Waterdrop Inc.

Good morning, ladies and gentlemen, and thank you for standing by for WaterDrop Inc's second quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. After management's prepared remarks, there will be a Q&A 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 Kui. Please proceed, Ms. Kui.

Thank you all. Hello, everyone. Thank you for joining WaterDrop's second quarter 2022 earnings conference call. Please note that the discussion today will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities and the Dedication 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 findings with ICC. 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 VP. Mr. Hu Yao, co-founder, director, and VP. Mr. Ran Wei, our partner. Mr. Zhu Zetao, partner and general manager of medical crowdfunding and patient services. 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.

Hello, everyone. Thank you for attending the Q&A session of 2022. Even if the unconfirmed factors are taken down, the epidemic will always be unpredictable. The epidemic is repeated, like the lack of people's attention, early insurance needs to be expanded, delaying the expansion of the number of people, and then the general uncertainty. But if we stick to the principles and principles, that is, we have a client-centered, everyone does a good job, and we insist on continuing to create value for ordinary people. We are actively engaging in market change, and we have a chance in the change. In this season, The strategic adjustment of the topic and the effect of the project will be improved. The project will develop in a continuous and good way. The profit level will rise again. The revenue will be 8.1% compared to the previous one. The profit will be maintained by the government in three consecutive seasons. On the basis of the government's profit in two consecutive seasons, the profit will be 20.7 billion yuan. Continue to adjust the market schedule. Although there may be some institutional fluctuations, only the insurance industry is able to contribute at the moment, but these results mean that we have entered a relatively stable positive energy stage. In the second half of the year, we will make appropriate investments in new businesses. Under the current market trend at the bottom, we are determined to look after China and its large health industry, and we are determined to take a high-quality and sustainable path, and we are determined to find confidence, Hello, everyone.

Thank you for joining our second quarter 2022 earnings conference call. There have been a range of external challenges and uncertainties in this quarter. Demand for insurance products has been delayed as a result of weakening consumer competence caused by the COVID resurgence and other external factors. Despite these headwinds, WaterJob is still firmly committed to being user-centric, steadily developing its business, and creating shareholder value. We also proactively explore new businesses' opportunities in this evolving market environment. In the second quarter, we made further progress on reforming our business strategy, maintain momentum, and achieve the record high profitability. Our revenues increased by 8.1% quarter over quarter. We achieved net profit for three conservative quarters and net profit for two conservative quarters. On top of this, our net profit almost doubled sequentially, reaching RMB 207 million and once again exceeding market expectations. Despite some cross-quarter fluctuations and the fact that our insurance business is currently the only profit contributor, Our brilliant results confirm that we have entered into a phase of steady profitability. In the second half of 2022, we will appropriately increase our investments in new businesses. Although the current economic cycle is near bottoming, we remain optimistic about the Chinese economy and the healthcare industry and will maintain our strategy of achieving high quality and sustainable development Our confidence comes from our strong determination. We will strive to achieve the goal we set for the shareholders at the beginning of the year, which is to achieve a healthy and sustainable operating profit for our existing business for 2022.

In the past few seasons, we have strived to pursue absolute growth and rapid growth in the form of the most healthy and sustainable growth strategy. The company's operations and performance have developed in a very good direction. In the last few quarters, we have adjusted our business strategy from pursuing scale expansion and rapid growth to cultivating a healthier and more sustainable world.

Our operating and financial performance is heading in a positive direction. Having said that, we have been constantly reviewing our business strategy, and in the second quarter, we made some realignment to our organizational structure and the business division. We believe such adjustments will allow us to achieve even higher goals in future. .

Our current strategy remains to enhance the value of our products and cater to users' needs.

We adhere to two principles when implementing this strategy. Some operations with full compliance and a high quality and sustainable development. Specifically, in daily operations, we have proposed the four pillars to prioritize management, efficiency, service quality, and reputation, so as to assist the refinement and implementation of our strategy.

Looking to the second half of the year and beyond, we will strive to increment our development strategies, strengthen our capabilities, and cope with market changes in a proactive, flexible, and agile way.

We will identify and see new business opportunities and spare no effort to explore a healthier world model.

Overall, the implementation of our strategy will build on the solid frameworks formed by our product innovation capabilities, technological innovation, and the synergies created among various unique business segments.

Particularly in the near future, with China's population aging more rapidly, the upcoming demand for insurance coverage will continue to increase and evolve. We will persist in working hard and keeping in a low profile. We also strive to leverage our solid fundamentals and high technological capabilities to efficiently and accurately explore new opportunities that emerge at any time and do our best to reap additional returns from the new model.

As a health insurance and health service technology platform, it has been established for six years, and it has always insisted on its mission to protect its people with Internet technology. In the past July, the company has submitted its 2020-2021 annual environmental, social and governance report. This is the first time the company has submitted its ESG report. From the management of the company, social responsibility, technology and products, The industrial value chain, the construction of the market, the green law, and many other issues have exposed the growth of ESG, and produced the water-based model, which is innovative in terms of high-efficiency performance and sustainable development.

As a technology platform for insurance and healthcare services, since our inception in 2016, we have persistently adhered to our mission of leveraging internet technologies to make insurance protection more inclusive and accessible to the public, and bring insurance and healthcare services to billions. In July, we released our 2020-21 ESG report, which was the first ESG report published since our IPO. The report details our responsibilities, technology, and products, industry value chain, workplace development, green development, and other relevant topics. It also illustrates how we leverage our innovative business model and technological innovation to achieve effective business performance and a sustainable process.

We attach great importance to our ESG effort

Along with our strict compliance with relevant laws and regulations, we have developed rigorous management systems in corporate governance, compliance operations, supplier management, employee management, and the low-carbon green development. At the same time, we also leverage our business strength and the technological innovation to integrate resources from various partners, thereby promoting sustainable creation of social values.

In order to prevent the risk of life-threatening diseases for the patients with severe difficulties, the water company entrusts water supply, water insurance, water engineering, etc., as an additional layer of multi-layer medical insurance system, and participates in the construction of multi-layer medical insurance system. As of the end of this quarter, 4.12 billion people have been donated to the water supply platform by our water supply platform, including millions of sick patients, and 5.33 billion RMB. The water supply platform continues to improve technology In addition, we are actively engaging in establishing a multi-layered medical protection system that serves as a supplementary layer

through our WaterDrop medical crowdfunding, WaterDrop insurance marketplace, WaterDrop charity, and other businesses, so as to prevent critically ill patients from becoming impoverished. As of the end of Q2, a total of 412 million donors provided nearly 53.3 billion RMB to millions of patients with critical illnesses through our WaterDrop medical crowdfunding platform. Leveraging our sophisticated technology, the WaterDrop Charity platform has helped improve the efficiency of fundraising and fund utilization by providing charity organizations with all-around support. Our other campaigns cover a wide range of areas, including anti-pandemic actions, disaster relief, poverty alleviation, and rural revitalization. These initiatives prove that we will adhere to being a responsible company with social responsibility and doing business for growth as we pursue business growth.

In recent years, there have been a lot of issues related to the gray chain of large and medium-sized export industries. As the head of the industry, we will work together with major export companies in June this year to address this issue and help large and medium-sized export industries to improve their export operations. This kind of grey chain is used to help patients withdraw money and promote it. It does not take away high-quality funds. It not only destroys the economic and health environment of the industry, but also dispels the interest of politicians and borrowers. The water balloon platform is often used to protect people. Through a variety of strict cases and control mechanisms, it corrects the behavior of the local government. Our control team uses it to report complaints and other clues to users. to contact the issuer of the deposit. On the other hand, through the construction model of the payment method and the artificial intelligence technology, the issuer will send a message to the issuer to investigate the suspicious deposit project, lock the project that maliciously promotes, and then ask the issuer to issue a deposit certificate. The issuer who participates in the malicious promotion of the issuer's entry list will not be able to issue a deposit again. At the same time, the malicious promoter will also be restricted. As a leader in our industry, we are committed to driving the healthy development of the ecosystem

In response to the authorized fundraising activities in the medical crowdfunding industry, we collaborated with other major medical crowdfunding platforms to crack down on such activities in June. Some intermediaries have acted in the name of helping patients with cranial illnesses with funds on medical crowdfunding platforms and charged them on authorized referrals for high commissions. This malicious activity not only damages the healthy ecosystem of the industry, but also harms the interests of donors and fundraisers. Our Wollongong Medical crowdfunding platform has taken preemptive steps to identify such unauthorized fundraising activities with high accuracy through a stringent review process and risk control system. Our risk management team contacts the fundraisers to verify their crowdfunding claims based on reports and complaints we receive from users. On the other hand, we have developed a model powered by algorithm and AI technology to analyze fundraising activities based on information and cases referral chain of fundraisers and donors, and proactively screen and identify suspicious and authorized cases. Our crowdfunding consultants further verify cases by conducting on-site visits and interviews. Once confirmed, we blacklist the fundraisers who have evolved in the identified cases so that they will no longer be able to initiate another campaign. At the same time, those malicious intermediaries are restricted from any access, forwarding, or commission on the platform. Thanks to these relentless efforts, the number of authorized fundraising activities on our platform has been significantly reduced.

In addition, in recent years, some of the public's reports have not clearly identified the money laundering and the money laundering fraud. As a result, some users and the public have misunderstood the money laundering and the money laundering fraud, and have taken a major step. What I want to say is that in the fight against fraud, to maintain user rights, and to promote China's health operations, This road is much more difficult to understand than the outside world. But as always, we insist on doing the right thing. Since the establishment of Snowball, we have continued to supplement the operating cost of the platform for five years. From April of this year, we have collected 3% of the budget as the service fee for platform operation and distribution. The same large-scale production, However, recently we have seen some reports posted in the media which have not clearly distinguished between our crowdfunding platform and those malicious intermediaries.

stating that WaterDrop has charged high services fees for its medical crowdfunding business, leading some users and the public to misunderstand that WaterDrop receives a large percentage of the fundraising amount. This has also led to some misunderstandings about WaterDrop's actions in cracking down on the authorized referrals. We would like to clarify that we have always taken a responsible approach toward cracking down on misconduct, safeguarding users' rights, and promoting the industry's healthy development. Even though this is not an easy task, we remain committed to doing the right thing despite the tough challenges. We have subsidized the operating costs of our medical crowdfunding platform since its establishment for five years. Starting from this April, we began to charge a service fee of 3% of the fundraising amount to support our platform's operations and risk controls. We have never charged high service fees and have pledged to restrain unauthorized activities. We have disclosed all of our fundraising campaigns and detailed fund flows to the public and welcome supervision from our users and the public and will take legal measures to bring illegal intermediaries to justice.

As of today, our WaterDrop medical platform has identified and taken legal actions in over 800 authorized profit-making referral cases targeting more than 600 intermediaries engaged in malicious and authorized activities.

We will make every effort to provide the best services for patients with critical illnesses, cater to patients' urgent medical needs, and develop the most reliable medical crowdfunding platform for all users, thereby earning and keeping the trust of each of our customers.

In terms of repurchase, we continued to implement the stock repurchase plan. In the second quarter of this year, we repurchased about 1.6 million ADFs. We are now continuing to implement it. As of the end of June 2022, the company has received a total of 32.88 billion yuan in cash and capital investment, considering the return on small consumption of cash. It has achieved 3.6 billion yuan in cash in a single quarter. With the announcement of this quarter, we also announced a new return plan, because it will continue to return for a year and will be approved by the board of directors. Regarding share buyback, we continue to implement our repurchase program in the second quarter.

we repurchased approximately 1.61 million ADS and we are continuing to execute the program prudently. At the end of June 2022, the company held cash and cash equivalents and short-term investments totaling 3,288 million RMB. After offsetting the cash outflow for share repurchase, we still achieved a positive cash inflow of over 360 million RMB for the single quarter. At this earnings release, we are announcing that we launched a new share repurchase program so as to continue to buy back shares for another 12 months, in which we upset the upper limit and may repurchase up to 80 million US dollars worth of our ADS. This is a decision that was made based on the judgment of the company's current value and our confidence in our long-term sustainable development. Meanwhile, we plan to reserve repurchase the shares for shared incentive plans, which will align the interests of our employees with the growth of the company.

In conclusion, China's demand for health online is growing at a rapid pace. As the topic of non-stop improvement of our own productivity, creativity, and business cooperation, I still believe that the field of online insurance and medical health services has created a huge opportunity for re-innovation. Under the changing circumstances, we will never forget to focus on the value of users as a starting point, and we will continue to respond to the needs of the industry. At the same time, we will also insist on carrying out strict budget and goal management, not only to regulate the growth of the industry, but also to implement sustainable, sustainable and sustainable industry.

To conclude, with people's growing demand for healthcare in China, and as we continue to strengthen our competitive advantages in product, innovation, and business sector synergies, we still believe that the online insurance and healthcare sectors offer us a tremendous and untapped opportunity. In this changing environment, we will remain committed to our mission, keeping the focus on user value, solidifying business fundamentals, and pursuing continuous improvement. At the same time, we will also adhere to strict budgeting and objective management and continue to optimize the structure and the quality of our business growth, thereby achieving healthy and sustainable profitability of our established business for the full year.

I will pass to Ran Wei to discuss the development of the water job insurance business for Q2.

Okay, thank you, Shenzhen. Hello, everyone. Let me give you an update on our insurance business development. Life and health insurance premium growth in China was negative for the first half of 2022 and has underperformed the PNC insurance industry. In a while, the life and health insurance reform has not yet had a pronounced effect on the market, and the demand for critical unit insurance products remains weak. Shared performance of the listed insurance companies has been languished at a low level for a long time, and their valuation touched a new low at the end of April. Against this backdrop, we have been proactively reforming our business model, optimizing our business operations, and adapting the transformation of our growth model. This has helped improve our operational efficiency and strengthen the resilience of our business with new growth drivers. In Q2, our net profit reached RMB 207 million, up by 97% on a sequential basis. With the entire profit derived from our insurance business, now I will review the business performance of our insurance business across four aspects. First, results of our business model reform. Looking at the key parameters that demonstrate the continued profitability of our business, in Q2, we further optimized and upgraded our operating system with multiple platforms, multiple product slides, and multiple service models while reluctantly pursuing improvements in both operating efficiency and quality by streamlining our transaction processes to be more user-friendly and enriching our product offerings. We continue to see increased revenues from new customers and our ticker rate remains at a relatively high level. One-year LTV increased by 20%. 2% quarter-of-quarter and 101% year-over-year. In terms of the long-term insurance business, we refined our user group text based on which we upgraded the sales needs matching model to identify customers' needs more precisely. This has helped improve the customer service efficiency of our sales team, and the sales Productivity per hour in-house LP increased by 28% quarter-over-quarter. At the same time, we have set up a dedicated team to analyze the sales conversion chain of existing user groups. Through interviews with user groups, we have improved user experience in the conversion and retention processes, thereby helping increase the three-month policy renewal rate of long-term insurance users up by three percentage points. compared with that in previous quarter. In terms of existing customer management, we continue to develop our multiple platform of operational model for various marketing platforms, including our WeChat official accounts, We check mainly programs, enterprise WeChat accounts, and the OneJob app. We clarify the long-term positioning of each of these channels to align them with the needs and the preference of different user groups. We have strengthened our profit domain operation capability and improved the collaboration between our customer service team and our PT, yielding remarkable results in retaining core user groups. For instance, short-term interest premiums originated from these marketing channels reached about 43 million RMB, up by 60%. The number of active app users reached 3.4 million, up by 47%. At the same time, we set up a dedicated team in our long-term insurance business to explore additional protection needs of our existing users and provide them with lifetime insurance solutions. The insurance premiums originated from the repeat purchases by existing long-term insurance customers increased by 72% cost of culture, increasing the lifetime value of our users significantly. We also consistently explore new customer acquisition models. We chat video accounts. We have continuously erased and polished our content metric of our WeChat video accounts, chatting into a festive growing thoughts of the WeChat users thanks to our deep understanding of the communication patterns and user needs on this new marketing platform. The number of users following our video account increased by 44% quarter-over-quarter, and the total insurance premiums originated from this account increased by 113% sequentially. Online breakage, we have set up and dedicated units in our insurance department to promote the online brokerage business. With the insurance planner model included, leveraging our multiple multi-channel exploration in Q1, the insurance planner model has a clear operating model of customer attraction through live streaming and insurance content. the insurance planner responsible for promoting self-conversion. With the establishment of our live streaming team and our insurance planner team, the number of live streaming events increased, and the number of live stream viewers grew by 140% quarter-to-quarter. With strict code control details, we have achieved an initial validation, scaling up these operations. Second, product innovation. In Q2, we have continued to launch more high-quality insurance mode products. The total number of product offerings have increased by 44% this quarter. In terms of short-term insurance product offerings, we now have 11 different cost-effective versions of meaning I&B coverage medical insurance products. We also improved our critical evidence products by offering more flexible options for health declarations and premium payments. Thanks to our ability to accurately match user needs, the policy renewal rate remains at a high level of 90%. The continued enrichment of our product offering has significantly improved our ability to reactivate dormant users. For example, to meet the needs of customers with pre-existing illness conditions, we launched Watch Up the Ocean, a series of customized and cost-effective illness The product has simplified the policy enrollment and claim settlement process and weaved the health declaration requirements while keeping the writing risk under control. This will, to some extent, ease the concerns of senior citizens and patients with chronic diseases who are seeking to purchase IC insurance. In addition, we have launched WaterJob Cruiser, a new accident insurance product which meets the health declaration requirements and relaxes the age limit for insurance applicants to 18 years old. As returns from investment products offered by banks have tended downward, there is increasing customer demand for investment products that offer stable returns. In response to this demand, we added an incremental life insurance policy to our long-term insurance product offerings in Q2. We also provided our with special training on distribution of these B products, especially to high net worth individuals. The insurance premiums of incremental live industry products totaled more than 20 billion RMB in second quarter, meanwhile empowered by entity products launched in Q1. and the private domain operating capability of traffic coming from our enterprise WeChat account. Our long-term insurance team has achieved a quarter-of-quarter increase in energy insurance premiums of 324% in Q2. Third, upgrades. Updates on the auto brokerage business. We continued to explore different brokerage service models in different regions and cities. At the end of Q2, we had 11 regional brokerage licenses. During the quarter, we set up a branch in Shaanxi and two new outlets in Hubei Province. The brokerage team expanded to nearly 600 staff generating the total premium income of about 8 million imb in core 2. four actively empowered industry with technology in terms of technology export we launched our project for problem property insurance in q2 this is the first time that we have exported the Our CRM system is deployed with AI-understanding capability to a third party. We currently have the ability to provide four chain marketing solutions for the insurance industry. These include user acquisition, private domain management, and empowering all offline agents with sales conversion capability. Through these solutions, we can help insurance companies and insurance intermediaries digitalize their marketing process, thereby deriving user-based expansion and premium growth. In the second half of this year, we will continue to work with small partners on digital tech projects. Above is a brief overview. insurance business and let me head over to the top for the updates of our medical consulting and patient recruitment business.

Thanks, Naowei. I would like to share some updates on our medical crowdfunding business. As of the end of Q2, the cumulative number of donors, which is 412 million, helping 2.58 million patients with primary artery IMB 53.3 million, cumulatively. Since April of this year, our platform has ceased to resuscitate its service fee and started to charge a service fee of 3%, up to a minimum amount of only $5,000 for a single campaign. This is to cover part of the operational cost and help more patients with critical illnesses respond. The user number and fundraising amount on our platform has remained stable even after the charge of the service fee. As part of our commitment to promote best practice and early development of the industry, we have recently established an operational transparency committee to continuously promote the authenticity of the campaign initiated at our medical fundraising platform. The fund for transparency as well as the rationality and transparency of the platform rules. The committee consists of Watersoft's core management team, experts in the field of law, charity, and public media, with our CEO Mr. Shen Peng as head of the committee. To better safeguard the rights and interests of both the fundraisers and the donors, the committee will collaborate with public security authorities, hospitals, and other industry partners to crack down on fundraising fraud while actively seeking advice from the public to ensure that each donation is open, transparent, and treatable. Meanwhile, the committee will constantly interact with the experts and optimize the rules of the platform. In the future, Watertop will make every effort to avoid fraudulent fundraising and misappropriation of funds, ensuring the overall security of fund raised from our platform. Next, let me talk about progress of our station recruitment business. In Q2, The COVID outbreak in various cities of China has adversely affected the launch of new clinical trials. Nonetheless, our eFind patient platform sustains overall high growth momentum and successfully enrolled approximately 1,700 patients for clinical trials. The E5 patient platform also participated in over 60 new clinical trial programs by pairing with innovative pharmaceutical manufacturers, including leading multi-national enterprise in the industry, bringing the total number of clinical trial programs for new drug restoration to more than 300. The E5 patient platform has now collaborated with more than 100 innovative pharmaceutical manufacturers and CROs in China and worldwide, helping us win the wide recognition of our partners and establish a good reputation across industry. In the past few quarters, the platform has gone to become a leading patient recruitment platform in China. in particular for economy-related clinical trials. Our deliberate effort, capability in quickly, accurately recruiting patients suitable for the trial project, and high operational efficiency, our job is accomplished. We further expanded the scope of our clinical child service in the second quarter. Apart from continuing to achieve rapid growth progress in oncology and chronic disease clinical trials, we also met new breakthroughs in the rare disease segment. For years, we have seen patients with rare disease struggling to find the right medication, but this dilemma has started to reverse as patients have gained more public attention recently. This has led to a significant increase in the number of clinical trials for rare disease However, as patients with rare diseases are widely dispersed across the country, it is challenging to enroll the appropriate patient to participate in trials of a new specific drug. This has longed down the progress of pharmaceutical companies in bringing new drugs to the market. Nevertheless, we found that many of these patients are also registered users of our workshop medical crowdfunding platform who are seeking financial help after being plagued by their disease for years. In Q2, we worked with several partners on clinical trials for rare disease treatment. Using our structured data process technologies, we are capable of matching patients with the most appropriate clinical trial. thereby accelerating the R&D and go-to-market progress of our partners. This concludes my part and let me turn over the call to Fuyao to discuss our technology innovation updates.

Thank you, Zetao. I'm going to talk about our second quarter technology innovation updates from 3XX. In terms of the market share of the stock market, the AI team used our knowledge map to create high-risk business transfer cases and high-risk business transfer people. In response to Malaysia's intermediaries who refer the needy to our medical crowdfunding services just to collect commissions,

Our AI team has applied knowledge matching technology to analyze the statistical characteristics of sample cases and developed two models to identify the high-risk and authorized fundraising activities and the malicious intermediaries engaged in such activities, respectively. To date, the models have realized an accuracy rate of over 90%. This has effectively reduced the number of malicious unauthorized fundraising activities and enhanced our risk control capabilities for our medical program participants.

This platform is responsible for all the AI dialogue capabilities, including dialogue robots, customer service robots, digital employees, and technology output, etc. In the second quarter, we completed a major upgrade to the smart dialogue platform, especially for dialogue robots. We launched a language dialogue mode, through eight dialogue modes and multiple change modes, to be able to carry out womanized dialogue more accurately, so that the accuracy of the user base of the robot is increased by 15%. In addition, the user problem resolution of our客服 robot has also exceeded 80%. The recognition resolution of the entire identification accuracy of the smart dialogue platform has also exceeded 95%. In the context of the dialogue robot's real-time transformation, we will upgrade the control model to the smart data algorithm, which will gradually increase the efficiency of sales. At the same time, based on the user's choice and needs, we will combine it with the recommended algorithm to provide a better communication experience for the user at the dialogue level.

The second one is intelligent dialogue platform. In Q2, we completed a major upgrade of our chatbot platform. We have upgraded it into an intelligent dialogue platform by integrating various functions such as outbound chatbot, customer service chatbot, virtual employees, and technology export projects. For instance, we added the chat status features in our outbound chatbot by including eight types of chat data features and several modes. The chatbot is capable of engaging in more human-like dialogues with users, further improving its intention recognition accuracy rates by 15%. In addition, our customer service chatbot can solve more than 80% of inquiries raised by users, and the intention recognition technology achieved an accuracy rate of over 95% for the overall intelligent dialogue platform. For transferring customers' requests from chatbot mode to manual mode on a real-time basis, we have upgraded our loss control model for phone calls to an intelligent dispatching algorithm, which enables us to further improve Salesforce productivity. According to users' needs and choice, we have also integrated this algorithm with our recommendation algorithm to offer a better user experience during the conversation.

Regarding the AI content creation platform, the AI content creation platform is a convenient tool for our content creators to provide services. Based on the basic content materials provided by the creators, the platform uses the AI ability to create corresponding content. At the same time, it also improves the efficiency of content creation and reduces the cost of content production. At present, the AI content creation platform has accumulated the production of text, text-based production, voice-based production, and video-based production. For example, the language integration platform provides a high resolution and flexible language integration function. There are many colors to choose from, and it comes with the function of adjusting the speed of speech and volume. Currently, it supports the control of six colors. The team is also exploring the technology of using various layers of intelligent language to integrate into the language integration model. Video and product models have accumulated口型驅動, AI換臉,動漫風格遷移,動作遷移,數字直播等相關技術沉澱。當前口型驅動技術已經成功地應用到水滴寶視頻號的運營,經紀人個人的號的運營,以及抖音視頻寶號投放等多個業務場景中。

Our AI-powered content production platform provides a lineup of useful tools for content creators. Powered by AI capabilities, the platform will generate corresponding marketing content following the content materials submitted by the original creator. While enriching our marketing content, the platform also helps improve efficiency and lower the cost of content production. Currently, we have developed three function modules for our platform. namely text generation, speech synthesis, and video synthesis. To be more specific, first, as for the speech synthesis, our platform can simulate human-like speeches with flexible configurations. Various types of reverberations and voice properties, such as speed and volume, are available in this speech synthesis. Currently, the module supports six sound control functions. Our team is also exploring the underlying intelligent speech technology of voice cloning, which we expect to integrate into our speech synthesis module in the future. And second, in respect of video synthesis, the module has incorporated technologies related to lip sync, AI-powered face swap, animation style transfer, motion transfer, and virtual human life broadcast. The LeapSync technology has been successfully applied in multiple business scenarios, including VCHAT video accounts, the VCHAT video accounts of our brokers, as well as the video advertising promotions at Douyin.

I will now hand over to Yang Guang to discuss our second quarter financial performance.

Thank you, Huyao. Hello, everyone, and we now walk you through our financial highlights for the second quarter of 2022. Before I go into details on this financial performance, please be reminded that all numbers quoted here will be in RMB, and please refer to our earnings release for the detailed information on our comparative financial performance on both the year-over-year and quarter-over-quarter business, respectively. Despite the challenging internal environment, we have entered a relatively stable profit-making stage after we turned profitable for three consecutive quarters. Our net operating revenue formed up and our net profit almost doubled on a quarter-over-quarter basis. Our net operating revenue decreased by 25.3% year-over-year to RMB 701 million from RMB, 939 million, mainly due to the decrease in insurance-related income by RMB, 273 million, but partially offset by the increase in the crowdfunding service fee of RMB, 56 million. The decrease of interest-related income was mainly due to the decrease in the first-year premium, but offset by the improvement of our TIC rate Our operating revenue growth sustained with a quarter-over-quarter increase of 8.1% in Q2, which demonstrated a more healthy and solid growth trend, particularly a further increase from 34% in Q1 to 38% in Q2, primarily driven by the consistent quality enhancement in our inference business. Operating costs and expenses for Q2 decreased by 68.9% year-over-year to RMB 546 million. On quarter-over-quarter basis, operating costs and expenses increased marginally by 2.5%. To break it down, operating costs were RMB 245 million, down by 6.1% year-over-year. mainly due to the decrease in professional and all-sourced customer service fee, or RMB 33 million, and the decrease in personnel cost, or RMB 58 million. On an over-quarter basis, operating costs increased by 57.9%, mainly due to the accounting reclassification of certain crowdfunding-related service fees, from sales and marketing expenses to operating costs. as we started to charge call funding service fees since April 2022. Sales and marketing expenses decreased by 88.4% year-over-year to RMB 144 million for the second quarter of 2022. The decrease was primarily due to a 952 million decrease in marketing expenses to third-party traffic channels and a $136 million decrease in all-source sales and marketing service fees to third parties. So on a quarter-over-quarter basis, sales and marketing expenses also decreased by 29.3%. T&A expenses decreased by 42.3% in Q2 to only $86 million year-over-year. due to the combined impact of a decrease of RMB 54 million in share-based compensation expenses and a decrease of RMB 6.7 million in personnel costs. On a quarterly basis, the G&A expenses decreased by 15.6%. RMB expenses decreased by 29.8% to RMB 70 million year-over-year, and it remains stable quarter-by-quarter. reflecting the optimization of our organizational structure during last year. In this quarter, we continue to report a non-GAAP profit of RMB $233 million and a U.S. GAAP net profit of RMB $207 million compared with the net loss in the same quarter of last year. This, once again, proved the effectiveness of our business strategy to enhance the overall revenue quality. As of June 30, 2022, our cash and cash equivalents and short-term investment balance increased to RMB $3,288 million, an increase of RMB $364 million, or 12.4% from the end of the last quarter, despite actively implementing a share repurchase program under the compliance framework. So during the past few quarters, we have provided the following financial guidance, enhancing revenue quality and profitability, and achieving profit for the full year of 2022. In Q2, we have made good progress in delivering this guidance and encouraging results. So going forward, we will strive to deliver high-quality goals and enhance our long-term competitive strengths. Thank you, Cecil, for my part. Now let's turn to Q&A.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you are using a speaker phone, we ask that you please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. We also ask that you please limit yourself to two questions at a time so that others can get their questions in as well. In addition, for those who speak Chinese, would you please ask your questions in Chinese first, followed by the English translation. We will now pause momentarily to assemble our roster. And today's first question comes from Michael Lee at Bank of America. Please go ahead.

Thank you. Congratulations, management on the performance in second quarter and I saw the improvement of your insurance business in terms of like take rate and also product mix. So my question is that what is your growth strategy for insurance business and any plans to upgrade your product mix and channels? Thanks.

Okay. Thanks Marco. That's a very good question. From a user course perspective, there were three business models for growth. Directly 2C, 2A2C, and 2B2C. Our corporate driver is directly 2C in the past. We also have built up our capability in 2A2C and 2B2C for a while. Going forward, there were opportunities in all of the three business models. Coming directly to the front, we needed to explore the opportunities in traffic ecosystems and deploy our resources accordingly. First, let's look at the WeChat ecosystem. I will focus on about four growth opportunities of WeChat ecosystem. First one is the growth opportunity from water job medical crowdfunding. Confounding operates a 10 million level BAU platform where we effectively educate users about insurance protection and insurance awareness. And it can help us convert users into millions of new short-term insurance customers and new gift insurance policyholder each year. The conversion efficiency in our Confounding channel increased by more than 30% from the first half of the 2022. The second is growth opportunity from the rise of WeChat video accounts. WeChat is shifting its focus and traffic to WeChat video accounts, which already have 430 million views so far. So users have seen better collection between their WeChat video accounts and WeChat official accounts and really progress, making it a very new growth value for customer education and conversion. So our WeChat video accounts have now surpassed 100 million in monthly video views, directed a monthly flux flux of 300,000 new followers to our WeChat official account and posted two sold growth in monthly premiums for the past few months in a row. The third one is growth opportunity from private domain operations of our enterprise WeChat account. The private domain operations of enterprise WeChat is another focus of WeChat. This platform offers strong user management functions and infrastructure support and provides effective means for rich users and user operations. Our enterprise WeChat account has reached millions of users and continues to attract hundreds of thousands of new users each month, contributing over RMB 10 million premiums each month. The fourth one is the opportunity in refining our existing user management. We consistently strengthen our user lifetime management by utilizing different scenarios from many marketing platforms, match suitable interest products and services for our users in different scenarios, and further apply our AI capability to bolster online sales conversion. So, we have effectively improved our short-term features conversion, repeat purchase, and policy renewal. In addition, online user operations can also continuously deepen our understanding of user groups' profiles and improve our self-conversion capabilities. which allows us to match our users insurance products and the sales staff more precisely and thereby facilitate the conversion from a short-term insurance policy holder to a long-term insurance customer. In addition to WeChat ecosystem, we have also explored the growth opportunity in shorter video or content platforms such as Douyin, Quest, and Xiaohuizhou. Chinese netizens spend more than half of their consumption time on shorter video or content platforms. Leverage various market tools, including graphic aids, videos and live streaming, it's easier to acquire high-quality new insurance customers with better insurance awareness, education background, and high income level from social media platforms. We engage these users and acquire their needs on the platform. By our insurance planners who are more user-oriented, we will promote our insurance products to the users online through telemarketing, thereby generating more incremental insurance premiums. The sales productivity is very high at around 100,000 per capita. This presents effective efficiency long-term insurance conversion model for the next generation insurance consumers, and also it is a very important direction for our future investments and capability building. In terms of 2A to 2C, we're confident about offline broker model in the long run. Offline brokers serve as a very important component to our customer acquisition capability. In particular, they can help us acquire more middle class and up-to-date customers. So we hope to build up a professional, productive, and high-quality offline broker team dedicated to serving the Chinese new middle class and up-to-date urban residents. Our short to medium-term goal is to build the fundamental team and the management system and the empowerment platform within the next one to three years while achieving growth and scale. We believe that it will become a powerful growth driver in the medium to long run. To be to the front, we hope to achieve win-win cooperation with partners who are reaching easier results by leveraging our strengths in sustainability, insurance product offerings, and customer conversion. On one hand, we have established an insurance product distribution platform to collect insurance companies, agencies, and individual brokers to improve the efficiency of insurance distribution and deliver mutual benefits for partners as well as consumers. On the second, we have been leveraging our strong capability in user operations and conversion to launch self-lead collaboration. collaboration with third-party partners and help them monetize their user base. These two 2B2C business models have brought in more than 10 billion monthly premiums and maintain a faster growth trend. In addition to the three growth models that I have mentioned, we believe Insurance services for people with pre-existing medical conditions in hospitals and pharmacy scenarios also have promising growth potentials. In China, there are more than 300 million people with pre-existing conditions, and their needs are under-conserved in traditional insurance models. We're able to accurately reach them, and we have customized various products to meet the needs of these people through product innovation. At present, we can reach tens of thousands of people with existing conditions each month that have potential to convert to insurance consumers, which may bring incremental premiums at millions of RMB levels. In the south, our close growth drivers in the near term are the incremental user growth in the WeChat ecosystem and the existing user operations. In the mid-term, in one of three years, in addition to the growth from the WeChat ecosystem, we are also positive about the growth from social media platforms, as well as the 2B For long-term, we believe our offline working business and insurance services for people with pre-existing conditions both are powerful growth drivers. That's all. Thank you. Thank you.

Thank you. And our next question comes from with CICC. Please go ahead.

Hi, management. This is Qingqing from CICC. Thanks for taking that question. We have seen some reports posted in media regarding the unauthorized fundraising activities and malicious intermediaries in the medical crowdfunding industry. We also mentioned about it in a previous presentation. My question is, could you further explain the surveys and revenue model of your crowdfunding platform? and what's the current revenue contribution in q2 please tell us more about the details that's all for me by the way wish you a happy meet all the festival um

Thank you for your question and let me translate for the talk.

As the leading online platform for patients with a critical illness to seek financial help in China, for the job medical crowdfunding provides users with comprehensive and detailed fundraising services, including detailed dedicated customer services, instance withdrawal of the funds, fundraising acceleration, and so on.

In order to continue to provide users with good service, through industry research, consulting expert advice, and the needs of these comprehensive thinking products, we started from April 7th this year, to cover some service expenses. We started to collect service fees for three collection projects. The proportion is 3% of the collection amount, and there is a third party in the middle, which will collect the payment notification fee of 6%. The cost per unit will not exceed 5,000 yuan.

In order to maintain high quality services to our users, we seek to fully subsidize the service fees and started to charge service fees from April 7th this year. The decision was made after taking into account the industry research, expert advice, and the platform's operational needs. The service fee was equal to 3% of the withdrawal amount for a single campaign. up to a maximum amount of 5,000 RMB. This is in addition to the 0.6% payment channel fee charged by the third party.

I would like to emphasize that the starting point of the water bill collection payment is to maintain the normal operation and service of the platform, to better realize the platform's future health and sustainable development.

It should be clearly noted that the purpose of charging the service fee is to support the operational maintenance costs and expenses of the platform in order to realize the sustainable and healthy operation of the platform.

As we mentioned at the meeting, the cost of the service fee is 3 million yuan for the double-digit large-scale patient collection in the second quarter. Our service fee is 56 million yuan. As mentioned just now we are committed to

As reported just now, the platform has facilitated fundraising of 2.3 billion RMB in this quarter, and we generated service fee income of RMB 56 million for the fund raise, meaning that the overall take rate is still lower than 3% because we still subsidize certain special cases where the patients are in critically serious situations. We haven't covered all the costs for fundraising business yet. All of our profits of the WaterDrop Group still came from the insurance-related business only.

As Shen Peng just mentioned, the water supply as the leader of the industry will continue to be affected by the chain of losses in the large industry. to help the industry to be more standardized and to firmly defend the interests of the donors. The problem of the black chain is not only a matter of personal demand, but also a matter of Internet governance. In the future, we will continue to improve the quality of services, provide more professional and detailed and sustainable payment services for users, and at the same time, we will actively take on social responsibility as before. As mentioned just now by Shen Peng, we are committed to driving the healthy development of the whole industry.

In response to the authorized fundraising activities and malicious intermediaries in the medical crowdfunding industry, we will continue to crack down on such activities. The issue of unauthorized fundraising activity is not only the phenomenon in the field of medical crowdfunding industry, but also an issue relating to the Internet governance. In the future, we will continue to improve the quality of our services and provide users with more professional, detailed, and sustainable services. We will always actively take social responsibility and work hard in hand with national health care security administration and the regulatory authorities as well as other relevant social organizations to make joint efforts to maintain the healthy ecosystem of the whole industry.

Thank you.

Thank you. And ladies and gentlemen, we are now approaching the end of the conference call. Thank you for your participation on today's conference. You may now disconnect and have a nice day.