Waterdrop(WDH) - 2023 Q3 - Quarterly Report

Executive Summary & Highlights Financial and Operational Highlights for Q2 2023 Waterdrop Inc. reported resilient Q2 2023 performance with significant QoQ growth in FYP and net operating revenue, maintaining strong cash and expanding product offerings Q2 2023 Financial and Operational Highlights | Metric | Value (RMB) | YoY Change | QoQ Change | | :------------------------------------ | :-------------------- | :--------- | :--------- | | First-Year Premiums (FYP) | 2,197.0 million | N/A | +29.8% | | Net Operating Revenue | 678.7 million | -3.2% | +12.0% | | Cash & Cash Equivalents & Short-term Investments (as of Jun 30, 2023) | 3,399.2 million | N/A | N/A | | Insurance Products Offered (as of Jun 30, 2023) | 1,050 | N/A | +174 (from 876) | | Critical Illness Insurance FYP Share | 21.8% | N/A | N/A | - Waterdrop Medical Crowdfunding cumulatively facilitated donations of approximately RMB60.1 billion from around 439 million people to over 2.95 million patients[2] Management Commentary Management highlighted user-centric development, sequential growth in insurance users, product innovation, and strong E-Find Platform performance - The insurance business witnessed sequential growth in new users and maintained a consistently high policy renewal rate, with new product offerings like the Blue Ocean Lifetime Health Insurance[3] - The medical crowdfunding business focused on operational transparency and refining consultant services to safeguard patient and donor rights[4] - The E-Find Platform collaborated with 132 pharmaceutical companies and CROs, enrolled over 900 patients, onboarded 80 new clinical trial programs, and initiated its first full-cycle clinical trial operation project, demonstrating strong performance in digital patient recruiting[4] Financial Results for Q2 2023 Operating Revenue, Net Net operating revenue reached RMB678.7 million in Q2 2023, a 3.2% YoY decrease and 12.0% QoQ increase, influenced by varied segment income Net Operating Revenue (RMB million) | Period | Amount | YoY Change | QoQ Change | | :----- | :----- | :--------- | :--------- | | Q2 2023 | 678.7 | -3.2% | +12.0% | | Q2 2022 | 701.4 | N/A | N/A | Insurance-related Income Insurance-related Income (RMB million) | Period | Amount | YoY Change | | :----- | :----- | :--------- | | Q2 2023 | 597.4 | -4.6% | | Q2 2022 | 625.9 | N/A | - The decrease in insurance-related income was mainly due to a decrease in technical service income[6] Crowdfunding Service Fees Crowdfunding Service Fees (RMB million) | Period | Amount | YoY Change | | :----- | :----- | :--------- | | Q2 2023 | 44.7 | -20.3% | | Q2 2022 | 56.1 | N/A | - The crowdfunding platform ceased fully subsidizing costs and started charging a 3% service fee (up to RMB5,000) since April 7, 2022, with selective subsidies for special needs[7] Digital Clinical Trial Solution Income Digital Clinical Trial Solution Income (RMB million) | Period | Amount | | :----- | :----- | | Q2 2023 | 29.4 | | Q2 2022 | 11.0 | Operating Costs and Expenses Total operating costs and expenses increased significantly by 32.1% YoY and 20.9% QoQ to RMB720.3 million, driven by increases in operating costs and sales and marketing expenses Total Operating Costs and Expenses (RMB million) | Period | Amount | YoY Change | QoQ Change | | :----- | :----- | :--------- | :--------- | | Q2 2023 | 720.3 | +32.1% | +20.9% | Operating Costs Operating Costs (RMB million) | Period | Amount | YoY Change | QoQ Change | | :----- | :----- | :--------- | :--------- | | Q2 2023 | 333.1 | +36.2% | +34.3% | - The increase was primarily driven by a RMB74.2 million increase in costs of referral and service fees (YoY) and a RMB8.9 million increase in costs for the patient recruitment consultants team (YoY)[9] Sales and Marketing Expenses Sales and Marketing Expenses (RMB million) | Period | Amount | YoY Change | QoQ Change | | :----- | :----- | :--------- | :--------- | | Q2 2023 | 204.5 | +41.6% | +18.0% | - The increase was primarily due to a RMB50.7 million increase in marketing expenses to third-party traffic channels (YoY)[9] General and Administrative Expenses General and Administrative Expenses (RMB million) | Period | Amount | YoY Change | QoQ Change | | :----- | :----- | :--------- | :--------- | | Q2 2023 | 96.0 | +11.6% | Stable | - The year-over-year variance was due to a RMB9.9 million increase in professional service fees[9] Research and Development Expenses Research and Development Expenses (RMB million) | Period | Amount | YoY Change | QoQ Change | | :----- | :----- | :--------- | :--------- | | Q2 2023 | 86.7 | +23.1% | +10.2% | - The increase was primarily due to RMB15.0 million increases in research and development personnel costs and share-based compensation expenses (YoY)[9] Operating Profit/(Loss) The company reported an operating loss of RMB41.6 million in Q2 2023, a significant decline from RMB155.9 million profit in Q2 2022 and RMB10.3 million in Q1 2023 Operating Profit/(Loss) (RMB million) | Period | Amount | | :----- | :----- | | Q2 2023 | (41.6) | | Q2 2022 | 155.9 | | Q1 2023 | 10.3 | Other Income and Net Profit Waterdrop achieved a net profit of RMB21.7 million in Q2 2023, despite an operating loss, supported by interest income and tax benefits Interest Income Interest Income (RMB million) | Period | Amount | | :----- | :----- | | Q2 2023 | 37.6 | | Q2 2022 | 15.2 | - The increase in interest income was primarily due to the increase in short-term investments[11] Income Tax Benefit Income Tax Benefit (RMB million) | Period | Amount | | :----- | :----- | | Q2 2023 | 10.5 | | Q2 2022 | 19.8 | Net Profit and Adjusted Net Profit Net Profit Attributable to Waterdrop (RMB million) | Period | Amount | | :----- | :----- | | Q2 2023 | 21.7 | | Q2 2022 | 206.9 | | Q1 2023 | 49.7 | Adjusted Net Profit Attributable to Waterdrop (RMB million) | Period | Amount | | :----- | :----- | | Q2 2023 | 50.3 | | Q2 2022 | 232.5 | | Q1 2023 | 96.4 | Financial Position and Capital Management Cash and Cash Equivalents and Short-term Investments Waterdrop maintained a strong liquidity position with combined cash and short-term investments totaling RMB3,399.2 million as of June 30, 2023 Cash and Cash Equivalents and Short-term Investments (RMB million) | Date | Amount | | :----------- | :----------- | | Jun 30, 2023 | 3,399.2 | | Dec 31, 2022 | 3,704.5 | Share Repurchase Plans Waterdrop completed US$86.1 million in ADSs repurchases and approved a new US$50 million share repurchase program - As of August 31, 2023, approximately 37.5 million ADSs were cumulatively repurchased for a total consideration of approximately US$86.1 million under the previous program[13] - A new share repurchase program was approved on September 6, 2023, authorizing repurchases of up to US$50 million in ordinary shares (in the form of ADSs) over the twelve-month period through September 6, 2024[14] - The new repurchase program will be funded by existing cash on the Company's balance sheet[14] Business Segments and Recent Developments Segment Reporting Structure Update Effective Q2 2023, Waterdrop updated its segment reporting into Insurance, Crowdfunding, and Others, with comparative figures adjusted retrospectively - Starting from Q2 2023, the company manages and reports its business in three operating segments: Insurance (Waterdrop Insurance Marketplace and technical support), Crowdfunding (Waterdrop Medical Crowdfunding), and Others (Digital Clinical Trial Solution and new initiatives)[15] Segment Performance Overview In Q2 2023, the Insurance segment generated most revenue and profit, while Crowdfunding and 'Others' segments reported operating losses Segment Operating Revenue (RMB thousands) | Segment | Q2 2023 | Q1 2023 | Q2 2022 | | :-------- | :------ | :------ | :------ | | Insurance | 597,437 | 536,343 | 625,927 | | Crowdfunding | 44,677 | 42,022 | 56,061 | | Others | 36,586 | 27,800 | 19,430 | | Total | 678,700 | 606,165 | 701,418 | Segment Operating Profit/(Loss) (RMB thousands) | Segment | Q2 2023 | Q1 2023 | Q2 2022 | | :-------- | :------ | :------ | :------ | | Insurance | 99,759 | 154,955 | 270,843 | | Crowdfunding | (64,131) | (61,134) | (45,783) | | Others | (47,877) | (36,567) | (43,392) | | Total Segment | (12,249) | 57,254 | 181,668 | Recent Development: Acquisition of Cunzhen Qiushi Waterdrop initiated the acquisition of Shenzhen Cunzhen Qiushi Technology Co., Ltd. (Shenlanbao), acquiring 56% equity interest on July 4, 2023 - Waterdrop acquired 56% of the equity interest of Shenzhen Cunzhen Qiushi Technology Co., Ltd. (Shenlanbao) on July 4, 2023[17] - The remaining 44% equity interest of Cunzhen Qiushi will be acquired in stages: 4% within six months after the first closing, and the final 40% in three batches over the following three years[17] Additional Information Exchange Rate Information The report provides USD translations for convenience, using an exchange rate of RMB7.2513 to US$1.00 as of June 30, 2023 - All translations from RMB to USD were made at the rate of RMB7.2513 to US$1.00, the noon buying rate in effect on June 30, 2023[18] Non-GAAP Financial Measure Explanation Waterdrop uses 'adjusted net profit' as a non-GAAP financial measure, excluding share-based compensation and foreign currency exchange gains/losses, to evaluate operating results - The company uses 'adjusted net profit' as a non-GAAP financial measure for evaluating operating results and financial/operational decision-making[19] - Adjusted net profit represents net profit excluding share-based compensation expense and foreign currency exchange gain or losses[19] - The non-GAAP measure is not presented in accordance with U.S. GAAP and should not be considered in isolation or as a substitute for GAAP measures[20] Forward-Looking Statements The press release contains forward-looking statements regarding Waterdrop's future business, financial condition, and industry growth, which involve inherent risks and uncertainties - The press release contains forward-looking statements identifiable by terms such as 'will,' 'expects,' 'anticipates,' etc[22] - These statements involve inherent risks and uncertainties, including those related to future business development, financial condition, industry growth, market acceptance, relationships with partners, competition, and government regulations[22] - Waterdrop does not undertake any obligation to update any forward-looking statement, except as required under applicable law[22] Conference Call Details Waterdrop's management held a conference call on September 7, 2023, to discuss the financial results, with dial-in details and webcast information provided - A conference call was held on September 7, 2023, at 8:00 AM U.S. Eastern Time to discuss the financial results[24] - Dial-in details for international, U.S. toll-free, Hong Kong, and Mainland China lines were provided, along with specific entry numbers for Chinese and English interpretation lines[25] - A live and archived webcast of the conference call is available at the Company's investor relations website[27] About Waterdrop Inc. Waterdrop Inc. is a leading technology platform founded in 2016, dedicated to insurance and healthcare services with a positive social impact - Waterdrop Inc. (NYSE: WDH) is a leading technology platform dedicated to insurance and healthcare service with a positive social impact, founded in 2016[28] - The company aims to bring insurance and healthcare services to billions through technology, with comprehensive coverage from Waterdrop Insurance Marketplace and Waterdrop Medical Crowdfunding[28] Unaudited Condensed Consolidated Financial Statements Unaudited Condensed Consolidated Balance Sheets The balance sheet as of June 30, 2023, shows total assets of RMB5,880.790 million and total liabilities of RMB1,278.812 million, with current assets decreasing slightly Condensed Consolidated Balance Sheets (RMB thousands) | Metric | Dec 31, 2022 | Jun 30, 2023 | | :--------------------------------- | :----------- | :----------- | | Total Assets | 5,922,223 | 5,880,790 | | Current Assets | 5,690,619 | 5,499,873 | | Cash and cash equivalents | 1,574,171 | 644,340 | | Short-term investments | 2,130,377 | 2,754,859 | | Total Liabilities | 1,156,095 | 1,278,812 | | Total Shareholders' Equity | 4,766,128 | 4,601,978 | Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income The Q2 2023 statement of operations shows RMB678.7 million net operating revenue and RMB21.7 million net profit, with increased operating costs leading to an operating loss Condensed Consolidated Statements of Operations (RMB thousands) | Metric | Q2 2023 | Q1 2023 | Q2 2022 | | :-------------------------------------- | :------ | :------ | :------ | | Operating revenue, net | 678,700 | 606,165 | 701,418 | | Total operating costs and expenses | (720,342) | (595,837) | (545,495) | | Operating profit/(loss) | (41,642) | 10,328 | 155,923 | | Interest income | 37,618 | 30,876 | 15,213 | | Net profit attributable to Waterdrop Inc. | 21,697 | 49,725 | 206,943 | Share-based Compensation Expenses (RMB thousands) | Category | Q2 2023 | Q1 2023 | Q2 2022 | | :-------------------------------- | :------ | :------ | :------ | | Sales and marketing expenses | (7,888) | (16,529) | (1,771) | | General and administrative expenses | (18,122) | (26,460) | (19,976) | | Research and development expenses | (3,383) | (3,937) | (3,998) | | Total | (29,393) | (46,926) | (25,745) | Reconciliations of GAAP and Non-GAAP Results Adjusted net profit for Q2 2023 was RMB50.3 million, derived by adjusting GAAP net profit for share-based compensation and foreign currency exchange gain Reconciliation of GAAP and Non-GAAP Results (RMB thousands) | Metric | Q2 2023 | Q1 2023 | Q2 2022 | | :----------------------------- | :------ | :------ | :------ | | Net profit | 21,697 | 49,725 | 206,943 | | Add: Share-based compensation expense | 29,393 | 46,926 | 25,745 | | Foreign currency exchange gain | (838) | (282) | (163) | | Adjusted net profit | 50,252 | 96,369 | 232,525 |