Waterdrop Inc. — FY2023 Form 20-F
Reporting period: Fiscal year ended December 31, 2023. This is an annual report, not a standalone 2023 fourth-quarter report. Filed April 25, 2024; financial statements are audited and prepared under U.S. GAAP. Waterdrop operates a China-focused online insurance marketplace, medical crowdfunding platform and clinical-trial patient recruitment business. Its ADSs trade on the NYSE as WDH; each ADS represents ten Class A ordinary shares.
Key financial metrics
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Net revenue | RMB2,630.7 million | RMB2,801.8 million | Down 6.1% |
| Operating income (loss) | RMB(6.7) million | RMB478.0 million | Returned to slight operating loss |
| Net income | RMB163.7 million | RMB607.7 million | Down 73.1% |
| Operating cash flow | RMB406.5 million | RMB765.7 million | Down 46.9% |
| Investing cash flow | RMB(1,173.0) million | RMB(139.8) million | Greater outflow, mainly investments and acquisition |
| Financing cash flow | RMB(377.2) million | RMB(57.5) million | Greater outflow, mainly share repurchases |
FY2023 operating margin was approximately negative 0.3%; net margin was approximately 6.2%. Operating costs and expenses totaled RMB2,637.5 million, or 100.3% of revenue. The filing does not present a conventional gross-profit margin.
At year-end, cash and cash equivalents were RMB396.9 million, restricted cash RMB577.1 million and short-term investments RMB2,996.5 million. Together these totaled RMB3,970.6 million, although restricted cash is not freely available. Current assets were RMB5,426.4 million versus current liabilities of RMB1,369.6 million. Debt included RMB137.6 million of short-term loans; lease liabilities totaled RMB60.2 million. Management said available cash was expected to cover working-capital and capital-expenditure needs for at least 12 months.
Material changes and operating trends
- Insurance revenue declined 8.5% to RMB2,340.9 million and represented 89.0% of total revenue. Short-term brokerage income fell 15.2% to RMB1,381.9 million; long-term brokerage income rose 15.2% to RMB823.3 million.
- First-year premiums (FYP) increased to RMB7,109 million from RMB6,890 million. Long-term insurance FYP grew to RMB2,223 million from RMB1,983 million, while short-term FYP was RMB4,887 million versus RMB4,907 million.
- Crowdfunding revenue rose 4.4% to RMB162.7 million. Other revenue increased 46.4% to RMB127.1 million, including digital clinical-trial solution revenue of RMB100.5 million, up 69.0%.
- Operating expenses rose 13.5% to RMB2,637.5 million. Higher operating costs and sales and marketing spending were partly associated with consolidating Shenlanbao and increased third-party customer acquisition. Interest income increased to RMB136.0 million from RMB81.7 million.
- Waterdrop acquired 60% of Shenlanbao in July 2023 for RMB216.0 million and consolidated it from that point. The remaining 40% is subject to performance targets and closing conditions. The acquisition added RMB77.3 million of goodwill; total reported goodwill at year-end was RMB80.8 million.
Outlook, risks and unusual items
- No numerical revenue or earnings guidance was provided. Management cited continued investment in technology, user engagement, product offerings and healthcare services, while noting uncertainty around growth, competition and regulation.
- Waterdrop is a Cayman Islands holding company and has no equity ownership in its VIEs, which are controlled through contractual arrangements. VIEs contributed 88.6% of FY2023 revenue. The company warns that PRC authorities could challenge the structure or its enforceability, potentially disrupting operations or consolidation.
- Insurance brokerage, medical crowdfunding, data privacy, cybersecurity and generative AI are subject to evolving PRC rules. The amended Charity Law, effective September 5, 2024, adds requirements for platforms supporting individual help-seeking. The company reported prior insurance-related administrative penalties and rectification requirements, which it said had been addressed.
- Future offshore fundraising may require CSRC filing or other PRC procedures. The PCAOB had resumed inspection access in China by the filing date; future loss of access could create HFCAA trading-prohibition risk. The company also stated it believed it was a PFIC for U.S. tax purposes in 2023 and likely would be in 2024.
- In March 2024, the board approved a special dividend of US$0.04 per ADS, approximately US$15 million in total, payable after the reporting period. The company repurchased shares for RMB526.0 million during 2023.
- The 2021 IPO-related shareholder lawsuit was dismissed with prejudice; the Second Circuit affirmed the dismissal in January 2024. Management concluded internal control over financial reporting was effective as of year-end; Shenlanbao was excluded from that assessment, and the auditor did not provide an internal-control attestation.
Investor verification priorities
- Confirm the sustainability and cash-conversion quality of reported profitability as revenue, operating income and operating cash flow declined materially year over year.
- Review the availability, maturity, composition and risk of short-term investments, and distinguish unrestricted cash from restricted balances.
- Track insurance FYP, commission rates, customer acquisition costs and the mix and retention of short- versus long-term policies.
- Assess Shenlanbao’s performance against acquisition targets and conditions for purchasing the remaining 40%, as well as goodwill and intangible-asset impairment exposure.
- Evaluate VIE enforceability, regulatory compliance and any CSRC filing or cybersecurity-review requirements for future financing.
- Consider the effects of share repurchases, the post-year-end dividend, equity awards and controlling shareholder voting power when assessing capital allocation and dilution.