Waterdrop Inc.

Good morning, everyone. This is Tracy Lee from Waterdrop Investor Relations. It's my pleasure to welcome everyone to Waterdrop's second quarter 2025 earnings conference call. All participants are in listening mode in our English line. As a reminder, today's conference call is being recorded. Please note that discussions today will contain forward-looking statements made under the safe harbor provision of U.S. private securities and the Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause the actual results to differ materially from our current expectations. Particular risks and uncertainties include but are not limited to those outlined in our public findings with the SEC. The company does not undertake any obligation to update any forward-looking statement, except as required in an applicable law. Also, this call includes discussion of certain NANGAP matters. Please refer to our initial release for consideration between NANGAP and GAAP. Joining us today on the call are Mr. Shen Peng, our founder, chairman, and CEO, Mr. Runway, director, and GM of insurance business. This is Xu Xiaoying, head of finance department. And this is Jasmine Li, focus secretary. We'll be happy to take some of the questions in the middle line at the end of the conference call. Good morning, everyone. This is Shen Peng. In the second quarter, we are pleased to see the integration of AI with the insurance and healthcare sectors begin to deliver satisfying results. Revenue growth accelerates further, with quarterly revenue reaching 840 million yen at 23.9% year-on-year. Powered by AI, the companies improved operational efficiency significantly. serving an 85.9% year-on-year increase in operating profit and lifting the operating margin by 3.9 percentage points. Our intratech business leverages technological innovation to bring inclusive protection for more users Our World of Guardian AI application suite has been rolled out across customer acquisition, sales, and writing, customer service, quality assurance, and other key processes. With that, FYP in Q2 increased 80% year-over-year, and productivity per capita improved significantly. Waterdrop's medical crowdfunding platform has also upgraded its risk assessment system by integrating large-language model capabilities in case authenticity and transparency. As of 30 June, it has raised medical funds for 3.54 million patients. With the market rebounding, the number of patients enrolled in our in-flight platform also reached a historical high. with nearly 1,000 patients were enrolled in the second quarter of 2005, where operations remain robust and improving. We keep improving our AI technology stack. Our self-development multi-agent collaboration framework can be reused a lot. We help us quickly build different types of agentech chatbots and let an AI agent collaborate within milliseconds. Thanks to this, we can provide more stable AI agents to handle more and more complex situations. We also created proxy reward models and add the GRPO algorithm. This allows agents to break away from fixed scripts and change their communication strategies according to what customers do. To fix the slow responding issue when making AI agent calls, we used a distributed T-value cache. It significantly speed up the influence of the first token. As of June 30, the company has submitted 60 patent applications related to large-language models. with many of them filed outside the international. Our AI-driven business innovations were recently included in Harvard Business School's case collection, receiving recognition from the world-renowned academic institution. Based on these technologies, we will continue to expand the use of AI in our insurance and healthcare sectors, constantly creating value for our business and the industry. The company also actively engaged in social return initiatives. As of June 30, 2025, our water drop welfare platform has collaborated with 118 public charitable organizations. It has initiated over 15,500 public welfare projects. In July, it participated in the relief efforts for the flood disease in North China, providing assistance to the affected people through monetary and material donations. This year marks our ninth anniversary of the company's establishment. We are very grateful for the continuous support from our stakeholders and investors over time. The company has actively conducted share repurchase in the open market for four consecutive years. To keep repaying shareholders' trust, Our board recently approved two new initiatives. On one hand, we are pleased to announce that our board has recently approved an enhanced tax dividend of $10.9 million, representing a 50% increase over the previous dividend. The dividend per ordinary shares was 0.3 cents, and the dividend per ADF will be 3 cents. The board has also optimized a new share repurchase plan. Since our first share repurchase program was launched in 2021, we have repurchased approximately 55.7 million ETFs for $109 million as of August 31, 2025. Looking ahead, we will build on the current performance and make further efforts to achieve the business goals for the year of 2021 and the medium and long-term business development, striving to create more value for our stakeholders. Next, I will now pass the round way to introduce the development of insurances in Q2. Thank you, Shenpeng. In Q2, our insurance business delivered through robust growth. The first-year premium reached 3.2 billion yen at 80.2% year-over-year and 53.1% quarter-over-quarter. Insurance-related revenue was about 740 million yen at 28.7% year-over-year and 12.2% quarter-over-quarter. operating margin improved to 23.1% by near two percentage points year-over-year, driving by our deeper AI integration. For Shodan product, we increased investment in customer acquisition and the technology, representing equity to 2.43 billion at 95% year-over-year and then 62.1% quarter-over-quarter. In customer acquisition, we continuously tap into AI capabilities, iterate on user outreach and recommendation AI models, and drive continuous breakthrough in customer acquisition from a public domain. We are increasingly applying AI tools to enhance the production speed and the quantity of marketing materials to support front-end customer acquisition efforts. At the same time, we use that AI to facilitate better conversion of different scenarios. For example, our new AI Pro insurance model, the app, and the mini program use a large network model for real-time matching and converts nearly 50% better than the traditional advertising flaw. In the voice service scenario, AI medical insurance experts continue to improve efficiency. In Q2, it assisted in achieving a 155% increase in the scale of insurance premiums compared to the Q1. And points continue expanding in the second half of the year. In WICOM scenario, AI medical insurance experts launched at the end of March, and by June, lifted FYP per lead 58% compared to that in May. Products. We expanded our portfolio. We have new long-term medical plans, such as , , , which requires no health declaration and a guaranteed renewal for five years. We also roll out , a need to high-end plan with zero deductible and nationwide eligibility. In version 6.0 of our maternity series, the first in the market to accept extended mother with pre-existing conditions. Our product for people with pre-existing conditions contributed a quarterly premium of 300 million yen, a year-on-year increase of 146.6%. In terms of long-term insurance, we actively explore the efficiency improvement of AI tools for online sales consultants and planners, which contributes to the long-term FIP reaching 770 million. Year-on-year increase of 45.4% and sequential increase of 30.5%. With the assistance of AI tools, the productivity A traditional online sales team has achieved a double-digit growth both year-on-year and quarter-on-quarter. And Shenanbao independently contributed FYP of 210 million. We've given online sales consultants and planners an insurance product knowledge base query tool called Life Planner Co-Pilot. It's based on the Lackawannaway model. The model base has information on about 7,000 insurance products. It helps consultants search for relevant insurance contract terms in real time. In total, it has handled 300,000 insurance product-related consultations. After a month of internal testing, we launched the QEI AI at the end of August. Think of it as an insurance-focused deep-seek. It delivers expert and writing answers for every involved product with industry-leading accuracy. And we plan to open the platform to our partners to accelerate AI adoption across the industry value chain. Besides tools for agents, we have launched an AI super pre-sales event on Wecom It can receive customer consultation 24-7. It can figure out what customer's insurance needs and their intention to buy insurance on its own. Match suitable products based on customer's situation and make an appointment with the most appropriate salesman for them. According to the data since its launch, the AI assistant is more efficient than human assistants and has effectively improved the team's work efficiency. On the supply side of long-term products, we keep pushing health insurance innovation. We kept refining our critical units, aligned with easy health declarations, and introduced the cost-effective, beneficial, serious critical unit plan. and roll out a no-health declaration income protection insurance product. Besides, disability insurance crossed 100 million yuan to end quarterly FIP for the first time, and they're scoring a strong user acceptance. Since its rollout at the end of March, our AI customer service agents have scaled rapidly, aiding voice support alongside tech. In joint alone, it handled 216,000 service sessions, lifting first contact resolution rate. Online insurance now achieves a 100% AI coverage. Meanwhile, in Q2, our AI quality control assistance boosted Q&A efficiency by 94% compared with traditional manual way. This concludes the insurance business update. Now I will hand it over to our Board Secretary, Jessamy, to review future progress in water drop crowdfunding and healthcare sectors. Thank you, Emily. Since the end of June 2025, around 480 million people have accumulated donations, 17 billion to about 3.54 million patients through our WhatsApp medical crowdfunding platform. Guided by Tech for Good, we again increased R&D investment on our personal medical crowdfunding risk control. For case-level risk, like-language model metrics can now identify 15 high-risk scenarios, like suspected identities, abnormal spending, or ethical violations. It does this by analyzing every word in the campaign's context, comments, and hidden clues, which greatly improves the detective accuracy. For fund-level risk, a dynamic monitoring algorithm checks the diagnosed timeline, commercial insurance payouts, and the fundraising speed. If anything wrong with a fund, it will automatically limit or oppose the campaign. then many reviews will be carried out within minutes. To address malicious promotion activities, we have developed an abnormal behavior recognition model. We incorporated crucial factors such as donation conversion rate, information dissemination patterns, and assessed characteristics. This model shows the top accuracy in the industry. This model can detect as stop the malicious campaign in real time. On 27 May, we partnered with Guangzhou Civil Affairs Bureaucracy to launch the Waterdrop Co-Help. It is the first project under our new designation as a government-endorsed platform that integrates social and public welfare resources. This project ensures that welfare resources can accurately reach the target population by integrating the system with . At the same time, in places like Guangzhou co-health space and hospitals, the platform keeps improving its serviceability and actively responds to and explores the government enterprise collaboration innovation model. Training to our healthcare business, we continue to advance on steady and upward trajectory The clinical trial business has entered a phase of rapid scale-up coupled with efficiency gains. eFund 12.1 expanded its collaboration to 198 suitable and contracted research organizations. Meanwhile, we initiated a service for 114 new programs. The number of patients enrolled about reached... They also reached a historic high, with 999 patients enrolled in Q2 of 2005, representing a 34.2% year-over-year revenue growth. Our digital-only channel marketing business also accelerated. We renewed our three-year contract with a leading global multinational pharmaceutical. Through the application of AI in patient services, and health education management, we achieved a 105% increase in productivity per capita, representing a substantial enhancement in our service capability. Looking ahead, we will deepen our LRM capabilities and algorithmic position to unlock further growth as healthcare student-wide vision accelerates. Now I will hand over to Xu Xiaoyin, our head of finance department, to discuss our financial performance in this quarter. Thank you, Xiaoyin. Thank you, Jasmine. Hello, everyone. I will now walk you through our financial highlights for the second quarter of 2005. Before I go into details, please be reminded that all number coding here will be in R&D, and please refer to our earnings release for detailed information on work financial performance on both the year-over-year and a quarter-over-quarter basis, respectively. On the basis of steady growth in the previous quarter, the company has further achieved significant year-on-year and quarter-over-quarter growth in both revenue and profit this quarter. As Shunpeng and Zerami just mentioned, the further development of the company's AI application will improve the efficiency of our business operations in multiple aspects, including customer acquisition, sales, service, and quality control, providing strong motivation for the performance growth in the second quarter. In Q2, WaterDrop achieved a remarkable financial result with total revenue amounted to $838 million, representing a year-on-year increase of 23.9% and a quarter-on-quarter increase of 11.2%. By segment, the insurance business contributed $739 million, showing a year-on-year increase of 28.7%. The core funding service fees generated $67.4 million, remaining stable on year-on-year. The digital clinical trial solutions used $27.7 million, with a year-on-year increase of 34.2%. Meanwhile, the company has been making its operation more efficient. In second quarter, the total operating cost and expenses were around 741 million yen, which is about 18.7% higher than the same period last year. But the growth rate of the cost and expenses was lower than that of the revenue. This quarter, the operating cost was 416 million yen, a 30.5% increase from last year. This was mainly because the cost of referral and service fee went up by about $73.4 million this quarter. Also, during this quarter, the company made additional efforts in medical chronic business to assist and help more paid users. Moreover, as the company has been enhancing its AI capabilities to attract more users during this quarter, it required It acquires users while considering both efficiency and user experience. The sales and marketing expenses amounted to 199 million yuan, representing a 26.3% increase compared to last year. This is primarily due to an increase of 44.3 million yuan in marketing expenses for third-party traffic channels. General and administrative expenses decreased by 21.9% year-over-year to $73.4 million for the second quarter of 2005. This was primarily because the company tightened its operational control and the allowance for credit losses was $13.4 million less than last year. The R&D expenses were 51.9 million, remaining stable for the same period of last year. In the future, we will continue to pool resources to accomplish major tasks, adjust the internal structure of R&D expenses, and allocate more resources to the AI capabilities building. In terms of the operating profits, in Q2, the company's operating profits reached 97 million, showing a high-speed year-on-year growth of 85%. The operating profit margins of the company as a whole and its insurance business have both further improved. Net profit attributed to the company's ordinary shareholders reached $140 million, up 58.7% year-over-year. As of 30 June 2005, we held $3.4 billion in cash reserves, with operating cash flow remaining positive. Operating cash flow remains positive, providing solid conditions for continued growth and strategic investment. In conclusion, Waterdrop's excellent performance in this quarter further demonstrates its robust operational capability and the effective synergy among its diverse business segments. Looking ahead, we will continue to allow technology and AI to expand our user base. At the same time, we will optimize our operations to enhance efficiency, thereby facilitating the stable growth of business revenue and profits. Additionally, we will persist in creating long-term value for shareholders and society. And ladies and gentlemen, with that, we will conclude today's conference call. We do thank you for joining. Have a good time.