](index=117&type=chunk)[483](index=483&type=chunk) - Remediation efforts include recruiting qualified financial personnel, implementing U.S. GAAP training, and planning additional resources to strengthen financial reporting[483](index=483&type=chunk) Part III [Item 18. FINANCIAL STATEMENTS](index=164&type=section&id=Item%2018.%20FINANCIAL%20STATEMENTS) This section presents the company's audited consolidated financial statements for 2019-2021, prepared under U.S. GAAP and audited by PricewaterhouseCoopers Zhong Tian LLP Consolidated Balance Sheet Summary (as of Dec 31) | (RMB thousands) | 2020 | 2021 | | :--- | :--- | :--- | | **Total current assets** | 1,008,355 | 1,420,684 | | **Total assets** | 1,335,976 | 1,857,454 | | **Total current liabilities** | 556,566 | 1,222,241 | | **Total liabilities** | 867,293 | 1,496,541 | | **Total shareholders' equity** | 468,683 | 360,913 | Consolidated Statement of Comprehensive Income/(Loss) Summary (Year Ended Dec 31) | (RMB thousands) | 2019 | 2020 | 2021 | | :--- | :--- | :--- | :--- | | **Total operating revenue** | 993,319 | 1,220,222 | 2,245,016 | | **Total operating costs** | (631,368) | (816,353) | (1,690,757) | | **Operating income/(loss)** | 1,639 | (25,911) | (114,411) | | **Net profit/(loss)** | 14,968 | (18,292) | (107,717) | | **Net loss attributable to common shareholders** | (25,383) | (21,492) | (107,666) | Consolidated Statement of Cash Flows Summary (Year Ended Dec 31) | (RMB thousands) | 2019 | 2020 | 2021 | | :--- | :--- | :--- | :--- | | **Net cash provided by/(used in) operating activities** | 118,024 | 137,666 | (175,917) | | **Net cash used in investing activities** | (6,927) | (31,078) | (80,926) | | **Net cash (used in)/provided by financing activities** | (14,079) | 383,053 | 141,891 | | **Net increase/(decrease) in cash** | 97,056 | 479,621 | (119,964) | | **Cash and cash equivalents at end of year** | 249,327 | 728,948 | 608,984 |

Financial Data and Key Metrics Changes - In 2021, total gross written premiums (GWP) facilitated on the platform increased by 66.2% year-over-year to RMB5 billion, while operating revenue increased by 84% year-over-year to RMB2.25 billion, meeting the revenue guidance provided for the full year 2021 [5][17] - In Q4 2021, total GWP facilitated on the platform increased by 90.2% year-over-year to RMB1.99 billion, and operating revenue grew 1.5 times year-over-year to RMB980 million [6][20] - The average ticket size of long-term insurance products increased from RMB6,684 in Q3 to RMB9,593 in Q4 [6][19] - The company achieved a net profit of RMB19.8 million in Q4 2021 [21] Business Line Data and Key Metrics Changes - GWP for long-term insurance products accounted for 97% of total GWP, with first-year premiums (FYP) accounting for RMB3.1 billion or 62% of total GWP, up 99% year-over-year [6][17] - Renewal premiums accounted for RMB1.9 billion or 27.8% of total GWP, representing a year-on-year increase of 30.5% in 2021 [17] - Savings insurance products contributed approximately RMB1.2 billion of the first-year premium in Q4 2021 [7] Market Data and Key Metrics Changes - Approximately 67.1% of long-term insurance customers were from higher-tier cities, with an average age of 35.3 years [6] - Persistency ratios for long-term life and health insurance in the 13th and 25th month sustained at an industry-high level of 94% [6][19] Company Strategy and Development Direction - The company is focusing on user-centric strategies, high-tech and digitalization, and online-to-offline (O2O) integration to enhance service capabilities [5][10] - The acquisition of Shanghai Senhao Insurance Agency is expected to reinforce competitive advantages in both online and offline service capabilities [9] - The company plans to deepen engagement with existing high-value customers through cross-selling and upselling opportunities [20] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenges posed by tightening industry regulations and macroeconomic conditions, indicating that the next two quarters would be a period of adaptation [21] - The company aims to improve its overall corporate cost structure and operating efficiencies, with a focus on cost reduction [21][32] - Management expressed confidence in the long-term growth prospects and announced a share repurchase program to enhance shareholder value [22] Other Important Information - The company published its first ESG report, highlighting strategic initiatives and accomplishments [12] - The company has cooperated with 109 insurance partners and is expanding its offline presence [9] Q&A Session Summary Question: Product mix for first-year premium and written in Q4 - The increase in the take rate for premium was due to a larger contribution from first-year premium policies, which accounted for 71.3% of the fourth quarter GWP [24][25] Question: New product strategy in light of regulatory changes - The company will focus on online savings products and has already launched new products in response to market demand [25] Question: Business plan for Senhao Insurance acquisition - The acquisition will enhance offline service capabilities and facilitate online-to-offline integration [28] Question: Technology export and revenue outlook - The company is beginning to export technology to other insurance companies, which is expected to generate new revenue streams [28] Question: Profit margin sustainability - The company expects challenges in the next two quarters but is focused on cost control and improving profitability [32]

Huize Holding Limited (NASDAQ:HUIZ) Q3 2021 Earnings Conference Call December 1, 2021 7:00 AM ET Company Participants Harriet Hu – Investor Relations Director Cunjun Ma – Founder and Chief Executive Officer Ronald Tam – Co-Chief Financial Officer Conference Call Participants Michelle Ma – Citi Zeyu Yao – CICC Xinqi Liu – Guotai Junan Securities Operator Ladies and gentlemen, thank you for standing by and welcome to Huize Holding Limited Third Quarter 2021 Earnings Conference Call. At this time all participa ...

Huize Holding Limited (NASDAQ:HUIZ) Q2 2021 Earnings Conference Call September 9, 2021 8:00 AM ET Company Participants Harriet Hu - Investor Relations-Director Cunjun Ma - Founder and Chief Executive Officer Ronald Tam - Co-Chief Financial Officer Conference Call Participants Michelle Ma - Citi Edwin Liu - CLSA Xuezhi Feng - Morgan Stanley Operator Ladies and gentlemen, thank you for standing by, and welcome to the Huize Holding's Limited First Half and Second Quarter 2021 Earnings Conference Call. At this ...

Financial Data and Key Metrics Changes - Total Gross Written Premiums (GWP) facilitated on the platform increased by 1.3 times year-over-year to RMB9.4 billion, achieving record quarterly highs [7] - Total operating revenue for Q1 was RMB735 million, up by 196% year-over-year, also a record quarterly high [20] - GAAP net profit recorded at RMB28.5 million, with non-GAAP profit at RMB38.7 million [22] Business Line Data and Key Metrics Changes - First year premiums (FYP) accounted for RMB889.8 million, approximately 54% of total GWP, representing 2.2 times growth year-over-year [17] - Renewal premiums accounted for RMB504 million, or 36% of total GWP, representing a year-over-year increase of 57% [18] - GWP for long-term health insurance increased by 123% year-over-year to RMB1.1 billion, accounting for approximately 96.9% of total GWP [19] Market Data and Key Metrics Changes - The insurance industry achieved insurance premium income of RMB1.8 billion in Q1, an increase of 5.5 percentage points year-over-year [6] - The health insurance segment increased by 16.1% year-over-year to RMB306.6 billion [7] Company Strategy and Development Direction - The company is focusing on long-term health insurance policies aimed at younger generations, emphasizing user retention and evolving insurance needs [8][9] - Digital transformation efforts include acquiring certifications in technology and R&D, enhancing information security and R&D capabilities [13] - The company aims to empower partners and the insurance ecosystem with data and technology, striving for sustainable development and high-quality growth [15] Management Comments on Operating Environment and Future Outlook - Management noted that Q2 is traditionally a slow quarter for the Chinese insurance industry, expecting total operating revenue to be flat compared to last year [22] - The company is confident in its ability to adapt to regulatory changes in the internet insurance sector, maintaining strong relationships with insurance partners [30][31] - Management anticipates a recovery in critical illness product distribution by the later part of Q2 and into Q3 [34] Other Important Information - The cumulative number of insurance clients reached 7 million, with an average client age of 32.7 years [9] - The average first-year premium for long-term policies was around RMB4,508 [10] Q&A Session Summary Question: What percentage of GWP comes from repeat clients versus new customers? - Management indicated that approximately 39% of savings products come from repeat purchases, with less than 10% of customers being repeat purchasers [26][27] Question: What measures are being taken regarding new regulations for internet insurance sales? - Management is in constant dialogue with regulators and is confident in their compliance and operational readiness for upcoming regulations [30][31] Question: When will the negative effects of the critical illness definition switch fade? - Management expects the effects to diminish by late Q2, with a recovery in product distribution anticipated in June [34] Question: How does the company view profitability trends with increasing marketing expenses? - Management highlighted strong revenue growth without significant increases in headcount, indicating scalability and operating leverage [35] Question: What impact does the suspension of mutual aid platforms have on business plans? - Management believes the impact will be limited as their focus is on long-term insurance products, which differ from the target audience of mutual aid platforms [38] Question: How does Huize differentiate itself from traditional insurers and other online platforms? - Management emphasized the use of technology and data to provide a comprehensive suite of products, targeting a younger, higher-income user base [44][45]

Huize Holding Limited (NASDAQ:HUIZ) Q4 2020 Results Conference Call March 10, 2021 7:00 AM ET Company Participants Harriet Hu - IR Director Cunjun Ma - Founder and CEO Ronald Tam - Co-CFO Conference Call Participants Michelle Ma - Citigroup Joey Yang - CLSA Brian Li - AMTD Group Operator Ladies and gentlemen, thank you for standing by, and welcome to Huize Holding Limited’s Fourth Quarter and Full Year 2020 Earnings Conference Call. [Operator Instructions] Today’s conference call is being recorded, and a we ...

PART I [ITEM 3. KEY INFORMATION](index=7&type=section&id=ITEM%203.%20KEY%20INFORMATION) This section presents selected financial data, highlighting significant revenue growth and a shift to profitability from 2017 to 2019, alongside a comprehensive list of risks related to business, corporate structure, China operations, and ADSs [Selected Financial Data](index=7&type=section&id=A.%20Selected%20Financial%20Data) The company achieved strong growth from 2017 to 2019, with total operating revenue increasing from **RMB 263.3 million** to **RMB 993.3 million**, transitioning from a **net loss of RMB 97.0 million** in 2017 to a **net profit of RMB 15.0 million** in 2019 | Financial Metric | 2017 (RMB million) | 2018 (RMB million) | 2019 (RMB million) | 2019 (US$ million) | | :--- | :--- | :--- | :--- | :--- | | **Total operating revenue** | 263.3 | 508.8 | 993.3 | 142.7 | | **Operating (loss)/profit** | (100.3) | 24.8 | 1.6 | 0.2 | | **Net (loss)/profit** | (97.0) | 2.9 | 15.0 | 2.2 | | Balance Sheet Item | As of Dec 31, 2018 (RMB million) | As of Dec 31, 2019 (RMB million) | As of Dec 31, 2019 (US$ million) | | :--- | :--- | :--- | :--- | | **Total assets** | 334.1 | 508.8 | 73.1 | | **Total liabilities** | 297.5 | 362.8 | 52.1 | | **Total shareholders' (deficit)/equity** | (385.2) | (308.7) | (44.3) | | Cash Flow Item | 2017 (RMB million) | 2018 (RMB million) | 2019 (RMB million) | 2019 (US$ million) | | :--- | :--- | :--- | :--- | :--- | | **Net cash (used in)/ provided by operating activities** | (85.3) | 66.9 | 118.0 | 17.0 | | **Net cash provided by/(used in) investing activities** | 57.8 | (3.6) | (6.9) | (0.9) | | **Net cash provided by/(used in) financing activities** | 23.0 | 48.6 | (14.1) | (2.0) | [Risk Factors](index=9&type=section&id=D.%20Risk%20Factors) The company faces significant risks from China's highly regulated and competitive online insurance industry, including evolving laws, VIE structure, and operational challenges, alongside market volatility and governance risks for ADS holders - Operating in China's rapidly evolving and highly competitive online insurance industry, the company faces a complex and changing regulatory environment, making future prospects difficult to predict[30](index=30&type=chunk)[31](index=31&type=chunk)[33](index=33&type=chunk) - The company relies on a **Variable Interest Entity (VIE) structure** for China operations due to foreign ownership restrictions, posing risks if PRC authorities deem arrangements non-compliant, potentially leading to severe penalties[119](index=119&type=chunk)[120](index=120&type=chunk) - A dual-class voting structure grants Class B shares **15 votes per share** versus one for Class A, with CEO Mr. Cunjun Ma controlling **76.5% of total voting power** as of March 31, 2020, ensuring decisive influence over corporate matters[198](index=198&type=chunk)[199](index=199&type=chunk) - The PCAOB's inability to inspect the auditor's work on China operations may deprive investors of inspection benefits and poses a delisting risk if new legislation is enacted[184](index=184&type=chunk)[185](index=185&type=chunk)[186](index=186&type=chunk) [ITEM 4. INFORMATION ON THE COMPANY](index=53&type=section&id=ITEM%204.%20INFORMATION%20ON%20THE%20COMPANY) This section details the company's history, business operations, and organizational structure, including its 2006 founding, 2019 VIE restructuring, 2020 IPO, online platform, client focus, product offerings, and reliance on contractual arrangements for China operations [History and Development of the Company](index=53&type=section&id=A.%20History%20and%20Development%20of%20the%20Company) The company's online insurance business began in 2006, followed by a June 2019 VIE restructuring for its IPO, which raised **US$47.7 million** in net proceeds when ADSs commenced trading on Nasdaq on February 11, 2020 - The company's business under the "Huize" brand commenced in **2006**, with Huize Insurance Brokerage Co., Ltd. established in **2011**[241](index=241&type=chunk) - In **June 2019**, the company restructured to control its PRC operating entity, Huiye Tianze, via a **VIE structure** to comply with PRC foreign ownership restrictions[245](index=245&type=chunk) - The company completed its IPO on the Nasdaq Global Market on **February 11, 2020**, under the symbol "HUIZ," raising net proceeds of approximately **US$47.7 million**[246](index=246&type=chunk) [Business Overview](index=54&type=section&id=B.%20Business%20Overview) Huize operates as an independent online insurance platform in China, connecting insurer partners with a young client base, focusing on life and health insurance, which generated **91.9% of brokerage income** in 2019, and co-developing tailor-made products - The company operates as an independent online insurance platform, distributing products for insurer partners without underwriting risk, having cumulatively served **6.3 million insurance clients** as of December 31, 2019[250](index=250&type=chunk)[251](index=251&type=chunk) - The client base primarily comprises the younger generation, with the average age of life and health insurance purchasers in 2019 being **32**[251](index=251&type=chunk)[265](index=265&type=chunk) | Metric | 2017 | 2018 | 2019 | | :--- | :--- | :--- | :--- | | **Cumulative Insurance Clients** | ~3.7 million | ~5.3 million | ~6.3 million | | **GWP Facilitated** (RMB million) | 617.5 | 941.0 | 2,014.3 | | **Total Operating Revenue** (RMB million) | 263.3 | 508.8 | 991.3 | - Life and health insurance products are the primary focus, contributing **91.9% of brokerage income** in 2019, with tailor-made products accounting for **36.3% of GWP facilitated** in the same year[252](index=252&type=chunk)[253](index=253&type=chunk) [Organizational Structure](index=82&type=section&id=C.%20Organizational%20Structure) The Cayman Islands holding entity operates its China business through a **VIE structure**, with its WFOE controlling the PRC operating entity via contractual agreements to comply with PRC foreign ownership restrictions in internet and insurance brokerage sectors - Due to PRC legal restrictions on foreign ownership in internet and insurance brokerage, the company relies on contractual arrangements with its **VIE (Shenzhen Huiye Tianze Investment Holding Co., Ltd.)** and its shareholders for China operations[437](index=437&type=chunk) - Contractual arrangements, including Power of Attorney, Equity Pledge, Exclusive Business Cooperation, and Exclusive Option Agreements, collectively enable the company to exercise effective control over the VIE and receive its economic benefits[439](index=439&type=chunk)[440](index=440&type=chunk)[441](index=441&type=chunk)[442](index=442&type=chunk) [Operating and Financial Review and Prospects](index=84&type=section&id=ITEM%205.%20OPERATING%20AND%20FINANCIAL%20REVIEW%20AND%20PROSPECTS) This section analyzes financial performance and condition, noting **95.2% total operating revenue growth** in 2019 driven by brokerage income from long-term health insurance, increased operating costs from channel expenses and share-based compensation, a **net profit of RMB 15.0 million**, and liquidity primarily funded by operations subject to PRC regulations [Operating Results](index=84&type=section&id=A.%20Operating%20Results) In 2019, total operating revenue increased by **95.2% to RMB 993.3 million**, driven by brokerage income from long-term health insurance, while operating costs and expenses grew **104.9% to RMB 991.7 million** due to channel costs and share-based compensation, resulting in a **net profit of RMB 15.0 million** - Total operating revenue grew **95.2%** from **RMB 508.8 million** in 2018 to **RMB 993.3 million (US$142.7 million)** in 2019, primarily driven by brokerage income growth[474](index=474&type=chunk) - Brokerage income increased due to a rise in **GWP facilitated** (from **RMB 941.0 million** in 2018 to **RMB 2,014.3 million** in 2019) and a favorable product mix with more high-margin long-term health insurance products[475](index=475&type=chunk) - Total operating costs and expenses increased by **104.9%** in 2019, primarily from a **99.0% increase in channel costs** and a **250.2% increase in G&A expenses**, largely due to **RMB 88.0 million** in share-based compensation[476](index=476&type=chunk)[478](index=478&type=chunk) - The company achieved profitability in 2018 with a **net profit of RMB 2.9 million**, a significant improvement from a **net loss of RMB 97.0 million** in 2017, with net profit growing to **RMB 15.0 million** in 2019[480](index=480&type=chunk)[490](index=490&type=chunk) [Liquidity and Capital Resources](index=96&type=section&id=B.%20Liquidity%20and%20Capital%20Resources) The company's operations are financed by cash from operations and historical financing, with **RMB 88.1 million** in cash and cash equivalents as of December 31, 2019, and **RMB 118.0 million** net cash from operating activities in 2019, though liquidity is subject to PRC regulations on currency conversion and dividend distribution due to **99.6% of cash** being held in China by the VIE | Cash Flow Summary | 2018 (RMB million) | 2019 (RMB million) | | :--- | :--- | :--- | | **Net cash provided by operating activities** | 66.9 | 118.0 | | **Net cash used in investing activities** | (3.6) | (6.9) | | **Net cash provided by/(used in) financing activities** | 48.6 | (14.1) | - As of December 31, 2019, **99.6%** of the company's cash and cash equivalents were held in China and denominated in Renminbi, primarily by the VIE, with access subject to contractual arrangements and PRC regulations[527](index=527&type=chunk) - The company's ability to pay dividends relies on distributions from its WFOE, which are subject to PRC laws requiring statutory reserve fund contributions and foreign exchange regulations[539](index=539&type=chunk) [Directors, Senior Management, and Employees](index=100&type=section&id=ITEM%206.%20DIRECTORS%2C%20SENIOR%20MANAGEMENT%2C%20AND%20EMPLOYEES) This section details the company's leadership, compensation, board structure, and employee base, including executive backgrounds, **RMB 9.2 million** in executive compensation for 2019, board committees, **1,160 employees** as of year-end 2019, and CEO Cunjun Ma's **76.5% voting power** through a dual-class share structure - For the fiscal year ended December 31, 2019, aggregate cash compensation paid to executive officers totaled **RMB 9.2 million (US$1.3 million)**[559](index=559&type=chunk) - The company operates two share incentive plans, the Global Share Incentive Plan and the 2019 Share Incentive Plan, granting options and restricted shares to directors, officers, and employees[565](index=565&type=chunk)[574](index=574&type=chunk) - As of December 31, 2019, the company employed **1,160 individuals**, with Sales, marketing and training (**33.7%**) and Insurance consulting (**31.8%**) being the largest functions[595](index=595&type=chunk)[596](index=596&type=chunk) - As of March 31, 2020, Chairman and CEO Mr. Cunjun Ma beneficially owns all Class B common shares and delegated voting power over certain Class A shares, controlling **76.5% of the company's aggregate voting power**[199](index=199&type=chunk)[600](index=600&type=chunk) [Financial Information](index=112&type=section&id=ITEM%208.%20FINANCIAL%20INFORMATION) This section confirms the consolidated financial statements are appended, states no material legal proceedings are currently active, and outlines a dividend policy of retaining future earnings for business growth, with dividend payments dependent on PRC subsidiary distributions and regulations - The company currently has no plans to pay cash dividends, intending to retain future earnings for business operations and expansion[618](index=618&type=chunk) - As a holding company, its ability to pay dividends depends on receiving distributions from its China subsidiaries, which are subject to PRC regulations[619](index=619&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=123&type=section&id=ITEM%2011.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The company's primary market risks are foreign exchange risk, mainly from RMB-to-USD translation, and seasonality, with life and health insurance sales peaking in Q1 and travel insurance in Q3 - The company's primary market risk is foreign exchange risk, as its RMB-denominated business is traded in U.S. dollars via ADSs; a **10% RMB depreciation** would decrease cash and cash equivalents by **US$1.3 million** as of December 31, 2019[687](index=687&type=chunk)[690](index=690&type=chunk) - The business experiences seasonality, with life and health insurance product orders typically higher in the first quarter and property & casualty products, primarily travel insurance, peaking in the third quarter[693](index=693&type=chunk) PART II [Material Modifications to the Rights of Security Holders and Use of Proceeds](index=126&type=section&id=ITEM%2014.%20MATERIAL%20MODIFICATIONS%20TO%20THE%20RIGHTS%20OF%20SECURITY%20HOLDERS%20AND%20USE%20OF%20PROCEEDS) This section details the use of proceeds from the company's February 2020 IPO, which generated approximately **US$47.7 million** in net proceeds from the offering of **5,322,453 ADSs** and will be used as disclosed in the registration statement - The company's initial public offering in **February 2020** raised net proceeds of approximately **US$47.7 million** after deducting total expenses of **US$8.7 million**[701](index=701&type=chunk) [Controls and Procedures](index=127&type=section&id=ITEM%2015.%20CONTROLS%20AND%20PROCEDURES) Management concluded that as of December 31, 2019, disclosure controls and procedures were not effective due to a material weakness in internal control over financial reporting, stemming from insufficient accounting personnel with U.S. GAAP and SEC reporting knowledge, which the company plans to remediate - Management concluded that as of December 31, 2019, the company's disclosure controls and procedures were **not effective**[704](index=704&type=chunk) - A material weakness in internal control over financial reporting was identified due to insufficient and incompetent financial reporting and accounting personnel lacking knowledge of U.S. GAAP and SEC reporting requirements[706](index=706&type=chunk)[707](index=707&type=chunk) - The company plans to remediate the material weakness by recruiting qualified financial personnel, implementing U.S. GAAP training, and strengthening its financial reporting function and control framework[708](index=708&type=chunk) [Corporate Governance](index=129&type=section&id=ITEM%2016.G.%20CORPORATE%20GOVERNANCE) As a Cayman Islands company listed on Nasdaq, Huize is subject to Nasdaq's corporate governance rules but may follow home country practices, though it currently does not plan to, and is a "controlled company" due to the CEO's majority voting power, allowing for certain board independence exemptions - As a foreign private issuer, the company may follow home country (Cayman Islands) corporate governance practices, which differ from Nasdaq standards, but currently does not plan to utilize these exemptions[718](index=718&type=chunk) - The company is a "controlled company" under Nasdaq rules because CEO Mr. Cunjun Ma holds **more than 50% of total voting power**, exempting it from requirements such as having a majority of independent directors[232](index=232&type=chunk) PART III [Financial Statements](index=129&type=section&id=ITEM%2018.%20FINANCIAL%20STATEMENTS) This section presents the audited consolidated financial statements for Huize Holding Limited for fiscal years 2017-2019, prepared under U.S. GAAP, including the independent auditor's report, balance sheets, statements of comprehensive income, changes in shareholders' equity, cash flows, and detailed notes - The financial statements were audited by **PricewaterhouseCoopers Zhong Tian LLP**, who has served as the company's auditor since **2018**[725](index=725&type=chunk)[729](index=729&type=chunk) - The company early adopted **ASU 2014-09, Revenue from Contracts with Customers (Topic 606)**, on **January 1, 2017**, using the full retrospective method[500](index=500&type=chunk)[811](index=811&type=chunk) - Subsequent to the reporting period, the **COVID-19 outbreak** may adversely affect 2020 business operations and financial results, and in **April 2020**, the board authorized a share repurchase program of up to **US$10 million**[917](index=917&type=chunk)[918](index=918&type=chunk)