Business context and reporting period
Waterdrop Inc. filed this Form 20-F for the fiscal year ended December 31, 2021, prepared under U.S. GAAP. Although the request refers to 2021 Q4, the filing provides annual results and does not give a clear standalone fourth-quarter income statement or cash-flow summary. Waterdrop operates an online insurance marketplace and medical crowdfunding and healthcare services in China. It is a Cayman Islands holding company and relies on contractual arrangements with VIEs for restricted operations; VIEs contributed 99.6% of 2021 net revenue.
Key financial metrics
Amounts below are RMB unless otherwise stated; 2021 U.S. dollar figures are convenience translations.
| Metric | FY2021 | FY2020 | Change or context |
|---|---|---|---|
| Net operating revenue | RMB3,205.9 million | RMB3,027.9 million | Up 5.9% |
| Operating loss | RMB1,862.8 million | RMB496.2 million | Operating margin approximately -58.1%, versus -16.4% |
| Net loss attributable to Waterdrop Inc. | RMB1,574.1 million (US$247.0 million) | RMB663.9 million | Loss widened 137.1%; net margin approximately -49.1% |
| Net loss attributable to ordinary shareholders | RMB1,726.4 million | RMB1,107.8 million | Includes preferred-share redemption accretion; FY2021 loss per ordinary share was RMB0.58 |
| Net cash used in operating activities | RMB1,096.7 million (US$172.1 million) | RMB777.1 million | Cash burn increased |
| Cash and cash equivalents | RMB817.7 million | RMB1,062.0 million | Down 23.0% |
| Restricted cash | RMB667.7 million | RMB261.4 million | Primarily includes insurance premiums held for remittance and guarantee deposits |
| Short-term investments | RMB1,969.4 million | RMB1,193.2 million | Increased; includes bank deposits and wealth-management products |
| Total liabilities | RMB1,277.2 million | RMB1,524.7 million | Includes substantial insurance premium payables; lease liabilities were RMB58.6 million |
Revenue was primarily insurance brokerage income: RMB2,827.5 million, or 88.2% of revenue. Technical service income was RMB243.5 million; management fee income fell to RMB2.7 million after the mutual-aid business ended. No separate gross-margin figure is provided. Total operating costs and expenses reached RMB5,068.8 million, or 158.0% of revenue; sales and marketing alone was RMB3,104.8 million, or 96.8% of revenue.
Material changes versus FY2020
- Revenue growth slowed sharply: up 5.9% in 2021, compared with 100.4% in 2020. Brokerage income rose 4.9%, while management fee income declined 97.5% following the mutual-aid exit.
- First-year premiums (FYP) generated through the platform rose to RMB16.363 billion from RMB14.426 billion. Long-term insurance accounted for 16.2% of FYP, down from 17.4%; short-term insurance accounted for 83.8%.
- Operating costs and expenses rose 43.8%, led by sales and marketing, operating costs, and research and development. The company attributed higher expenses to business expansion and customer acquisition.
- Operating cash outflow increased by RMB319.5 million. The company cited working-capital changes and non-cash share-based compensation; contract assets declined by RMB255.1 million, partly reflecting lower FYP in Q4 2021.
- Year-end cash and equivalents declined, but short-term investments and restricted cash increased. Total assets rose to RMB5,250.6 million from RMB4,705.1 million.
Outlook, commentary, risks and unusual items
- Management said it expects FYP and insurance revenue may decline in the foreseeable future, citing macroeconomic, industry and regulatory conditions and a shift away from third-party user-acquisition channels. It also said available cash should meet anticipated working-capital and capital-expenditure needs for at least 12 months. No numerical forward guidance is provided.
- Waterdrop ended its mutual-aid business in March 2021. It accrued RMB15.0 million for eligible medical expenses and RMB81.7 million for one-year complementary health coverage; RMB19.9 million reduced previously recognized management-fee revenue and RMB76.8 million was recorded in operating costs.
- A RMB221.0 million income-tax benefit in 2021 was primarily attributed to operating losses available to carry forward; it should not be confused with improvement in operating performance.
- The May 2021 IPO generated net proceeds of approximately US$334.8 million. The company reported using approximately US$0.1 billion through year-end for healthcare and insurance operations, research and development, and general corporate purposes. It repurchased 1.36 million ADSs for RMB16.5 million during 2021.
- Material risks include the VIE structure and possible limits on transferring cash out of China; evolving insurance, cybersecurity and data-privacy regulation; prior insurance-business compliance deficiencies and administrative penalties; and dependence on insurance carriers and customer-acquisition channels.
- The company disclosed a putative U.S. shareholder class action related to its IPO, with a motion to dismiss pending, and a separate claim concerning an alleged 1.25% interest in a VIE held by the founder as nominee. Outcomes and potential losses were uncertain.
- The filing states that the auditor was not then subject to PCAOB inspection and warns of potential U.S. trading restrictions under the HFCAA. Management said a previously identified material weakness in financial-reporting controls had been remediated as of December 31, 2021; the filing did not include an auditor attestation on internal control.
Important facts for investors to verify
- Whether subsequent quarterly disclosures show a recovery or further decline in revenue, FYP, operating margins and operating cash flow, particularly after the Q4 2021 slowdown.
- How much of reported cash and short-term investments is unrestricted, readily available, and located in entities that can legally transfer funds to the holding company.
- Whether customer and carrier concentration, commission rates, acquisition costs and insurance-product mix are changing as management reduces reliance on third-party traffic.
- Progress and financial impact of compliance remediation, new PRC filing or cybersecurity-review requirements, and any further regulatory penalties.
- Developments in the VIE-related litigation and IPO shareholder action, and the status of PCAOB inspection and U.S. listing risk.