Waterdrop(WDH) - 2022 Q4 - Annual Report

Financial and Operational Highlights for the Third Quarter of 2022 Summary of Highlights Waterdrop Inc. achieved healthy Q3 2022 revenue growth, sustained profitability, and positive cash flow, driven by increased first-year premiums and cost control Q3 2022 Financial and Operational Highlights | Metric | Q3 2022 Value | | :------------------------------------ | :------------------------------------ | | FYP (Waterdrop Insurance Marketplace) | RMB 1,785.3 million (US$251.0 million) | | FYP QoQ Growth | +8.4% | | Net Operating Revenue | RMB 772.2 million (US$108.6 million) | | Net Operating Revenue QoQ Growth | +10.1% | | Sales and Marketing Expenses YoY Change | -82.4% | | Total Operating Costs & Expenses YoY Change | -50.5% | | Net Profit | RMB 169.6 million (US$23.8 million) | | Cash & Short-term Investments (as of Sep 30, 2022) | RMB 3,588.6 million (US$504.5 million) | | Cash & Short-term Investments QoQ Increase | +RMB 300.5 million | | Insurance Products Offered (as of Sep 30, 2022) | 536 (vs. 454 in Q2 2022) | | Critical Illness FYP QoQ Growth | +7.8% | | Critical Illness FYP % of Overall FYP | 28.6% | | Cumulative Crowdfunding Donations | ~RMB 55.4 billion | | Cumulative Crowdfunding Donors | ~420 million people | | Cumulative Crowdfunding Patients | >2.69 million patients | CEO's Remarks CEO Peng Shen noted solid financial performance, sequential revenue growth, and sustained net profit, emphasizing product innovation and platform transparency - Achieved solid financial performance with 10.1% sequential revenue growth despite COVID-19 resurgence and soft macroeconomic environment[2] - Net profit reached RMB 169.6 million, demonstrating consistent momentum towards full-year profitability goal[2] - Enhanced insurance product offerings with customized critical illness products, including those waiving health declarations, and saw a 20% QoQ increase in premiums from users under 40[2] - Medical crowdfunding business enhanced operational transparency and controls, resulting in no malicious fundraising activities for several consecutive months[2] - E-find Patient Platform sustained growth, recruiting over 900 patients for clinical trials and expanding to over 400 programs, including international multicenter trials[2] Financial Results for the Third Quarter of 2022 Operating Revenue, Net Net operating revenue in Q3 2022 was RMB 772.2 million, a slight YoY decrease but QoQ increase, driven by insurance brokerage and new crowdfunding fees Net Operating Revenue (RMB thousands) | Metric | Q3 2022 | Q3 2021 | YoY Change | | :---------------------- | :------ | :------ | :--------- | | Net Operating Revenue | 772,192 | 779,305 | -0.9% | Insurance-related Income Insurance-related Income (RMB thousands) | Metric | Q3 2022 | Q3 2021 | YoY Change | | :---------------------- | :------ | :------ | :--------- | | Insurance-related Income | 693,500 | 758,600 | -8.6% | - Decrease mainly due to a reduction in insurance brokerage income[3] Crowdfunding Service Fees Crowdfunding Service Fees (RMB thousands) | Metric | Q3 2022 | Q3 2021 | | :---------------------- | :------ | :------ | | Crowdfunding Service Fees | 59,000 | Nil | - Service fees started being charged from April 7, 2022, at 3% of funds raised (up to RMB 5,000 per campaign), with selective subsidies for needy patients[3] Operating Costs and Expenses Total operating costs and expenses significantly decreased by 50.5% year-over-year in Q3 2022 due to effective cost control, particularly a sharp reduction in sales and marketing expenses Total Operating Costs and Expenses (RMB thousands) | Metric | Q3 2022 | Q3 2021 | YoY Change | Q2 2022 | QoQ Change | | :----------------------------- | :------ | :------ | :--------- | :------ | :--------- | | Total Operating Costs & Expenses | 639,629 | 1,292,296 | -50.5% | 545,495 | +17.3% | Operating Costs Operating Costs (RMB thousands) | Metric | Q3 2022 | Q3 2021 | YoY Change | Q2 2022 | QoQ Change | | :------------- | :------ | :------ | :--------- | :------ | :--------- | | Operating Costs | 341,293 | 296,317 | +15.2% | 244,616 | +39.5% | - YoY increase primarily driven by a RMB 22.8 million increase in professional and outsourced customer service fees, a RMB 63.7 million reclassification of crowdfunding consultants team costs, and a RMB 19.5 million increase in one-year health insurance coverage cost, partially offset by a RMB 85.0 million decrease in personnel cost for consultants and insurance agents[4] - QoQ increase primarily due to a RMB 64.1 million increase in professional and outsourced customer service fees[4] Sales and Marketing Expenses Sales and Marketing Expenses (RMB thousands) | Metric | Q3 2022 | Q3 2021 | YoY Change | Q2 2022 | QoQ Change | | :---------------------- | :------ | :------ | :--------- | :------ | :--------- | | Sales and Marketing Expenses | 137,919 | 781,671 | -82.4% | 144,423 | Stable | - YoY decrease primarily due to a RMB 500.6 million decrease in marketing expenses to third-party traffic channels and a RMB 124.2 million decrease in outsourced sales and marketing service fees[4] General and Administrative Expenses General and Administrative Expenses (RMB thousands) | Metric | Q3 2022 | Q3 2021 | YoY Change | Q2 2022 | QoQ Change | | :-------------------------------- | :------ | :------ | :--------- | :------ | :--------- | | General and Administrative Expenses | 82,039 | 111,419 | -26.4% | 86,054 | Stable | - YoY decrease due to a RMB 8.7 million decrease in share-based compensation expenses, a RMB 9.9 million decrease in personnel cost, and a RMB 5.4 million decrease in rental expenses[4] Research and Development Expenses Research and Development Expenses (RMB thousands) | Metric | Q3 2022 | Q3 2021 | YoY Change | Q2 2022 | QoQ Change | | :---------------------------- | :------ | :------ | :--------- | :------ | :--------- | | Research and Development Expenses | 78,378 | 102,889 | -23.8% | 70,402 | +11.3% | - YoY decrease primarily due to RMB 19.5 million decreases in R&D personnel costs and share-based compensation expenses[4] - QoQ increase mainly due to RMB 7.7 million increases in R&D personnel costs and share-based compensation expenses[4] Operating Profit Waterdrop achieved an operating profit of RMB 132.6 million in Q3 2022, a significant turnaround from an operating loss of RMB 513.0 million in Q3 2021, though slightly lower than Q2 2022 Operating (Loss)/Profit (RMB thousands) | Metric | Q3 2022 | Q3 2021 | Q2 2022 | | :--------------- | :------ | :-------- | :------ | | Operating Profit | 132,563 | (513,000) | 155,923 | Interest Income Interest income for Q3 2022 more than doubled year-over-year to RMB 24.3 million, primarily due to an increased bank balance and short-term investments resulting from positive operating cash flow Interest Income (RMB thousands) | Metric | Q3 2022 | Q3 2021 | | :------------- | :------ | :------ | | Interest Income | 24,331 | 11,928 | - Increase primarily due to the increase in bank balance and short-term investments as a result of positive operating cash flow[6] Income Tax Benefit The company reported an income tax benefit of RMB 9.1 million in Q3 2022, slightly higher than the RMB 8.2 million benefit in the same period last year Income Tax Benefit (RMB thousands) | Metric | Q3 2022 | Q3 2021 | | :--------------- | :------ | :------ | | Income Tax Benefit | 9,134 | 8,247 | Net Profit Attributable to Waterdrop Inc. Waterdrop Inc. achieved a net profit of RMB 169.6 million in Q3 2022, a significant improvement from a net loss of RMB 477.0 million in Q3 2021, though a decrease from Q2 2022 Net (Loss)/Profit Attributable to Waterdrop Inc. (RMB thousands) | Metric | Q3 2022 | Q3 2021 | Q2 2022 | | :------------------------------------------ | :------ | :-------- | :------ | | Net (Loss)/Profit Attributable to Waterdrop | 169,614 | (476,975) | 206,943 | Adjusted Net Profit Attributable to Waterdrop Inc. Adjusted net profit for Q3 2022 was RMB 215.7 million, a substantial turnaround from an adjusted net loss of RMB 453.6 million in Q3 2021, but slightly lower than Q2 2022 Adjusted Net (Loss)/Profit Attributable to Waterdrop Inc. (RMB thousands) | Metric | Q3 2022 | Q3 2021 | Q2 2022 | | :------------------------------------------------ | :------ | :-------- | :------ | | Adjusted Net (Loss)/Profit Attributable to Waterdrop | 215,727 | (453,643) | 232,525 | Cash and Cash Equivalents and Short-term Investments Summary of Cash and Investments As of September 30, 2022, Waterdrop's combined cash and cash equivalents and short-term investments increased to RMB 3,588.6 million, reflecting positive operating cash flow Cash and Cash Equivalents and Short-term Investments (RMB thousands) | Metric | As of Sep 30, 2022 | As of Dec 31, 2021 | QoQ Change (from Q2 2022) | | :------------------------------------------ | :----------------- | :----------------- | :------------------------ | | Cash and Cash Equivalents & Short-term Investments | 3,588,600 | 2,787,100 | +300,500 | Share Repurchase Plan Summary of Share Repurchase Plan As of the end of Q3 2022, Waterdrop had repurchased approximately 5.8 million ADSs for a total consideration of approximately US$8.5 million under its share repurchase program - Cumulatively repurchased approximately 5.8 million ADSs from the open market[8] - Total consideration for repurchases was approximately US$8.5 million[8] - The share repurchase program was launched in September 2021 and amended in September 2022[8] Exchange Rate Summary of Exchange Rate Information The report uses an exchange rate of RMB 7.1135 to US$1.00, the noon buying rate on September 30, 2022, for convenience, with a disclaimer regarding actual convertibility - All translations from RMB to USD were made at the rate of RMB 7.1135 to US$1.00[9] - The exchange rate was the noon buying rate in effect on September 30, 2022, in the H.10 statistical release of the Federal Reserve Board[9] - The Company makes no representation that the RMB or USD amounts could be converted at any particular rate or at all[9] Non-GAAP Financial Measures Summary of Non-GAAP Financial Measures Waterdrop Inc. uses adjusted net operating revenue and net profit/loss as non-GAAP measures, excluding share-based compensation and mutual aid plan impact, reconciled to GAAP - Company uses adjusted net operating revenue and adjusted net profit/loss as non-GAAP financial measures[10] - Adjusted net operating revenue excludes management fee income from mutual aid business[10] - Adjusted net profit/loss excludes share-based compensation expense, the impact of terminating the mutual aid plan, and foreign currency exchange gain or losses[10] - Non-GAAP measures are not presented in accordance with U.S. GAAP and are reconciled to the most comparable U.S. GAAP performance measures[10] Safe Harbor Statement Summary of Safe Harbor Statement This section contains a standard safe harbor statement, indicating that the press release includes forward-looking statements subject to risks and uncertainties - Press release contains "forward-looking" statements identified by terminology such as "will," "expects," "anticipates," etc[12] - Forward-looking 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 policies[12] - Waterdrop does not undertake any obligation to update any forward-looking statement, except as required under applicable law[12] Conference Call Information Summary of Conference Call Information Waterdrop's management hosted a conference call on December 6, 2022, to discuss the financial results, with dial-in details and webcast information provided - Waterdrop's management team held a conference call on December 6, 2022, at 7:00 AM U.S. Eastern Time[13] - Dial-in details and an Elite Entry Number (5857670) were provided for participants[11][13] - A telephone replay was accessible through December 13, 2022, and a live and archived webcast is available on the Company's investor relations website[13] About Waterdrop Inc. Summary of Company Profile 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[14] - Founded in 2016, it offers comprehensive coverage through Waterdrop Insurance Marketplace and Waterdrop Medical Crowdfunding[14] - The company's aim is to "bring insurance and healthcare service to billions through technology"[14] UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS Summary of Balance Sheet The unaudited condensed consolidated balance sheets show Waterdrop's financial position as of September 30, 2022, highlighting increases in total assets and shareholders' equity Unaudited Condensed Consolidated Balance Sheets (Amounts in thousands) | Metric | Dec 31, 2021 (RMB) | Sep 30, 2022 (RMB) | Sep 30, 2022 (USD) | | :--------------------------------------- | :----------------- | :----------------- | :----------------- | | Assets | | | | | Cash and cash equivalents | 817,719 | 598,353 | 84,115 | | Restricted cash | 667,664 | 464,646 | 65,319 | | Short-term investments | 1,969,362 | 2,990,238 | 420,361 | | Accounts receivable, net | 643,843 | 762,402 | 107,177 | | Total current assets | 5,033,042 | 5,544,392 | 779,418 | | Total assets | 5,250,599 | 5,770,469 | 811,201 | | Liabilities | | | | | Insurance premium payables | 685,028 | 468,504 | 65,861 | | Accrued expenses and other current liabilities | 498,752 | 579,313 | 81,439 | | Total current liabilities | 1,249,145 | 1,075,518 | 151,194 | | Total liabilities | 1,277,173 | 1,102,222 | 154,948 | | Shareholders' Equity | | | | | Total shareholders' equity | 3,973,426 | 4,668,247 | 656,253 | UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS Summary of Statements of Operations The unaudited condensed consolidated statements of operations for Q3 2022 show a significant turnaround from a net loss in Q3 2021 to a net profit, driven by stable revenue and reduced operating expenses Unaudited Condensed Consolidated Statements of Operations (Three Months Ended September 30, Amounts in thousands) | Metric | Q3 2021 (RMB) | Q2 2022 (RMB) | Q3 2022 (RMB) | Q3 2022 (USD) | | :-------------------------------------------------- | :------------ | :------------ | :------------ | :------------ | | Operating revenue, net | 779,305 | 701,418 | 772,192 | 108,553 | | Total operating costs and expenses | (1,292,296) | (545,495) | (639,629) | (89,917) | | Operating (loss)/profit | (512,991) | 155,923 | 132,563 | 18,636 | | Net (loss)/profit attributable to Waterdrop Inc. | (476,975) | 206,943 | 169,614 | 23,844 | | Comprehensive (loss)/income | (491,296) | 293,944 | 263,697 | 37,070 | Unaudited Condensed Consolidated Statements of Operations (Nine Months Ended September 30, Amounts in thousands) | Metric | 9M 2021 (RMB) | 9M 2022 (RMB) | 9M 2022 (USD) | | :-------------------------------------------------- | :------------ | :------------ | :------------ | | Operating revenue, net | 2,602,026 | 2,122,298 | 298,348 | | Total operating costs and expenses | (4,390,931) | (1,717,167) | (241,395) | | Operating (loss)/profit | (1,788,905) | 405,131 | 56,953 | | Net (loss)/profit attributable to Waterdrop Inc. | (1,502,883) | 481,515 | 67,691 | | Comprehensive (loss)/income | (1,529,020) | 655,888 | 92,204 | - Share-based compensation expenses are included in the operating costs and expenses[17][20] RECONCILIATIONS OF GAAP AND NON-GAAP RESULTS Summary of GAAP and Non-GAAP Reconciliations This section reconciles GAAP and non-GAAP net operating revenue and net profit/loss, detailing adjustments for mutual aid income, share-based compensation, and foreign currency Reconciliation of GAAP and Non-GAAP Net Operating Revenue (Three Months Ended September 30, Amounts in thousands) | Metric | Q3 2021 (RMB) | Q2 2022 (RMB) | Q3 2022 (RMB) | Q3 2022 (USD) | | :---------------------------- | :------------ | :------------ | :------------ | :------------ | | Net operating revenue | 779,305 | 701,418 | 772,192 | 108,553 | | Less: Management fee income | — | — | — | — | | Adjusted net operating revenue | 779,305 | 701,418 | 772,192 | 108,553 | Reconciliation of GAAP and Non-GAAP Net (Loss)/Profit (Three Months Ended September 30, Amounts in thousands) | Metric | Q3 2021 (RMB) | Q2 2022 (RMB) | Q3 2022 (RMB) | Q3 2022 (USD) | | :------------------------------------ | :------------ | :------------ | :------------ | :------------ | | Net (loss)/profit | (476,975) | 206,943 | 169,614 | 23,844 | | Add: Share-based compensation expense | 36,040 | 25,745 | 25,552 | 3,592 | | Add: Foreign currency exchange (gain)/loss | (12,708) | (163) | 1,012 | 142 | | Add: Impact of terminating the mutual aid plan | — | — | 19,549 | 2,748 | | Adjusted net (loss)/profit | (453,643) | 232,525 | 215,727 | 30,326 | - The impact of terminating the mutual aid plan includes the estimated cost of medical expenses and one-year health insurance coverage, with RMB 19.5 million (US$2.7 million) recorded in Q3 2022[22]