Waterdrop Inc. (WDH) Q4 2021 Earnings Call Transcript

Waterdrop Inc. (WDH -1.63%)
Q4 2021 Earnings Call
Mar 23, 2022, 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen, and thank you for standing by for Waterdrop Inc.'s fourth quarter and fiscal year 2021 earnings conference call. At this time, all participants are in a listen-only mode. After management's prepared remarks, there will be a question-and-answer session. As a reminder, today's conference call is being recorded.

I would now like to turn the meeting over to your host for today's call, Ms. Xiaojiao Cui. Please go ahead, Ms. Cui.

Xiaojiao Cui -- Investor Relations

Thank you, operator. Hello everyone, thank you for joining Waterdrop's fourth quarter and fiscal year 2021 earnings conference call. Please note that the discussion today will contain forward-looking statements made under the safe harbor provisions of the US Private Securities and the Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations.

Potential risks and uncertainties include, but are not limited to those outlined in our public filings with the SEC. The company does not undertake any obligation to update any forward-looking statement, except as required under applicable law. Also, this call includes discussion of certain non-GAAP measures. Please refer to our earnings release for a reconciliation between non-GAAP and GAAP.

Joining us today on the call are Mr. Shen Peng, our founder, chairman, and CEO; Mr. Yang Guang, co-founder, director, and general manager of insurance marketplace; Mr. Hu Yao, co-founder, director, and general manager of medical crowdfunding and healthcare; and Mr.

Kevin Shi, our CFO. We will be available for a Q&A session after the remarks. Now, I would like to turn the call over to our CEO Mr. Shen Peng.

Please go ahead.

Shen Peng -- Founder, Chairman, and Chief Executive Officer

[Foreign language]

Xiaojiao Cui -- Investor Relations

Hello, everyone. Thank you for joining our fourth quarter 2021 earnings conference call. Since the beginning of the third quarter, the capital market has experienced further volatility and the growth of the insurance industry has somewhat slowed down. But no matter how the market changed, we have been keeping our commitment to developing our business in customer-centric manner, leveraging technology to improve operational efficiency in insurance and healthcare business, solidifying business fundamentals, and creating sustainable long-term value for our shareholders.

Shen Peng -- Founder, Chairman, and Chief Executive Officer

[Foreign language]

Xiaojiao Cui -- Investor Relations

Firstly, we will be confident in the future and be patient in the present. While the insurance industry has had various challenges in the last half months, we see those challenges as good opportunities for us to strengthen the fundamentals of the company. No matter the operating environment, we have stayed true to our commitments and given our utmost efforts more proactively and relentlessly.

Shen Peng -- Founder, Chairman, and Chief Executive Officer

[Foreign language]

Xiaojiao Cui -- Investor Relations

As a top-tier player in China's insurtech and online healthcare market, we strive to make our business strategies more responsive and move full steam ahead. In Q4 2021, we seriously adjusted our business strategy and implemented devotedly in response to the changing environment.

Shen Peng -- Founder, Chairman, and Chief Executive Officer

[Foreign language]

Xiaojiao Cui -- Investor Relations

Previously, Waterdrop pursued a fast growth in user base and total revenue while keeping ROI within a reasonable range. Starting in the second half of 2021, we have more pragmatically pursued a higher quality development. To achieve healthy and sustainable growth, we have continued to invest in and strengthen our advantages in some businesses, and meanwhile strive to generate revenues and profits on other businesses.

Shen Peng -- Founder, Chairman, and Chief Executive Officer

[Foreign language]

Xiaojiao Cui -- Investor Relations

Our fourth quarter results have affirmed the execution ability and determination of our management team, and the company achieved non-GAAP profit in this quarter. We are still working hard, and have also reinforced our ongoing commitment to creating value for our customers. We urge our staff, in their daily work, to continue focusing on sustainable development in our established business, and strive to realize operating profits in non-GAAP terms as one of our objectives in 2022. Meanwhile, we will continue to innovate through our careful incubation initiatives in selected new areas, as well as staying focusing on areas difficult but valuable to our customers in existing businesses.

The challenges are huge, but we will remain steadfast to achieve breakthroughs in the pursuit of innovation.

Shen Peng -- Founder, Chairman, and Chief Executive Officer

[Foreign language]

Xiaojiao Cui -- Investor Relations

Our new pace of operation also created an opportunity for our team to further improve our core competencies. It helps us develop stronger organizational capabilities while delivering better business performance. One of my new objectives is to optimize the leadership pipeline with high standards, strengthen organizational capabilities, and enhance management ability, to lay the foundation for cultivating more excellent managers at all levels in the next three years.

Shen Peng -- Founder, Chairman, and Chief Executive Officer

[Foreign language]

Xiaojiao Cui -- Investor Relations

We are confident about the future, and we will remain patient today. We firmly believe in the long-term growth potential of China's health insurance market and a more prosperous future for Waterdrop. In our earnings release for the second quarter of 2021, we announced a one year share repurchase plan and since then, we have carefully begun to implement the plan under the relevant compliance framework. From the launch of the repurchase plan to December 31, 2021, we have bought back around 1.3 million ADSs in total and this year we will continue to buy back shares.

We plan to use these repurchased ADS for our employee incentive plan in the future. In addition, based on our confidence in the company's future development and our dedication to invest in the company in the long run, our management also plan to use personal funds to purchase Waterdrop's ADSs in due course, pursuant and subject to applicable laws and the company's securities trading policy.

Shen Peng -- Founder, Chairman, and Chief Executive Officer

[Foreign language]

Xiaojiao Cui -- Investor Relations

Secondly, we will continue to operate in full compliance and embrace 2022 with passion. In 2021, a few new regulatory guidelines and industry policies aiming to promote healthy development of the industry were released, which will contribute to consolidation of the industry in the long term. As a listed company, Waterdrop has continued to respond to the new regulatory guidance proactively and maintain good communication with the regulators. We also took the initiative to pivot our business model to ensure that we comply with the new rules.

The regulatory rules have provided a clearer direction for the future development of the industry. In Q4, Waterdrop conducted business model upgrade, adjusted the portfolio-product portfolio and customer acquisition model. Looking ahead, we will continue to promote the healthy development of the industry proactively and firmly.

Shen Peng -- Founder, Chairman, and Chief Executive Officer

[Foreign language]

Xiaojiao Cui -- Investor Relations

With the unique positioning of Waterdrop in helping promote inclusive insurance, we also share the same common prosperity path advocated by the government. We have established a solid business infrastructure through our product development capabilities, technological innovations, and unique synergies among our business segments. These initiatives helped us demonstrate our resilience and stability as the industry experiences a period of adjustment. With the recent pandemic recurrences, we believe that the demand for insurance protection will continue to rise in the future and consumers will be more inclined to turn to online channels, which present more opportunities for online insurance platforms like us.

Despite the many short-term challenges that we are faced with, we are committed to strengthening our cost control and optimizing profitability, ensuring that we are on the right track to sustainable and quality growth in the years ahead.

Shen Peng -- Founder, Chairman, and Chief Executive Officer

[Foreign language]

Yang Guang -- Co-founder, Director, and General Manager of Insurance Marketplace

Thank you. In the year 2021, China's insurance industry underwent a period of adjustment with downside pressure. According to the statistics from the CBIRC, the annual growth in gross written premium, or GWP, for the health insurance sector was only 3% in 2021, and the lowest in the past 10 year. And the GWP saw a decrease of 3% year over year for both the third and fourth quarters.

In 2021, the total profit of life and health insurance companies decreased by 47% year over year, 63 percentage points lower than the growth in the year 2020. So, to summarize in short, transformation would be the keyword that best represents the current state of the insurance industry. Regulatory authorities have issued a series of new policies that aimed at guiding the orderly development of the industry. So, currently, many life insurance companies are proactively undergoing business restructuring and accelerating the pace of high-quality transformations.

So, these insurance companies are returning to the mission of providing protection for users instead of simply pursuing market scale. Besides, they are focusing more on the profit contribution on new policies. So, in such environment, Waterdrop's FYP increased by13.4% year over year to RMB 16.3 billion in the year 2021. Against the backdrop of industry slowdown and new regulatory directions, we have transformed our user acquisition model from the first month discount price products to the first month original price products since the end of the third quarter.

So, in Q4, we focused on adjusting and upgrading our businesses in many areas. The preliminary results showed that the substantial improvement in our operating efficiency has helped us turn operating loss into profit, with an RMB 4 million adjusted net profit in Q4 compared to RMB 453 million loss in the third quarter. [Editor's note: The company's press release states "...we achieved an adjusted net profit of RMB5.9 million in the fourth quarter, compared to an adjusted net loss of RMB453.6 million in the third quarter."] So, next, I'm going to summarize the major progress we have made in Q4 from three-year perspectives. Firstly, we have achieved preliminary success in our business transformation and have significantly improved our operating efficiency.

Q4 is the first full quarter as of the first month discount price model for our online short-term insurance products was terminated and replaced by the first-month original price model. This resulted in slowdown in our revenue growth, but significant improvement in our key operating efficiency indicators when compared with Q3. Our retention rate increased significantly, driving the take rate of our short-term insurance business to 33% in Q4. At the same time, the one-year LTV of our new users increased materially.

Since we changed our business model in Q4, the month-end user Net Promoter Score has increased, and the users are complaint rate has declined. So, in Q4, we achieved remarkable results in the management of existing users. We established a unified user management platform that integrates various marketing channels, including WeChat official accounts, WeChat mini-programs, apps and enterprise WeChat accounts. This allowed us to adopt a standardized approach to engaging users of different profiles, lifecycles and from different marketing channels.

We have modified our service platform to focus on insurance policies services, content inquiry services, health services, and member services. We have also increased the user engagement rates, and online sales conversion rates of our users. In Q4, our three-year repurchase rate for short-term products stood at 59%, up by 14 percentage points compared to Q3. And the number of enterprise WeChat contact users reached 5.41 million in Q4, up by 14.6% compared to Q3.

This allows us to interact with our policyholders more frequently and provide real-time services through chatbot and customer service executives. And those enterprise WeChat contact users contribute the purchase of short-term policies with a total amount of RMB 16.6 million, an increase of three times compared to Q3. We made significant progress-we also made significant progress in our self-developed AI robot for policy renewal, especially in recognition of users' intention in renewal and human voice simulation. Our short-term insurance renewal rate exceeded 78% in Q4 which reached the leading position in the industry.

We also improved the conversion rate of our short-term insurance users to long-term insurance users. And the average productivity of our long-term insurance consultants reached RMB 66,000 per month, an increase of 66% compared to Q3. So, the contribution of long-term insurance business to LTV reached 27%, up by over 10 percentage points compared to Q3, reflecting an increase in our effectiveness in maximizing the long-term value of our existing users. Meanwhile, aligned with the new regulatory requirements and changes in market conditions, we optimized our key insurance products and we added 61 new products in the fourth quarter, providing full-range health insurance protection for our users.

And we also brought a faster and more reliable claim settlement experience to our users. The shortest claim settlement period was only 18 seconds, and the highest claim settlement amount in a single case was RMB 1.5 million in Q4. So, the enhancement of our customer value is our long-term commitment and is also one of our core competencies. Through the transformation of our business model, the operating efficiency enhancement of our existing user management, and the continued upgrade and innovations of our insurance products, we have made significant improvements in the quality of our users and various operating metrics.

We believe this will lay a solid foundation for our matured businesses to achieve profitability in the long run. And secondly, we upgraded our technological capabilities and empowered digitalization of the industry. In addition to the transformation of our own business model, we strengthened our investment in our AI-powered technologies. In Q4, for our AI-powered matching system which helps match the most appropriate sales staff for potential long-term insurance buyers, we conducted more than 20 rounds of system iterations and three algorithm architectural upgrades.

These helped increase our long-term insurance premiums by more than RMB 40 million. In addition, the self-developed screen sharing interaction system applied on the telemarketing scenarios widely in Q4. The system now covers more than 2,000 sales staff, with roughly 1.5 hours of daily use per sales staff. The monthly productivity of these sales staffs increased by 34%, driving an increase in our monthly premiums by around RMB 20 million.

The level of technology used for this system is at an industry-leading standard, and we have currently applied for five patents on the technology. Our investment in technology has helped improve our operating efficiency significantly. In Q4, our best performing sales staff achieved productivity of RMB 94,000, while our average productivity per salesforce was 2.5 times that of the industry average. And I think the improvement in operating efficiency has given us even more confidence in our technology investment.

So, we also made remarkable progress in exporting our technology to the insurance industry in Q4. For example, we have leveraged our SAAS-based CRM system and online customer management capabilities to provide user operation services to insurance companies. So, in Q4, we entered into cooperation with three insurance companies to utilize our technology and successfully helped them achieve tens of millions of RMB in premium income. Our next plan is to integrate our intelligent calling robot system with existing business processes, thereby empowering the industry with stronger technology utilization.

And thirdly, we continued to pursue new business innovations. In Q4, led by our newly joined and experienced team leaders, our online to offline brokerage business also showed solid progress. As of December 31, 2021, our brokerage team has set up three branches in Beijing, Guangdong, and Shenzhen and established a sales team of nearly 300 people. This team generated a total premium income of approximately RMB 5 million in Q4.

So, we have -- we also empowered our brokerage team with a powerful set of technology-driven tools for business development through four systems, including the digital operating system, the product system, the training system, and marketing system. On top of our existing brokerage model, we are also actively exploring a more diversify and optimized offline brokerage model. In this year 2022, we plan to launch an independent agent model for high end customers. This will enable us to establish a multi-layered brokerage business model that can serve different target customer groups.

In addition, we have innovated new insurance products to serve special customer groups. For example, for special groups such as tumor patients, we have launched a medicine plus insurance service model, which enables those customers to get medicine in a very convenient way at the DTP pharmacies that we cooperate with and enjoy insurance protection in accordance with their medical conditions and protection against medical safety. We have also launched accidental insurance products covering the surgical patients. And we are developing critical illness insurance products and insurance against recurrence risk, as well as tailored many medical insurances for those of asymptomatic carriers.

So, in conclusion, as the first full quarter for our business model upgrade, we have made a good start in Q4 2021, by focusing on improving the quality of our users, optimizing the operating efficiency, and strengthening long-term technology capabilities. We have to say that the insurance industry is still in the adjustment and transformation period and our transformation will continue. For the next quarter or two, our insurance business will still be in the process of transformation to the new growth model and the new operating model. As we continue to face the ups and downs in the short term, we are still optimistic about the long-term fundamentals of the insurance industry.

And we believe that the competitive landscape will improve after further industry consolidation. So, this, together with our focus on long-term value creation through solid user management and technological capability should help improve our operating and financial results after adjustment of one quarter or two, including reaching profitability in our matured business lines. I think that's all for my part. Next, I'm going to hand it over to Hu Yao for the update on the medical crowdfunding platform.

Hu Yao -- Co-Founder, Director, and General Manager of Medical Crowdfunding and Healthcare

[Foreign language]

Xiaojiao Cui -- Investor Relations

Next, I will give you an update on the latest development of our Waterdrop medical crowdfunding and healthcare businesses, as well as the progress of our R&D and technological innovations.

Hu Yao -- Co-Founder, Director, and General Manager of Medical Crowdfunding and Healthcare

[Foreign language]

Xiaojiao Cui -- Investor Relations

Firstly, let me update on our medical Crowdfunding business. Our Waterdrop Medical Crowdfunding business grew in an orderly manner, further reinforcing its market-leading position. As of the end of Q4, the cumulative number of donors reached 394 million, helping 2.36 million patients and pushing the cumulative funds raised to over RMB 48.4 billion.

Hu Yao -- Co-Founder, Director, and General Manager of Medical Crowdfunding and Healthcare

[Foreign language]

Xiaojiao Cui -- Investor Relations

To support the common prosperity initiative, we began in-depth cooperation with local governments. Our cooperation with the Jinyun County government on [Inaudible], a medical insurance poverty relief project has been working well. In 2021, Waterdrop has assisted Jinyun County in the active identification and management process of more than 15,000 people in need of medical aid. According to our estimates, the platform helped reduce the out-of-pocket medical expenses of the needy by over RMB 14 million in 2021 or a year-on-year decline in such expenses of about 12%.

In 2021, the number of people in poverty caused by diseases reduced by 77% year over year. The Jinyun project was ranked No. 7 in the list of best applications in digital society selected by the Zhejiang Provincial Development and Reform Commission.

Hu Yao -- Co-Founder, Director, and General Manager of Medical Crowdfunding and Healthcare

[Foreign language]

Xiaojiao Cui -- Investor Relations

In addition, in Q4, we cooperated with media and charity organizations including China Social Assistance Foundation, People's Daily Health App, Chinese Red Cross Foundation, and Henan Charity General Federation, to explore the establishment of a supplementary medical aid program. We also launched the Waterdrop Critical Illness Charity Aid Project, which operates under the self-aid plus charity-aid model, to provide supplementary medical aid funds to patients with critical illness and in need of financial assistance. As of December 2021, there have been more than 200 key hospitals participating in the project which helped reduce the financial burden on healthcare expenses.

Hu Yao -- Co-Founder, Director, and General Manager of Medical Crowdfunding and Healthcare

[Foreign language]

Xiaojiao Cui -- Investor Relations

Next, I will update you on the progress of our patient recruitment business in the fourth quarter.

Hu Yao -- Co-Founder, Director, and General Manager of Medical Crowdfunding and Healthcare

[Foreign language]

Xiaojiao Cui -- Investor Relations

In terms of scale, by the end of Q4, our Yifan Platform has undertaken more than 300 clinical trial programs for new drug registration. It has become one of the largest third-party patient recruitment platforms for oncology clinical trials in China. The number of patients enrolled in clinical trials for chronic diseases and common diseases has approached 100 in a single month and continued to grow rapidly. Nearly 10,000 patients turn to Waterdrop for help every day, and they are potentially high-business candidates for clinical trial projects going forward.

In terms of cooperation with pharmaceutical companies, we have established partnerships with more than 40 innovative pharmaceutical manufacturers and CROs in China and worldwide, including Chia Tai Tianqing, CSPC, Innovent, Zai Lab, and Labcorp Drug Development. We have been highly recognized by our partners.

Hu Yao -- Co-Founder, Director, and General Manager of Medical Crowdfunding and Healthcare

[Foreign language]

Xiaojiao Cui -- Investor Relations

Patient recruitment plays an important role in improving efficiency and shortening the R&D process in clinical development. According to the director of the Institutional Office of Peking University Cancer Hospital at the 2021 Clinical Trial Symposium, patient enrollment directly affects the success of clinical trials. About 85% to 95% of trial delays are due to the failure to recruit qualified patients as planned, especially in the fields of oncology, cardiovascular, infection, etc. Our Yifan Platform can quickly and accurately recruit patients that are suitable for the trial projects.

Our key competitive edge in the industry is built on several factors. First, as the largest community of patients with critical illnesses in China, and the largest medical Crowdfunding platform, Waterdrop has a massive patient database and the ability to reach patients through various online and offline channels. Second, we have run a large number of high-quality projects. Powered by our AI technology and digitalization, we can provide accurate matching and efficient services on clinical trials, earning us a good reputation and trust among patients.

Hu Yao -- Co-Founder, Director, and General Manager of Medical Crowdfunding and Healthcare

[Foreign language]

Xiaojiao Cui -- Investor Relations

Based on our large patient database, we can efficiently target patients with rare diseases. For example, in Q4, we collaborated with a leading multinational pharmaceutical company on a global multi-center phase three clinical trial of a drug for rare diseases. The number of qualified patients for this trial was limited. However, we managed to identify hundreds of potential candidates for this trial from our patient pool.

Most of these candidates showed a high willingness to participate in this clinical trial after we reached out to them as there is no particularly effective treatment for such disease in China. We have thus helped enroll the appropriate patients for this clinical trial, and the first patient screened in China for that project was recommended by our platform.

Hu Yao -- Co-Founder, Director, and General Manager of Medical Crowdfunding and Healthcare

[Foreign language]

Xiaojiao Cui -- Investor Relations

As a platform driven by technological innovations, we continue to upgrade and optimize our intelligent patient recruitment system and integrate multiple sources of heterogeneous medical knowledge databases. By leveraging our extensive medical knowledge and leading technologies, including medical knowledge mapping and AI deep learning, we have developed medical OCR solutions and electronic medical record indexing techniques. These enabled automated extraction of key information from different unstructured medical texts, including various disease names like hepatocellular carcinoma and cholangiocarcinoma, as well as treatment like chemotherapy, targeted therapy, and immunotherapy, thereby improving patient recruitment efficiency significantly.

Hu Yao -- Co-Founder, Director, and General Manager of Medical Crowdfunding and Healthcare

[Foreign language]

Xiaojiao Cui -- Investor Relations

Next on technology innovation. We have consistently increased our investment in technology to better serve our customers and business needs. In Q4, we have optimized the operations of our chatbot platform to improve user experience and salesforce productivity and applied for eight invention patents. By applying pre- and post-processing algorithms for our automatic speech recognition technology, we have improved the accuracy thus reducing surrounding noises.

We have also applied industry data to conduct incremental pre-training on models so that they are adapted to our specific scenarios, thereby improving the model performance. We have applied the manual plus machine approach to establish a larger scale language database which further strengthens the semantic analysis and dialogue tactics learning capabilities. We have also built a proprietary TTS engine to customize the voice tone of the chatbots and adopted the manual plus machine approach to synchronize the voice output to make the chatbot's voice sound more human-like.

Hu Yao -- Co-Founder, Director, and General Manager of Medical Crowdfunding and Healthcare

[Foreign language]

Xiaojiao Cui -- Investor Relations

To date, our chatbot platform supports various business lines, including customer service, insurance policies search, and renewal reminder. Among them, our customer service chatbots can solve more than 65% of questions raised by users. To improve salesforce productivity, we started to build a manual plus machine coupling system, which enables us to transfer customer requests from chatbot mode to manual mode on a real-time basis under various scenarios, thereby improving user experience and productivity. In addition, to promote the overall progress of the industry, we will export our AI capability to our insurance partners, helping them enhance their customer service capabilities and utilization of sales leads.

Hu Yao -- Co-Founder, Director, and General Manager of Medical Crowdfunding and Healthcare

[Foreign language]

Xiaojiao Cui -- Investor Relations

Our refining operations through AI technologies. Technology has become the core driver in promoting the transformation of insurance businesses. We have made positive progress in terms of our insurance digitalization and intelligent transformation and are working to establish more digital competitive strengths.

Hu Yao -- Co-Founder, Director, and General Manager of Medical Crowdfunding and Healthcare

[Foreign language]

Xiaojiao Cui -- Investor Relations

Our proprietary AI-powered matching tool between the sales teams and users can match the most appropriate staff to provide services for each user, based on LPs' historical service data and the user group they are good at serving. In contrary, under traditional online marketing and telemarketing, service staff essentially reach out to users on a random basis. We have upgraded our smart matching system to version three. In version two, the system was based on LPs' basic attributes and historical outbound calling records to match the most appropriate staff for each user.

Due to the limitation on the number of calls LPs can dial out each day, this allocation module could only achieve a partial optimal solution. In version three, we have introduced timing information and preset allocation mechanisms for LPs, thus leading the allocation module closer to a comprehensive optimal solution. This substantially improves our user satisfaction, further increases the value of our sales leads, and enhances the efficiency of our entire service system.

Hu Yao -- Co-Founder, Director, and General Manager of Medical Crowdfunding and Healthcare

[Foreign language]

Xiaojiao Cui -- Investor Relations

Through three adjustments to our algorithms architecture and more than 40 rounds of model optimizations, we have created thousands of data features and embedded seven patented technologies in our smart matching system in 2021, making it an industry-leading, stable, and highly efficient sales leads allocation system. Compared with the traditional sales leads allocation model, our smart matching system has improved the APL by 40%. Since its launch, the system has helped increase our long-term insurance premiums by more than RMB 60 million, which is equivalent to a daily increase of RMB 2 to RMB 300,000 per day. The smart matching system has formed a core technological advantage in Waterdrop's smart insurance telemarketing service system.

Hu Yao -- Co-Founder, Director, and General Manager of Medical Crowdfunding and Healthcare

[Foreign language]

Xiaojiao Cui -- Investor Relations

From our extensive data research, we found that some users will also pay attention to other types of products when they purchase a particular insurance product. Hence, in the process of purchasing, we will predict whether the user is interested in other product types based on the user's profile. We will then provide recommendations on additional insurance products in our platform for the user's own choice. This attempt will not only address the users' pain points in choosing a portfolio of insurance products that satisfy their protection needs, but will also help increase our insurance premiums by 7%.

Hu Yao -- Co-Founder, Director, and General Manager of Medical Crowdfunding and Healthcare

[Foreign language]

Xiaojiao Cui -- Investor Relations

This concludes my part, and then let me turn over the call to Kevin, our CFO, to discuss our fourth quarter financial performance.

Kevin Shi -- Chief Financial Officer

OK. Thank you, Hu Yao. Hello, everyone. I will now walk you through our key financial results for the fourth quarter of 2021.

Before I go into details on the financial performance, please be reminded that all numbers quoted here will be in RMB, and please refer to our earnings release for detailed information on our comparative financial performance on a year-over-year basis. Our net operating revenue decreased by 27.3% year over year to RMB 604 million from RMB 830 million and decreased by 25.6% on a comparable basis, which means, without taking into account the management fee income from mutual aid business which we already ceased in the first quarter of 2021. The decline in revenue was due to the decrease in FYP outweighing the improvement of our take rate year over year. In recent months, we have seen our take rate stabilized and began to pick up resulting from the improvement in our business quality.

Operating costs and expenses for quarter four decreased significantly by 38.6% year over year to RMB 678 million. On a quarter over quarter basis, operating costs and expenses decreased significantly by 47.5% compared to the last quarter, showing our measures on cost control have had a significant effect. In the fourth quarter, we took a series of measures to reduce operating costs and expenses, including reducing spending and improving the effectiveness and ROI of traffic acquisition, optimizing our organization structure, reducing the redundant headcount of employees, and improving operating efficiency. To break it down, the operating costs were RMB 197 million, a decrease of 21.4% year over year, mainly due to the decrease of RMB 66 million in professional and outsourced customer service fees, partially offset by an increase of RMB 19 million in personnel cost as our consultants and insurance agents team expansion compared to last year.

Sales and marketing expenses decreased by 63.8% year over year to RMB 441 million for the fourth quarter of 2021. The decrease was mainly due to the decrease of market expenses to third party traffic channels by RMB 485 million, partially offset by the increase in payroll and related expenses for employee involved in sales and marketing functions. As we announced in the last-or last earnings call, we would reveal such sales and marketing expenses maturity, and we managed to deliver those results this quarter. On a quarter-over-quarter basis, sales and marketing expenses decreased by 69.2% from last quarter.

Along with sales modal upgrades, we have reduced reliance on third party traffic. So, more refined operational management and a strict cost control. G&A expenses increased by 25.9% in quarter four to RMB 149 million year over year and by 33.5% quarter-by-quarter, mainly due to an impairment loss of RMB 39 million provided for the prepayments and offset by a decrease of RMB 2.5 million in share-based compensation expenses compared with last quarter. R&D expense increased by 34.4% to RMB 91 million year over year and decreased by 11.6% quarter-by-quarter.

We uphold technology-driven innovation and continue to invest in R&D in a disciplined manner. In the fourth quarter, we incurred a net loss of RMB 71 million on a GAAP basis, while generating an adjusted net profit of RMB 5.9 million, compared with a net loss of RMB 404 million and an adjusted net loss of RMB 191 million in the same quarter of last year. Heading into 2022, we plan to continuously improve our operating efficiency and control our costs and expenses. We expect to achieve non-GAAP profit for established business, which means, existing business as of our IPO date, for the year of 2022.

Such outlook is based on the current market conditions and reflects our preliminary view and estimates, which are all subject to changes. As of December 31, 2021, our cash and cash equivalents and short-term investment balance increased to RMB 2,787 million, increasing RMB 176 million or 6.7% from the end of the third quarter of 2021, as we started to generate positive operating cash flow in the fourth quarter. For detailed financial data, please refer to our press release on our IR website. This concludes our prepared remarks.

I will now hand it over to the operator to open the call for Q&A. Operator, we are ready to take questions now. Thank you.

Questions & Answers:

Operator

Thank you. [Operator instructions] We will take our first question today from Qingqing Mao of CICC. Please go ahead. Your line is open.

Qingqing Mao -- CICC -- Analyst

OK, thanks. This is Qingqing from CICC. Congrats on the results. I have two questions.

The first is about the operation of existing customers. Could you talk more about the renewal rate, what's the trend? And what's your strategy to further serve the existing customers? The second question is, what did you do to drive the significant improvement in profitability. Can we expect this operating margin to continue in 2022? That's all for me. Thanks.

Yang Guang -- Co-founder, Director, and General Manager of Insurance Marketplace

OK. This is Yang Guang speaking, thank you for the question. In terms of renewal, the premium renewal rate improved to 89% in December 2021 from 62% in September 2022 -- 2021, up by 43%. So, we have achieved great improvement in our renewal rate.

I think our strategy to improve renewal rate is focus on three main areas. And why is that we improved our renewal rates by upgrading our renewal products. For example, we increased the coverage for users and providing premium discounts for customized policyholders. And secondly, we provided renewal users with more product coverage options.

So, a differentiated add-on products strategy that made our premium renewal rates up by 5%. And thirdly, we support users with diverse terms of payments, such as auto renewal, monthly payment or annually payment and reach manual renewal users through message and phone calls. So, in terms of the LTV per user, we continue to convert our users and increase per user LTV mainly through enterprise WeChat and O2O model. So, the LTV of Q4 was up by 93% compared to Q3.

Hope that answers your question. And for your next question regarding the operating margin, I'm going to hand it over to our CFO, Kevin.

Kevin Shi -- Chief Financial Officer

Thank you, Yang Guang. Thank you, Qingqing. Thank you for your question. As a successful rollout of the cost control plan, we actually -- we have seen in two consecutive quarters, effective cost control and profitability enhancement.

Compared with quarter three, our total operating costs and expenses further reduced significantly this quarter, and quarter over quarter declined 47.5% in total costs and expenses was mainly due to first, a decrease of 69.2% saving in marketing expense, and the second is 33.5% decrease in operating costs quarter over quarter. In terms of our marketing expense, if we look at our earnings release in previous quarters, we find that our sales and marketing expenses in quarter two exceeded RMB 1.2 billion, of which about 80% was traffic acquisition cost. In quarter three, sales and marketing expenses was around RMB 781 million of which around 68% was our traffic acquisition cost. So, we can see that the various measures of our refined operation have produced certain results in quarter three.

But with our continuous efforts, we have achieved more remarkable results in the first quarter. Sales and marketing expenses significantly reduced to RMB 241 million, and only less than one third of sales and marketing expenses were incurred for traffic acquisition. Regarding measures to control company expenses, in terms of sales and marketing expenses, our measures increased but not limited to first further reduction in marketing expenditure and stricter criteria to select traffic acquisition platforms. And second, we're also leveraging our AI powered platform to come back to more intelligence and targeted marketing.

And in terms of operating costs, specific measures include, firstly, reviewing key task and our business procedures to identify where and how to optimize. And the second, integrating organizational functions with higher synergies. And third, strengthening the control over selection of suppliers. And the fourth, measuring certain officers who are moving to areas with more reasonable rents.

So, we are moving faster on the right track to achieve breakeven. And we have delivered good results toward particular objective for the two consecutive quarters. We originally plan to procure in terms of this year -- in 2023, we have already increased our efforts to control costs and expenses and now we're already made profits in non-GAAP terms in quarter four. Marketing expenses, which used to be our largest expense item have been significantly reduced in the third and fourth quarter.

And we also managed to control over costs and company wide. So, going forward, we expect this trend to continue in year 2022. So, our goal is that our established business will make profits for the full year of 2022 on a non-GAAP basis. Thank you.

Operator

Our next question, from Michael Li of Bank of America. Please go ahead.

Michael Li -- Bank of America Merrill Lynch -- Analyst

Thank you. Thank you, management. This is Michael Li calling from Bank of America. And my question is about the quality of your earnings and also the volume growth.

You see very strong quality improvement in fourth quarter last year, and also the cost control last year, and fourth quarter led to the first profitable quarter of non-GAAP basis. But we also see the decline, year-on-year decline and quarter-on-quarter decline of your commission income growth. I know there's kind of seasonality to this and I know that last year second quarter to fourth quarter sector premium growth was weaker than first quarter last year. And we still want to know that what is the target of your volume growth as a first-year premium growth next year, and how are you going to achieve that kind of target? This is my first question.

The second question is that we know that you are going to charge Waterdrop [Inaudible]. So, what is the purpose of this kind of change of policies? Thank you.

Yang Guang -- Co-founder, Director and General Manager of Insurance Marketplace

Thank you for the question. I think as mentioned earlier, the entire industry is undergoing cyclical adjustment. So, I think the key reason is that the old gross model focusing on scale expansion cannot adapt to the current market conditions. And the launch of stricter regulatory policies has intensified the industry adjustment.

And so, the tightening regulations and cyclical adjustment have made the competitive environment of online insurance services more favorable to our company. So, for example, the number of peers have exited the market and our external customer acquisition has improved. So, under this environment, our accumulated human resource insurtech capabilities and advantages in lower tier cities will enable us to welcome patient to fuel for future growth, from over the entire insurance industry exploring new growth model which will benefit companies raise stronger innovation G&A, just like us. So, in the meantime, we'll create new growth drivers by looking on our open platform to offer more services to empower the industry.

I think after five years of exploration, we have accumulated strong technology and capabilities in the insurtech area. Now, we are building our open platform to offer all the technology service to the partners in the market. So, we'll be only be companies with larger user group and ability to tap into the customer value-able to navigate the unfavorable industry cycle to demonstrate their business resilience and adapt ability. So, every member will be the ones that can transform and upgrade the business as early as possible, making necessary strategic adjustments and actually respond to regulatory costs and directions in long run.

So, simply a pursuit across all growth is not in the current optimal solution. So, to answer the question regarding the SIP target, I think we expect our revenue growth will stabilize this year, when our minimal cost control remains unchanged. And in fact, our profitability improvements will continue to do. So, this means that the slowdown growth due to a bit smaller transformation and industry adjustment has basically reached an inflection point in the near future, and the company will follow those healthier and most sustainable model for the future development.

Hope that answers your question.

Operator

[Operator signoff]

Duration: 70 minutes

Call participants:

Xiaojiao Cui -- Investor Relations

Shen Peng -- Founder, Chairman, and Chief Executive Officer

Yang Guang -- Co-founder, Director, and General Manager of Insurance Marketplace

Hu Yao -- Co-Founder, Director, and General Manager of Medical Crowdfunding and Healthcare

Kevin Shi -- Chief Financial Officer

Qingqing Mao -- CICC -- Analyst

Michael Li -- Bank of America Merrill Lynch -- Analyst

More WDH analysis

All earnings call transcripts