Huize Holding Limited (HUIZ) Q2 2022 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to Huize Holdings Limited Second Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the management's prepared remarks, we will have a question-and-answer session. Today's conference call is being recorded, and a webcast replay will be available. Please visit Huize's IR website at ir.huize.com under the Events and Webcast section. I'd now like to hand the conference over to your speaker host today, Ms. Harriet Hu, Huize's Investor Relations Director. Please go ahead, Harriet.

Thank you, Amber. Hello, everyone, and welcome to our earnings conference call for the second quarter of 2022. Our financial and operating results were released earlier today and are currently available on both our IR website and the Newswire. Before we continue, I would like to refer you to the Safe Harbor statement in our earnings press release, which also applies to this call as we will be making forward-looking statements. Please also note that we will discuss non-GAAP measures today, which are more thoroughly explained in our earnings release and filings with the SEC. Joining us today are our Founder and CEO, Mr. Cunjun Ma; COO, Mr. Li Jiang; Co-CFO, Mr. Minghan Xiao; and Co-CFO, Mr. Ronald Tam. Mr. Ma will start the call by providing an overview of the Company's performance and operational highlights for the second quarter of 2022. Mr. Tam will then provide details on the financial results for the period before we open up the call for questions. I will now turn the call over to Mr. Ma.

[Foreign Language] Hello, everyone, and thank you for joining Huize's second quarter 20222 earnings conference call. [Foreign Language] In the second quarter, Huize's business continued to demonstrate strong resilience despite softening insurance demand caused by ongoing economic uncertainty and disruptions caused by regional pandemic restriction in China. Thanks to our solid digitalization and product innovation capabilities as well as our in-depth focus on cultivating users lifetime value. We continued to drive industry digitalization and press on with executing on our strategic clients of building an omnichannel digital insurance service ecosystem, thereby achieving another quarter of remarkable growth. In the second quarter, total gross written premiums or GWP facilitated on our platform increased by 30.5% year-over-year to RMB 872 million, and our total operating revenue also increased by 30.5% year-over-year to RMB 248 million. [Foreign Language] In terms of product mix, in response to shifting consumer preferences and macroeconomic backdrop, we have strategically focused on promoting the distribution of savings insurance product. In the second quarter, the first-year premiums, or FYP of savings products facilitated on our platform amounted to RMB 282 million, up by 100 employees we present year-over-year. Correspondingly, our total FYP increased by 59.9% year-over-year to RMB 485 million, reflecting that our comprehensive product offerings have supported our high-quality business growth. Meanwhile, we have maintained a strong competitive age in distributing long-term insurance products. In the second quarter, the GWP contribution of our long-term insurance product was 91.7%, remaining above 90% for the 11th consecutive quarter. We have also maintained a high-quality product while recording robust business growth. As of June, our accumulative number of insurance clients reached 8.2 million. In the second quarter, about 64.2% of our long-term insurance customers were from higher-tier cities with an average age of 33.3 years old. In terms of FYP, the average ticket size of long-term insurance products and long-term savings products in the second quarter were approximately RMB 3,481 and RMB 44,000, respectively. Our average persistency ratios for long-term life and health insurance in the 13th and 25th-month remained at industry high levels of 91% and 96%, respectively. [Foreign Language] As of the end of the second quarter, we have co-operated with 100 insurance partners. Since June, we have launched several customized products such as the mid-tier medical insurance [Technical Difficulty] premium for the middle age and the elderly, as well as the inclusive annuity product co-developed with Sun Life Everbright Life to satisfy the high-quality retirement needs of customers. This new product demonstrates our ability to expand our customized product line to a wide spectrum of insurance coverage scenarios. In the second quarter, GWP for co-developed products increased by 16.8 percentage points year-over-year. Moreover, we are pleased to share the cumulative FYP of Xin Man Yi Zu premium, a customized increasing whole life insurance product we launched in last July, has reached RMB 1.2 billion approximately highlighting our ability to gain insight into users’ need and develop the most appropriate product for our users. [Foreign Language] To satisfy the high-quality insurance service needs of our customers, we upgraded our insurance claim assistance system in June by extending the Xiao Ma Claim service to policyholders' immediate family members and including their non-Huize policy claims. In the first half, Huize assisted in a total of 34,000 insurance claim cases with a total claim settlement amount of RMB 320 million, the highest claim settlement amount in a single case reached RMB 2 million. Within these claims, we have assisted in handling 252 disputes with a total claim settlement amount of RMB 9.79 million. [Foreign Language] Meanwhile, following our disciplined cost control measures and the implementation of our group-wide organizational structure optimization, our operational efficiency continued to improve. In the second quarter, selling expenses and G&A expenses decreased by a further 16% sequentially. Going forward, we will continue to reduce our fixed cost base to improve operational efficiency and achieve sustainable business development through resource integration and the optimization of staff productivity and workflow. [Foreign Language] I would also like to share the progress on our strategic roadmap to build an omnichannel digital insurance service ecosystem that integrate agents, businesses, customers, or ABC to customers, apart from acquiring new customers and establishing valuable long-term relationships with them. We have also accelerated our business growth through a better engagement with existing customers. In the second quarter, we have actively launched new product and promotional activities and provided various service upgrades. These, together with live streaming interactions, telemarketing and consultant communications have enabled us to reach more than 100,000 users and achieved sales conversion of more than 3,000 users. To businesses, we continue to drive in-depth digital transformation of the industry. For instance, through our digital acceleration engine project with Taiping Life, we empowered Taiping to collect over 4 billion pieces of traffic data from over 20 business scenarios across its six business lines. In the second quarter, the total revenue contribution of our technology service business was approximately RMB 5.38 million. [Foreign Language] To agents, we have expanded our offline business line with registered insurance agents covering Beijing, Shanghai, Sichuan, Guangdong and Shenzhen. FYP facilitated by the To-A business reached RMB 56.6 million in the first six months of 2022. Moreover, we opened our first independent agent store in Shenzhen in the third quarter striving to reach out to the residents of the region and provide them with a wide range of customers insurance services and empower our professional premium insurance agents. We will use this as a starting point to drive our integrated online and offline business model, and we'll extend the model to other regions after the operations are proven to be sustainable. [Foreign Language] Within this, that’s our 15 years of operational experience and industry-leading digitalization capabilities will enable us to offer our customers a full range of insurance products across all scenarios and empower the whole insurance industry value chain through our integrated online and offline business model, our technology services to our insurance partners and the provision of value-added insurance products and services in the areas of protection, medical, savings and retirement. We strive to enhance customer retention and repeat purchase rate and the lifetime value of our customers, thereby achieving diversified business development and sustainable long-term growth. [Foreign Language] This concludes my prepared remarks for today. I will now turn the call over to our CFO, Mr. Ron Tam, and he will provide an overview of our key financial highlights for the second quarter of 2022.

Thank you, Mr. Ma and thank you, Harriet. Good evening, everyone. For the purpose of this earnings call, I would like to quickly recap a few key takeaways from the operational and financial results for the second quarter. And for a detailed discussion of financial line items, I would like to refer you to our uploaded earnings release for full details. We are very pleased to report an encouraging set of operating and financial results for the second quarter of 2022 according which we delivered top-line growth, coupled with improved operational efficiency. And particularly set against a very challenging macro environment with continued nationwide COVID resurgence, leading to much weakened overall economic activity and depressed [Technical Difficulty] uncertainties. In the second quarter, total GWP increased by a solid 3.5% year-over-year to RMB 872 million, which is mainly driven by the strong growth in first year premiums or FYP of 59.9% year-over-year to RMB 485 million. The strong recovery in FYP is a testament to the agility of Huize's business model, to adapt to the changing regulatory and market environment and the successful execution on a product strategy to focus on the core development and distribution of the increasing whole life insurance product category in 2022. The highly successful product [Bee No.2 Beyond] [ph] series, which we [co-operate] [ph] with Hong Kong Life has been one of our top selling products on the platform. During the quarter, and together with other quality of our products such as the retirement annuity product with Sun Life Everbright as well as other savings product, the long-term savings insurance product category, we call it a very strong FYP group of 1.4x year-over-year. The recovery in our other important long-term health insurance category has also been strong during the second quarter as we launched new iterations of a highly successful Darwin Critical Care series, as well as the long-term medical insurance product named [indiscernible] with CBIC. With total FYP of long-term health insurance products growing by 83% quarter-over-quarter and 8% year-over-year. Touching quickly upon our renewal metrics, renewal premiums increased by 6.1% year-over-year to RMB 387 million with our 13th and 25th month persistency ratios we made at high levels 91% and 96% respectively, and which continues to demonstrate a high-quality user profile on our platform. We provide much confidence for upstream insurance partners during this very difficult macro environment. And during the quarter, we have fully replenished our online insurance product supply chain with a full suite of products spanning the entire spectrum of permit whole life production, health, medical, annuity, savings and P&C categories. While the GWP contribution of a long-term insurance products remaining about 90% and the GWP contribution of our customized products also increasing by 16.8 percentage points year-over-year in the second quarter. Meanwhile, our sophisticated product innovation and customer acquisition capabilities have helped strengthen our engagement with our insurance partners and empowered us to maximize the lifetime value potential of our users. With the effective customer acquisition capabilities provided by our omnichannel distribution platform, our customer base has reached 8.2 million as of the end of the June quarter. In addition, the average ticket size FYP of our long-term savings product category further increased to RMB 44,000 in the second quarter of 2022. Along with a strong growth in FYP, our total operating revenue increased by 13.5% year-over-year to RMB 248 million in the second quarter. As we have mentioned in the previous earnings call, for the first quarter, we continue to place an emphasis on optimizing our overall corporate cost structure and operating efficiencies. With the product implementation of a group wide organizational structure optimization program, our selling expenses and G&A expenses decreased by 16% sequentially to RMB 94 million in the second quarter. And for the second quarter, we have recorded a net loss of RMB 39 million, which narrowed by 55%, as compared to Q2 of 2021, which reflects both our top-line growth this quarter, as well as the improved operational efficiency as a result of a continuing cost reduction program. And as of the end of the second quarter, our combined balance of cash and cash equivalents was RMB 444 million, demonstrating our ample liquidity, it's not a balance sheet position to withstand to continue challenging macroeconomic environment, and providing capital at the same time for future business growth. We've continued to repurchase shares from the open market under our existing share repurchase program. And as of the end of the June quarter, we have repurchased an aggregate of approximately 357,000 ADSs. And going forward, we will continue to execute on the group wide optimization program in Q3 and Q4 aiming to further bring down our fixed cost base and improve our operating leverage upon a business and macro recovery. And based on our preliminary assessment of our current market conditions, we expect to achieve quarterly profitability in the second half of this year. As Mr. Ma mentioned in his opening remarks, we will continue to build and scale an omnichannel digital instruments service ecosystem that integrates A) agents, B) businesses and C) customers over the next three years, which would take us firmly in the top-tier of insurance intermediaries in China, becoming a partner of choice for [indiscernible] partners, as we move into an age of insurance distribution for new generation consumers, which demands innovative solutions on the product side, as well as a seamless digital user experience. We believe this underlying secular growth trends for the industry remain intact and provide much growth potential for professional and digital aid native platform like Huize and provide us with tremendous opportunities to strategically allocate capital to create shareholder value and sustain a high-quality long-term business growth. And with that, this concludes our prepared remarks for today. And we will now open up the call to Q&A. Thank you, operator.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from the line of [Yu Zhong] [ph] from CICC. Please ask your questions, Yu?

[Foreign Language] Here I have three questions. And first question would be that, can you give us some updates on the operation of your offline business? And the second question is, what is your current product portfolio? And in terms of take rates, could you share some more colors on the first year and year-over-year take rates of different products? And the last question, after the pandemic versus the customer demand most of the week, what do you think of the insurance market and second half of this year and what's your corresponding operation strategy? Thanks.

Okay. Thanks for the questions. It's Ron here. Let me address these three questions. I just taken down. The first question regarding the development of the offline business. I guess, we have also mentioned in the opening remarks that we have been seeing very strong growth momentum in our To-A, To-C model, which is the independent agents model that we have kick started in the first quarter of this year. I think that this is also has to do with the ability for us to connect to offline product supply, as well as our existing online product supply matrix, which [Technical Difficulty] offline independent agents to serve their customer base in a very efficient manner, connecting them to the online and offline product supply as well as leveraging on digital tools to serve the end customers efficiently and effectively, especially during this period where COVID resurgence and regional pandemic resurgence have still been restricting the traditional offline agency model. So I think that is really once you hire that we just mentioned in the opening remarks that it's great to see model has seen very strong progress. We have connected to independent agents that's covering the major Tier-1 and Tier-2 regions in China, including Beijing, Shanghai, Guangdong, Shenzhen and Sichuan. And we also shared in the opening remarks that the FYP that has been facilitated by the To-A business model has already reached almost RMB 16 million in the first six months of this year. And I think we do target to see this number growing to about RMB 100 million by the year-end. So for the second question, I think that the takeaways and commission rates for the various products on the platform, I think that essentially the FYP commissions for online products is capped at 60%, 60% for the health products, the long-term health products that we, for example, Darwin series will be first year commissions with 60%. But then for the lifetime value for the product, we are looking at around 110%, LTV commissions, and both of the backend commissions is being paid for the second year of the renewal. So essentially, for long-term health products, we're getting 110% LTV commissions. For the savings products, we are pretty much getting around 60% as well for the first year. And for the long-term lifetime value, we're getting another 10% to 15% in year two to year five. So that will be the take rates for the various products right now. And for the third question regarding the strategy, with respect to the second half of the year, given the continued weakness in the market and softening customer demand, et cetera. I think what we're seeing right now in the market is that the demand for protection type products is expected to be continued to be very weak. To counter this weakness, I think we have launched new innovative products in the marketplace. For example, the [indiscernible] products, which we have co-operated with CPIC as well as the new version of Darwin Critical Care. I think we are also seeing recovery in the product segments, which because of the fact that the products are now catering to the new consumer preferences, that's been the weakness in the economy. And I think the major focus on a product perspective will still be on the savings product segment for the next 12 months. We do see continued demand in the third quarter, especially for the increasing whole life product that we have been showing much success in the market, the demand for each product, and we're still seeing a pretty strong growth momentum in Q3 sequentially in this particular product. So I think that we will continue to drive scale growth in savings product for next 12 months to new iterations of product launches also leveraging on a successful product IP, which we have involved already in the market. With regards to customer acquisition, I think that we are getting more and more precise on our channel. In terms of our investment on the traffic channels and we will be leveraging more and more on the SEO SEM of our existing product IPs to drive our To-C customer acquisitions on the new customer front. And we're also showing a much more concerted effort internally to drive the existing customer sales on upselling and also referrals by existing customers. So that overall, we can further improve our gross margins from the Q2 level. So I guess another thing that we would like to continue to drive in Q3 and Q4, which we have alluded to in the opening remarks is the continued cost reduction. We wanted to target another 10% to 15% additional reduction in the fixed cost base, in the labor cost base by end of the year, as well as product G&A expense control. And I think overall, that will be the second half kind of company strategy on the multiple fronts. Thanks.

Do you have any further questions, Yu?

No, thanks. Very clear.

Thank you very much. Our next question comes from the line of Amy Chen from Citi. Please ask your question, Amy.

Hi. Thank you, management, for giving me the chance to ask questions. So the first question will be also on the commission rate and take rates for our newly launched whole life products compared to critical illness products. And the second one would be, I remember on our first quarter result call, management mentioned that we expect to achieve quarterly profits in the third quarter and the fourth quarter. Do we still maintain that guidance? Or do we have any new guidance for the second half of the year? Thank you.

Thank you, Amy. Thanks for joining the call and your continued support for us. I think the two questions, on the first one take rates for the various products. I think pretty much we're looking at around 60% or so for the savings products that we're now selling on the platform. I think you also need to consider the difference in the commission rates for the different durations of the savings products, because some customers might be going for a 10-year payment, or some will be going for a 15-year, 20-year payment. And so that difference in duration will also lead to a difference in the commission rates. So I think what we see on a planned basis, we're looking at around close to 60% for the savings products. So if you compare that with the online health insurance product, which essentially is also kept at 60%. There is a pretty small differential between the two. With respect to the first-year premium commissions. But for the lifetime value commission, then there'll be a difference there because as I just answered to the earlier question before, the savings product. For example, the increasing whole life product that we're selling, the LTV commissions for the second to the fifth year, probably it will be another 10% to 15% commission, versus for a long-term health product like a critical illness, will be getting an 110% lifetime value total. So there will be around 50% in the year two to five. So there'll be a difference in take rates with respect to the two products specifically. And for the second question regarding the guidance for second half, I think we do maintain, we do target the second half quarterly profitability guidance, I think that would require us to continue to implement on a cost optimization program. And also obviously, very much rely on a continued macro step, I guess macro recovery so that consumer demand and consumer confidence for consumption is -- will be covered so that insurance products being the most discretionary of all financial products [indiscernible] such will also be improved and recovered. So I think, we do maintain our guidance. And we do target a very -- we strive our best to meet these targets in the second half of the year.

Thank you very much. That's very clear.

There are no further questions at this time. I'd now like to hand the conference back to Ms. Harriet Hu for closing remarks.

Thank you, Operator. In closing, on behalf of the Huize's management team, we would like to thank you for your participation in today's call. And if you require any further information, please feel free to reach out to us. Thank you all for joining us today. This concludes the call.

Thank you.

Thank you. This concludes our conference call for today. Thank you for participating. You may now disconnect.