Waterdrop Inc. ($WDH)

Good morning, everyone. This is Tracy Li from Waterdrop Investor Relations. It's my pleasure to welcome everyone to Waterdrop's Fourth Quarter and Facial Year 2025 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference call is being recorded. Please note that discussion today will come from forward-looking statements made under the safe harbor provision of the U.S. Private Securities and 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 not limited to those outlined in our public filings with the SEC. The company does not undertake any obligation to update any forward-looking statements, except as required in 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. Ran Wei, Director and GM of Insurance Business; Mr. Xiaoying Xu, Head of Finance Department; and Mrs. Mrs. Jieru Li, Board Secretary. We'll be happy to take some of the questions [indiscernible] at the end of the conference call. Now let's turn to our CEO, Shen Peng to start.

Dear investors and analysts, thank you for joining Waterdrop's fourth quarter and fiscal year 2025 earnings conference call. Looking back at 2025, we executed firmly on our AI plus insurance strategy, delivering tangible progress in both AI application and business growth. Our financial performance were robust. We saw significant top line and bottom line expansion, further solidify our core fundamentals. For the fiscal year 2025, our revenue reached RMB 3.98 billion, up 43.5%, with our net profit attributable to ordinary shareholders reached RMB 570 million, registering a year-on-year growth of 64.8%. Notably, we met our guidance to the market and have now delivered GAAP profitability for 16 consecutive quarters. Our InterTech segment was as announced with revenue surging 51.3% and an operating margin of roughly 18%. Furthermore, our LLM integration significantly added the value of our medical performance platform. Our platform has responded for 3.68 million patients since it was launched. Our digital clinical trial solutions enrolled over 4,000 patients this year. Reflecting the strong performance in the second half of 2025, our Board approved our fifth cash dividend of $0.03 per ADS, totaling $10.8 million, this will be paid in late April to early May to shareholders of record as of April 24, 2026 U.S. ET time. Meanwhile, our share repurchase remains on track with 60.7 million ADS repurchased for about $118 million for the end of 2026. On technology front, we are accelerating our shift to become an AI-native company. As of the end of year-end 2025, we filed a 72 LLM related patent applications. including 9 international ones. Throughout the year, we deployed the multi-modal AI agent sending text, voice and virtual interactions across all core workflows, from acquisition and conversation, sales, productivity and customer service through quality control and R&D. Every stage is now production-ready delivering measurable operating gains. This capabilities are unified from under the Waterdrop Sea.AI, our company-wide platform for configuring scenario-specific agents, now also open to the industry partners. Beyond internet use, we are pioneering open collaboration for sectors here in our Waterdrop Guardian AI Copilot, which is called cloud server, built on a distributed architecture design, our cloud server enables a different AI agent to autonomously communicate and collaborate. Early demos have already validated its core workflow, seamless the multi-round dialogue and automated topic closure between AI agents. In terms of ESG, we acquired with 119 organizations to sponsor over 15,500 projects, earning global recognition for our policy reduction efforts and upgrading our ESG rating to A+. As we enter our tenth anniversary in 2026, our goal is to move beyond just using AI tools to becoming truly AI-enabled company. We aim to visually reconstruct our entire value chain, embedding AI as a structural competitive advantage. We expect to sustain the momentum this year with moderately higher investment in marketing and AI, targeting double-digit growth in both revenue and profit. Now I will pass to Wei Ran to introduce the development of insurance business.

Thanks, Shen Peng. In the fourth quarter, our insurance continued its strong momentum. Insurance related income surged 125% year-on-year to RMB 1.31 billion, while operating profit grew 42% year-over-year to RMB 160 million. On the traffic side, we have sharpened our real-time user identification, leveraging our self-deployed 50-millisecond data models, we can now capture potential user attributes with millisecond precision in high concurrency traffic. This allows for hourly health updates and rapid testing, which has significantly improved the accuracy of our high-quality traffic filtering and made a solid foundation for our FYT growth. Regarding product supply, our market first has been launched version 2.0 this quarter, New zero deductible features now covers both projected long-term medical costs and routine medial expenses. Additionally, our pre-existing condition product gained strong traction with FIP at nearly 70%. While our disability insurance contributed about RMB 100 million FIP, validating our long-term strategy. Most importantly, AI is now embedded in every node of our service chain. On the user side, our AI Pro insurance engine on the mini-program drove 33% of sequential increase in premium, while our AI medial insurance experts generated over RMB 50 million in FIP at 145% quarter-over-quarter. We have also expanded this AI capability to standard health products which can generate incremental mock premiums of over RMB 1 million. For human agent empowerment, our Life Planner copilot has cumulatively assisted in over 370,000 inquiries as of this quarter end. Our Waterdrop Sea.AI platform is now fully operational and having completed the fourth quarter roll out of the core module like workflow agents, batch testing and proactively test figures. This infrastructure powers our Xiao Bao AI Planner deployed across both the WeChat official accounts and mini programs to handle the product recommendations, business facilitation and user-agent matching, we have even opened the platform to our partners like insurers to uplift the industry-wide efficiency. In after-sales our AI customer service agents handled over 1.4 million inquiries per month. They adopt our quality control copilot to report capital efficiency to 2.75 times that of the manual-only baseline. This concludes the insurance business update for the fourth quarter. Now I will pass to Board of Secretary Jieru Li to introduce the progress of our medical crowdfunding and health care businesses.

Thank you, Wei Ran. As of end of 2025, approximately 490 million people have cumulatively donated a total of RMB 72.3 billion to 3.68 million patients through our Waterdrop medical crowdfunding platform. In this quarter, while maintaining robust platform governance and user experience, we strengthened risk control in 2 key areas to protect our users' privacy, we have fully upgraded our system with large language models capable of identifying sensitive data and applying dynamic data masking in real time. So critical information frequently seen in their components like user ID numbers, bank accounts and the medical record IDs. We have moved from the manually redactions to automatically protection and masking. And this guarantees end-to-end securities for user data across our entire platform, fundamentally preventing any risk of information theft. Secondly, our content authenticity, we deployed a new model combining a medical knowledge graph with a credential validation. This system can cross-reference the clinical logic to precisely identify the fabricated risks, ensuring every donation to reach those patients who are truly in need. On the user service front, we launched a standardized inquiry toolkit to bring fully clarity to our service scope, fee structures and contain guidelines. This initiatives reinforce our commitment to transparency and ensure our users are fully informed. And moving to the Healthcare business, our E-Find platform is in high-quality growth, partnered with 224 pharmaceutical companies and enrolled in a record of 14,055 or 555 cumulative patients. Initiated 131 new programs. Once again, as we set up setting a new quarterly enrollment with record. This quarter, we achieved a major milestone that was proprietary [indiscernible] patient matching technology, the first of this kind in China was officially granted a national invention patent. By combining deep neural networks with natural language processing, our technology achieved end-to-end precision matching between patients and clinical trials. It uses rule-based filtering for structured data like age and lab results, while analyzing unstructured medical records against that helped criteria to uncover the hidden match. The dual engine approach strongly shrinks the weeks of the manually screening workloads down to minutes, strongly accelerating the clinical trial process. And building on this, we significantly expand our accounts while continuing to grow our patient base in complex and rare cancer cases. Our revenue digital clinical trial revenue related to chronic disease 30% this quarter compared to the previous 3 quarters average. This strengthens the ability to tap multiple disease and departments and have made a solid foundation for our sustainable long-term growth. And now I will pass to Xiaoying Xu, our Head of Finance department to discuss our financial performance in this quarter.

Thanks, Jieru. Hello, everyone. I will now walk you through our financial highlights for the fourth quarter and fiscal year 2025. Before I go into details, please be reminded that all numbers quoted here will be RMB and please refer to our earnings release for detailed information on our financial performance and both the year-on-year and quarter-over-quarter basis, respectively. In the fourth quarter, our performance of accelerated significantly with quarterly revenue more than doubling year-on-year to RMB 1.41 billion, up 105.5%. For the full year 2025, revenue reached RMB 3.98 billion, up 43.5% year-on-year, concluding the year on strong note. By segment, the insurance business within a stable cornerstone, with full year insurance-related income reaching approximately RMB 3.58 billion, up 51.3% year-on-year. The other segments accounted for about 10.1% of the total revenue, with medical crowdfunding performing services at RMB 260 million and with digital clinical trial sourcing income at RMB 118 million. Operating costs for the quarter reached RMB 680 million, up 109.2% year-on-year, driven by RMB 320 million increase in cost and the referral and service fees and RMB 26.8 million rise of SMS cost. Driven by rapid business expansion, operating costs and expenses in the fourth quarter rose to RMB 1.33 billion, up 109.4% year-on-year. For the full year operating cost and expenses increased 39.1% from 2024. Though the pace of revenue growth, sales and marketing expenses was roughly RMB 510 million at 178.4% year-on-year with significant improvement in customer acquisition efficiency. The company proactively scaled up investments, resulting a roughly RMB 280 million year-on-year increase and marketing expenses for third-party traffic channels. G&A expenses were RMB 77.1 million, a modest year-on-year increase of 4.6%, mainly due to RMB 6. 7 million increase in allowance of party losses and RMB 5. 2 million in professional services, partially off setted by RMB 6.5 million reduction in personnel call. Research and development expenses were approximately RMB 66.2 million at 21.9% year-on-year, primarily driven by a RMB 6.4 million increase in personnel costs and a RMB 5.8 million rise in cloud services. Company's profits improved significantly year-on-year. Net profit attributed to the company's ordinary shareholders for the quarter was RMB 162 million, up 62.7% year-on-year. For full year, the net profit attributable to the ordinary shareholders reached about RMB 570 million at 54.8%. The common maintained ample cash position of about RMB 3.25 billion as of the end of 2025, providing strong support for our future growth. And this concludes our financial overview for the fourth quarter and fiscal year 2025. Now, ladies and gentlemen, with that, we will conclude today's conference call. We do thank you for joining. Have a good time. [Statements in English on this transcript were spoken by an interpreter present on the live call.]