Cheche Group Inc (CCG) 2024 Q4 法說會逐字稿

Good morning and welcome to the Cheche Group's fourth quarter and 2024 results call. (Operator Instructions) Please note this event is being recorded. I would now like to turn the conference over to Crocker Coulson, Investor Relations for Cheche Group. Mr. Colson, the floor is yours.

Thank you so much, operator.

Good morning, everyone herei in the US. Good evening to those of you joining us from Asia, and thanks to all of you for joining us to review Cheche's 2024 fourth quarter and full year results. This morning, Cheche posted both the earnings release and a related investor presentation to our website, which you can find at ir.chechegroup.com.

I'm pleased to say that with me on the call today are Lei Zhang, Cheche's Founder and Chief Executive Officer, and Sandra Ji, Cheche's Chief Financial Officer. After the prepared remarks are concluded, we're going to open up this call to your questions.

But before we begin, some statements in this teleconference are for looking within the meaning of federal securities laws. Although we believe these statements are reasonable, we can provide no assurance that they will prove to be accurate because they are perspective in nature.

Actual results could differ materially from those that we discussed today. So we encourage you to review the most recent filings with the SEC for the risk factors that could materially impact our results. As I mentioned, the earnings release is available on ir.chechegroup.com, and we encourage you to review the reconciliations of certain non-GAAP measures contained within.

With those formalities now out of the way, it's my pleasure to turn the call over to Lei Zhang, Chief Executive Officer. Lei, take it away.

Thank you, Crocker. Greetings, everyone. Thank you for joining us today to review Cheche Group fourth quarter and the full year 2024 results.

I am pleased to report the Cheche Group continues to perform positively in the rapid evolving insurance life gap. Driven by the increasing relevance of new energy vehicles, our expanding partnerships and the technological advancements within our platform. Overall, China's EV sector is seeing continued momentum with penetration rates hovering around 50% of total passenger vehicle sales.

For the full year of 2024, the number of embedded future policies were up 159% year on year to 1.1 million. With corresponding NEV right and premiums growing 128% from prior year to $452 million over the same period.

As a leading player in the space, Cheche is well position positioned to capitalize on the industry positive trends as we expand our insurance offering for NEV vehicles to capture renewal and the policies for user workers. This is a critical step in growing our custom base and increasing our revenue streams from exiting policyholders. The platforms grows as the largest auto insurance technology platform by digital auto insurance transaction premiums continues to feed the industry, providing customized system and embedded insurance products.

As we continue to block strategic partnerships and leverage our innovative solutions, our reach among NEV manufacturers has growth to 15 as of the fourth quarter. The need for advanced technology that driven system and the cost of the insurance products in the NEV best drivers improved margins. As NEV industry continues to match and a writing becomes more accurate, the higher margins of our NEV policies will continue to positively shift to the overall revenue mix.

We continue to deepen our partnership with both traditional and automakers, position Cheche as a key player in this space. These partnerships provide us with valuable data, insights, and access to customs that will allow us to further expand our presence and enhance our offerings.

We are particularly excited about our ongoing innovation in the realm of autonomous driving. In collaboration with automakers and insurers, we are working to launch new suit of products on our independent third-party platform.

Their products are designed to help provide forensic reports that connect all parties involved in an accident and assign a sliding scale of responsibility. We plan to launch selected products on a test basis in the certain cities like this year.

We are also incorporating AI and machine learning into our business by partnering with a leading computer model to enhance efficiency and reduce costs. Currently in development of products that focus on fraud detection in claims management and on rapidly assessing work damages, which we believe will significantly improve customer experience and operation.

Last month, Cheche announced that its innovative Tianmu insurance anti-fraud and risk control model has been recognized in the prestigious top 100 AI products of 2024 list, highlighting Cheche's commitment to leveraging cutting edge technology in the insurance industry. The awarding winning Tianmu model, it creates advanced technologies such as big data, AI, and the biometrics to construct the intelligent anti-fraud and risk control system.

As a company, we are actively broadening our revenue streams by diversity across different product types with a focus on increasing our market share through more tailored and flexible policies. Additionally, we are launching new SaaS and data analytics tools to enhance the value of our technology and further improve our margins.

Looking ahead, our unique insights and broad capabilities have driving a growth of the digital insurance industry, delivering great value to our partners and customers. Cheche, alongside our network of insurance companies and intermediaries, we continue to innovate the issue tax best of users more personal personalized and the cost-effective coverage options. We are proud of that what are we have achieved and these new opportunities that lie ahead.

I will now turn the call over to our CFO, Sandra. Thank you.

Thank you, Lei. Firstly, I'd like to begin by touching on our first quarter operational and financial highlights before taking questions.

Our total premiums placed for this quarter increased to 15.6% to RMB7.4 billion or $1 billion. Well, total premiums placed for the full year of 2024 increased by 7.5% over the prior year to RMB24.3 billion or $3.3 billion. The total number of policies issued increased from 4.8 million for the prior year quarter to 5.1 million in the first quarter this year. Well, the total number of policies issued over the full year of 2024 increased from 15.8 million of the prior year to 17.3 million.

As Lei already mentioned, 441,000 policies and the RMB41.4 billion of corresponding premiums were embedded in NEV deliveries, growing 184% and 171% respectively year over year. Embedded policies and the corresponding rates and premiums for the full year of 2024 reached 1.1 million and RMB3.3 billion which is the USD for $152.4 million respectively, representing growth of 159% for policies embedded and 128% for premiums compared to the prior year.

In terms of our net revenues, we generated the RMB983.6 million or $134.8 million in the first quarter, an increase of 13.4% year over year. Well, net revenues for the full year of 2024 increased by 5.2% over the prior year to RMB3.5 billion or $175.8 million. The growth was driven by increase in insurance transactions conducted through our platform by referral partners and the third-party platform partners.

The cost of revenues in the quarter was RMB932 million or $127.7 million, up 13% from the prior year quarter. Cost of revenues increased by 4.8% to RMB3.3 billion or $154.1 million from the prior year, which was consistent with the growth of business volume and their revenues. We also reported a drop of 20.1% in selling and marketing expenses in the quarter to RMB19.7 million or $2.7 million, primarily due to decrease in staff cost and lower marketing expenses.

For the full year, selling and the marketing expenses decreased 28.7% to RMB79.5 million or $10.9 million from RMB111.5 million in the prior year. General and administrative expenses were also lower this quarter, declining 53.2% to RMB25.7 million or $3.5 million from RMB4.9 million in the year quarter, largely due to decrease the share-based compensation expenses and partially offset by increase in posting professional service fees and costs.

As for the fourth year of 2024, general and administrative expenses decreased by 22.6% to RMB107.9 million or $14.8 million. Research and development expenses decreased to 25.3% in this quarter to RMB9.3 million or $1.3 million and decrease the RMB33.6 million to RMB38 million or $5.2 million in the -- from RMB57.2 million in the prior year.

The operating loss in this quarter decreased by 93.7% year over year to RMB3 million or $0.4 million. If we excluded non-GAAP expenses, the adjusted operating income for each quarter was RMB1.3 million which was $0.2 million. Compared to an a adjusted operating loss of RMB12 million in the prior year quarter, which resulted in the growth of our net revenues and the improvement of our operational efficiency.

Operating loss for the full year of 2024 decreased by 60.3% year over year to RMB66.5 million or $9.1 million. Excluding non-GAAP expenses, the adjusted operating loss decreased by 40.2% year over year to RMB28.2 million or $3.9 million. Net loss in the quarter improved also improved 67.4% to RMB10.4 million or million sorry or $1.4 million over the first quarter of 2023.

While improving 61.6% for full year to RMB61.2 million or $8.4 million from RMB159.6 million over the prior year. Adjusted net loss for the quarter improved to RMB3 million or $0.4 million. Which is down 38.6% from the adjusted net loss, the prior year quarter, mainly due to foreign exchange losses of RMB5.3 million. Adjusted net loss was only RMB24.8 million or $3.4 million in 2024, which decreased by 25.3% from RMB33.2 million for the prior year. Turning to our balance sheet, we reported RMB152.9 million or $21 million in cash equivalents and the short-term investments in the first quarter.

Next, looking ahead to our full year or '25 guidance, we expect the net revenues to range from RMB3.6 billion to RMB3.8 billion, representing an increase of 3.7% to 9.4% compared to the full year of 2024. With total return premiums placed to range from RMB25.5 billion to RMB27.0 billion, representing a year-over-year increase of 4.9% to 11.1%. And the premiums place are expected to range from RMB7 billion to RMB8 billion, representing a year-over-year increase of 112% and 142% growth. We also anticipate our adjusted operating results shifting from a loss to a profit for the full year 2025.

I think it concludes our remarks. Next, we will be happy to take your questions. Thank you.

(Operator Instructions)

Allen Klee, Maxim Group.

Yes, hi. Good evening. Congratulations on the quarter where your revenues and bottom-line results were better than my projections, and also, your outlook is better than my projections. So, great job.

If I could start off on some of the -- one of the first things I heard you say on this call was you're looking -- you expect to increase revenue streams from existing partners. Could you talk a little bit about how you think that's going to happen?

(spoken in foreign language)

I'll help translate. Firstly, our revenue growth will -- in the NEV market will come from the below aspect. Firstly, in terms of the partners, we already have 15 partners currently and we will try to bring more partners into our business and that's the first pathway to increase our revenue stream.

Secondly, during the current partnerships in the past few years, the main growth driver was for the new car deliveries, and we already start to do business with our the automakers to provide service for their used vehicles for their existing car owners to help them to do the insurance renewal business. So that's the second pathway.

And the thirdly, apart from the traditional insurance, car insurance, auto insurance business, we are already starting to provide non-auto insurance service along with the auto insurance to constitute the service product package to the car owners, that's the third pathway.

And beyond that, we're also trying to provide service to cover more car types within the same partners, because only in the -- even in currently --even in the current partnership, automaker can produce different a lot of types of cars. And currently, we only cover the parts of their car types. We are trying to cover more and more in the future. Thank you.

Thank you. Could you give -- you talked about different ways you're using artificial intelligence. Could you maybe describe some of the examples of how you're using that today and how you might expand it?

(spoken in foreign language)

So basically, in China right now, the intelligent driving in smart connected NEV is very high. For instance, among Huawei, how many intent driving users, the intelligent driving accounts for about 35% of the total mileage, reducing collision incidents by about 1.6 million times.

So when an accident occurs, the car owners would typically think it is caused by the stability and safety of the autonomous system rather than themselves. So under this scenario has urged the insurance industry to introduce a new type of insurance product which is product liability insurance.

This insurance product is designed based on factors such as the stability, safety, and the maturity of the intelligent driving system. So many automakers are now actively rolling out this product liability insurance, which may be purchased either by the vehicle owner or the automaker.

So Cheche's role comes into play when a traffic accident occurs. We as a third party, we can determine whether the vehicle owner or the intelligent driving system was in control at the time of the incident. So we provide an independent third-party platform and that solution with blockchain technology for fraud provision and AI-powered analysis and reasoning. So this is our AI-based technical solution in the intelligent driving area.

Thank you. That's very interesting, thank you.

And then just maybe two more questions, one on revenues and we're all combine them in one big question. On the revenues, I'm curious for your guidance for 2025. How should we think about your projection for revenue growth? How much is because you think the market's going to be growing like at a certain rate versus how much is relative to your thinking that it's going to be an expansion of what you're offering of your partners and your new products and upselling and all that?

And then, sorry to make this so long. The other one is just you've been able to increase your gross margins around 50%, 50 basis points a year. Does that seem like with more any of these that's probably that should continue and you've also been doing a great job on operating expense control and how to think about that in '25. Thank you so much. Sorry for so much, yeah.

Okay, yeah. In terms of the logic for the revenue growth, if we see the whole market for the traditional car insurance market for the past couple of years, the year-over-year growth rates are remaining at like, only 4% to 5% a year. So I think for the IC market as a traditional car market, we will keep growing along with the total industry, yeah, so we won't expect fixed price from that.

And for the NEV market, the industry growth rate for the past two years is around 40% to 50%. And yeah, definitely we are going way faster than the whole industry, and you know, we already keep the momentum of growth of over 100% growth rate for 3 or more consecutive years. We expect the trend will continue and that we -- as we showed in the guidance, yeah, we are quite confident that we can enjoy a way faster growth rate in NEV industry than the market, than the whole industry growth. Yeah, that's the logic.

And as for the margin, I think I talked before. For the traditional car insurance, the gross margin is relatively low, which was only around 3% to 5%. But for the NEV insurance, because we provide the subsystem service to those -- to our business partners, those automakers, and we also provide operational and other service, renewal service like we mentioned before to them. We can enjoy higher growth margin in the market, which was around 20%, compared to 3% to 5% for the traditional car market. So that's why we are confident we can improve our profitability going forward and achieve breakeven or even make profit. Thank you.

Thank you very much,

Steve Silver, Argus Research.

Thanks, operator, and thanks for taking my questions.

So the company's exiting 2024 in a very strong capital position in terms of cash with the expectation of the company turning profitable in 2025, I'm curious if there are any areas that you've identified for capital investments to continue this growth trajectory.

Actually, we don't think we will. We will invest too much in this year, besides in the AI R&D sector, I -- because as Lei mentioned, we are developing certain new types of products like AI, AI claim management and damage assessment tool. And also, for the third-party platform for the autonomous driving insurance.

Since we are still developing those new products, we will invest some funds into this area. I like to increase the service or increase staff investment. Other than that, we don't expect that we will invest in other sectors. Thank you.

Great. And so, the press release mentions that you're now aligned with the majority of significant NEV manufacturers in China. I'm curious as to whether there are any other groups that will now make up the majority of new partnerships that the company may form, just other areas you might have identified there.

(spoken in foreign language)

So, as we just mentioned, currently, we have been cooperating with 15 NEV makers, so we expect that in this year, this number will still grow. But as we all know in China, there are around 20 to 30 NEV makers basically in total, and we just take 70% of the total OEM on the market.

So basically, in the future, we think the growth will mainly come from the auto insurance renewal services from our existing partners because in China, you need to renew your auto insurance each year. So with the NEV keeps growing each year and this is a big growth.

Okay, thank you very much and best of luck in 2025.

Mark Long, Prime Impact Capital.

Hi, Lei and Sandra. Congratulations on the strong quarter and strong 2024 momentum and the outlook for profitability in 2025, very impressive results. And my question, Lei, is around how you plan to leverage the new low cost, open-source AI models that are available in China for your new products and what you see in terms of the ability to deploy cost effective solutions across your portfolio.

(spoken in foreign language)

As we can see in the first quarter of this year, they show a lot of big models on the market, and a lot of industries are using AI to reshape the industry workflow to reduce the cost and improve (inaudible). So about application of AI in the insurance industry, we believe it will play a big role in both underwriting and claim settlement.

So on the right side, which is about pricing, we will use AI to help automakers achieve real-time extra area calculations and dynamic pricing. By utilizing a big amount of driving data, including user behavior data, our approach is far more precise than traditional auto insurance pricing methods, which can better reflect the difference among drivers.

While on the claim settlement side, we are researching solutions that can utilize data from smart connected NEVs. So in the event of accident, relevant driving data such as the radar readings, camera footage and collision data can be extracted and analyzed using AI large models for investigation and assessment.

So this intelligent claims solution will revolutionize the traditional claims process by integrating 5 cases which are investigation, damage assessment, claims, loss calculations and payment. These five steps into one stop (inaudible) system. So this is our exploration in the intelligent claims processing, and we believe it will reshape the entire industry workflow achieve cost effectiveness and risk mitigation. Thank you, Mark.

Was there a follow up, Mr. Long?

No, that's excellent. And it sounds like you're well positioned to leverage the open-source models, which will give you a huge advantage, given your relationships with the large NEV OEMs, so that's great. That sounds like you're going to leverage your leadership position and become one of the leaders in how AI reshapes the auto insurance industry in China. Thank you.

(Operator Instructions)

[Fei Zhang Gao], CITIC Securities.

(spoken in foreign language)

We know that we have some partners that has shown me the auto and so on. So my question is that why does this OEM prefer to cooperate with us. Could you give some information about this question and what is our air products and the future plan? That's all. Thanks.

(spoken in foreign language)

As for the first question, why, and as you can see, we have been cooperating with the main NEV partners on the market. So basically, there are two main reasons we think why they chose us.

So the first one is we are the leading digital platform in China. So, after 10 years of experience, we have been connected our core systems with multiple insurance companies so we can help them to realize an online co-occupation and policy insurance. So we provide a full services, a full stop services for our partners and that's the first one.

The second one, because we have a rich amount of auto insurance operational experiences. During the past year, we have been to provide services for more than 20 million car owners. So when it comes to operational or technology, we are always the best choice for them.

(spoken in foreign language)

So, as for the second question about the AI. So apart from what I just mentioned about the AI application in the claims and underwriting, we think because right now in China, most of the NEVs are smart-connected NEVs, so the internal driving skills in China are leading globally.

So basically, on the data behind this, they will produce a large amount of data no matter they are driver, user data, or collision data. So all of this data can be utilized in the AI. So that's why right now, we are investing in the AI techniques.

So basically, in auto insurance, especially in the smart connected -- in the smart NEV insurance, AI will be fully utilized in this industry. So this is our future and this is the direction of our future strategic investment. That's it. Thank you.

Okay. Was there a follow up?

Allan Klee, Maxim Group.

Oh, hi. I hit the button by accident. I'm sorry.

This concludes our question-and-answer session. I would like to turn the conference back over to Lei for any closing remarks.

Thank you. We appreciate you taking the time to join us on the call today. If you have any follow-up questions, please reach out to Investor Relations. Have a great day. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Portions of this transcript that are interpreted and were spoken by an interpreter present on the live call. The interpreter was provided by the company sponsoring this event.