Cheche Group Inc. Form 20-F Summary
Business context and reporting period
Cheche Group Inc. filed a shell company report on Form 20-F following the September 14, 2023 business combination with Prime Impact Acquisition I and Cheche Technology Inc. (“CCT”). The filing is not an annual report for a fiscal year; it primarily describes the transaction, CCT’s business and CCT’s audited U.S. GAAP financial statements for the years ended December 31, 2021 and 2022.
Cheche is a Cayman Islands holding company with no substantive standalone operations. Its China business is conducted through wholly owned subsidiaries and contractual arrangements with Beijing Cheche Technology Co., Ltd., a variable interest entity. The company provides digital insurance transaction services, primarily for auto insurance, and insurance software-as-a-service products.
Class A ordinary shares and warrants began trading on Nasdaq on September 18, 2023 under CCG and CCGWW, respectively.
Transaction and capitalization
- Prime Impact merged into Cheche Group, and a wholly owned merger subsidiary merged into CCT, with CCT surviving as a wholly owned subsidiary.
- The transaction valued CCT at an implied equity value of approximately $760 million, based on the stated merger consideration methodology.
- Financing included a 1.3 million-share PIPE at $10.00 per share, a 500,000-share backstop private placement at $10.00 per share and a 634,228-share sponsor private placement at $10.00 per share.
- As of September 26, 2023, the company had 76,148,641 ordinary shares outstanding: 57,552,137 Class A shares and 18,596,504 Class B shares.
- Class A shares have one vote per share; Class B shares have three votes per share. Founder Lei Zhang beneficially owned all Class B shares, representing approximately 49.2% of voting power.
- There were 13,726,877 warrants outstanding as of September 26, 2023. Assumed public warrants generally have an $11.50 exercise price and five-year post-closing expiration, subject to redemption and adjustment provisions.
Financial performance
| RMB millions, except percentages | 2021 | 2022 | Change |
|---|---|---|---|
| Net revenue | 1,735.4 | 2,679.1 | 54.4% |
| Gross profit | 80.8 | 142.3 | 76.1% |
| Gross margin | 4.7% | 5.3% | +0.6 percentage points |
| Operating loss | (155.7) | (116.0) | Loss narrowed |
| Net loss | (146.5) | (91.0) | Loss narrowed |
| Adjusted net loss | (98.4) | (51.6) | Loss narrowed |
| Operating cash flow | (187.6) | (158.9) | Cash outflow improved |
Insurance transaction services generated RMB2,617.2 million, or 97.7% of 2022 revenue, compared with RMB1,699.4 million, or 97.9%, in 2021. SaaS revenue increased from RMB29.9 million to RMB59.8 million, led by growth in the Sky Frontier product.
Gross premiums facilitated through the platform increased from RMB11.1 billion in 2021 to RMB16.6 billion in 2022, while policies written increased from approximately 7.8 million to 12.3 million. The average transaction fee rate was 15.3% in 2021 and 15.8% in 2022.
Cost of revenues remained substantial at 94.7% of revenue in 2022. Referral partner costs accounted for RMB2,424.6 million in 2022, or approximately 95.6% of cost of revenues. Selling and marketing expense increased to RMB139.0 million, while general and administrative expense declined to RMB69.4 million and research and development expense increased to RMB49.9 million.
Liquidity, debt and balance sheet
| RMB millions | December 31, 2021 | December 31, 2022 |
|---|---|---|
| Cash and cash equivalents | 362.4 | 114.9 |
| Restricted cash | 5.0 | 5.0 |
| Accounts receivable, net | 285.7 | 401.7 |
| Total assets | 868.6 | 712.5 |
| Total liabilities | 370.6 | 414.2 |
| Amounts due to related party | 53.0 | 59.9 |
- Operating cash outflow was RMB158.9 million in 2022, primarily reflecting the net loss and increased accounts receivable.
- Investing activities generated RMB27.7 million in 2022, mainly from maturities of short-term investments.
- Financing activities used RMB159.0 million in 2022, primarily due to redemption of Series C preferred shares.
- Short-term and long-term borrowings reported on the CCT balance sheet were zero at December 31, 2022, but the company had RMB59.9 million of related-party borrowings due to Fanhua Group, classified as non-current.
- Contractual obligations totaled RMB352.7 million at December 31, 2022, including accounts payable of RMB227.2 million, related-party amounts of RMB73.7 million, lease commitments of RMB18.2 million and accrued liabilities of RMB33.7 million.
- Management stated that existing cash was expected to fund operations for the following twelve months, but also noted that additional financing could be required.
Material changes versus the prior comparable period
- Revenue grew 54.4% in 2022, driven by higher transaction volume, premiums facilitated and SaaS revenue.
- Gross profit increased faster than revenue and gross margin improved modestly, but the business remained materially loss-making.
- Net loss narrowed by RMB55.4 million, while adjusted net loss narrowed by RMB46.8 million.
- Operating cash outflow improved by RMB28.7 million but remained negative.
- Cash and cash equivalents declined by RMB247.4 million, primarily reflecting operating cash outflow and preferred-share redemption activity.
- Accounts receivable increased by RMB116.0 million. The filing states that RMB323.4 million of December 31, 2022 receivables had been collected by May 15, 2023.
- Management reported no material business disruption from COVID-19 during 2022, although future effects remained uncertain.
Guidance, outlook, risks and unusual items
The filing does not provide formal revenue, earnings or cash-flow guidance. Management’s stated priorities include expanding digital insurance transactions, growing non-auto insurance and SaaS offerings, improving operating leverage, expanding the partner network and controlling referral-related costs. The company expects losses may continue as it invests in products, technology, infrastructure, acquisitions, partnerships and public-company compliance.
- Regulatory exposure: China’s insurance, internet, telecommunications, cybersecurity, data-protection and foreign-investment rules are complex and evolving. Changes could restrict operations, increase compliance costs, reduce fees or require changes to the business model.
- VIE structure: Investors hold equity in the Cayman Islands parent rather than direct equity in the Chinese operating entities. If PRC authorities challenge the contractual arrangements, the company could lose control of or the ability to consolidate the VIE.
- China and capital controls: The company depends on cash flows and distributions from China. Restrictions on dividends, currency conversion, offshore funding and transfers could limit liquidity.
- Profitability and liquidity: CCT has a history of net losses, negative operating cash flow and accumulated deficits. Continued growth may require additional equity or debt financing, potentially causing dilution or imposing restrictive covenants.
- Customer and fee concentration risk: Revenue depends primarily on insurance carriers, intermediaries, referral partners and auto-related demand. Transaction fee rates may decline because of regulation, competition or carrier economics.
- Data and technology risk: Cybersecurity incidents, privacy violations, outages, failures of cloud providers or disruptions to insurance-carrier integrations could damage reputation and results.
- Internal controls: CCT identified material weaknesses involving U.S. GAAP expertise, accounting personnel and period-end closing controls. Remediation was underway but had not been demonstrated as complete.
- Ownership and dilution: The founder’s super-voting Class B shares, outstanding warrants, assumed equity awards, registration rights and potential future financings may dilute or reduce the influence of Class A shareholders.
- Unusual items: 2022 results included RMB20.3 million of government grants, RMB13.4 million of foreign-exchange gains, RMB6.5 million of fair-value loss on related-party borrowings and RMB188.3 million of preferred-share redemption-value accretion.
- Contingencies: The filing identifies historical practices involving consumer rewards and referral fees that could potentially attract regulatory scrutiny, although management reported no active related investigation as of the report date. It also disclosed that 14.24% of the VIE’s equity interests were frozen in connection with a civil dispute.
Important facts for investors to verify
- Confirm post-closing cash available to Cheche Group, including trust-account proceeds, redemptions, transaction expenses and financing proceeds.
- Reconcile the post-business-combination share count and fully diluted share count, including warrants, assumed CCT options, restricted shares and the 2023 equity incentive plan.
- Assess whether the company can reduce its reliance on auto insurance transaction fees and improve its approximately 5% gross margin.
- Review subsequent filings for updated liquidity, operating cash flow, related-party borrowings and any additional financing.
- Track remediation of the material weaknesses in internal control over financial reporting.
- Evaluate the enforceability and regulatory status of the VIE contractual arrangements, CSRC filings, cybersecurity review and any future overseas financing requirements.
- Monitor Nasdaq listing compliance, PCAOB inspection status and potential HFCAA-related trading or delisting risk.
- Review the terms and release schedule for sponsor lock-ups, resale registration rights and warrant redemption provisions.
- Confirm the status of historical insurance-regulatory matters, unpaid social-security and housing-fund contributions, lease compliance and the frozen VIE equity interests.