Waterdrop Inc. (WDH) Q1 FY2026 Earnings Call Transcript & Summary

Good morning, everyone. This is Tracy Lee from Waterdrop Investor Relations. It's my pleasure to welcome everyone to Waterdrop's First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference call is being recorded. Please note that discussion today will contain 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 and 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. Peng Shen, our Founder, Chairman and CEO; Mr. Yang Li, Director and GM of Insurance Business; Ms. Xia, Head of Finance Department; and Ms. Li Wu, Board Secretary. We will take questions in the man line at the end of the conference call. Now let's invite our CEO, Peng Shen to start.

Dear investors and analysts, thank you for joining Waterdrop's First Quarter 2026 Earnings Conference Call. In the first quarter, we continued our last year's growth momentum with total revenue of RMB 1.24 billion, up 64.8% year-over-year and net profit attributable to ordinary shareholders of more than RMB 98 million. Since the first quarter of 2022, we have maintained GAAP profitability for 17 consecutive quarters. By segment, our insurance business continued its user acquisition strategy with insurance-related income up 74.1% year-over-year. As this capability has been validated, we sharpened our focus on user experience while continue to optimize our traffic channels and user targeting efficiencies. The [indiscernible] business remains stable, having raised medical funds for cumulative 3.75 million patients by the end of the Q1. And our digital clinical trial solution business sustained enrollment growth with more than 15,500 patients enrolled to date. On the technology front, we are accelerating our shift toward an AI native company. As of March 31, 2026, we had filed 75 LLM-related patent applications, including 9 international ones and were recently granted 2 more national invention patents in intelligence, semantic understanding and multimodal recognition. This technology will be progressively applied to the insurance scenarios such as intelligent customer service and claims improving service quality and efficiency. On capital returns, we continue to share our growth with our shareholders. In early May, we completed our fifth cash dividend since our IPO, totaling approximately $10.8 million. Our share repurchase program also continued steadily. By the end of May 2026, we have repurchased approximately 61.8 million ADS in the open market for about $120 million. As of the end of May 2026, cumulative cash dividends and share repurchases since IPO has totaled approximately $170 million. Meanwhile, we remain committed to giving back to society. At the end of the Q1, the Waterdrop charity platform has partnered with 119 public charitable organizations and launched over 15,500 charity programs. Looking ahead, we aim to seize industry opportunities and make growth our top priority this year. Building on our proven user targeting capabilities, we will increase marketing investment further. For 2026, we are targeting approximately 40% top line growth with operating profit scale is expected to remain broadly stable. We expect this current investment to unlock greater profit potential in the coming years. And the user base expansion will further support the company's long-term development. And that covers our overall performance in Q1. Next, I will walk through each of our business segments in detail.

- Hello, everyone. This is [indiscernible] . Let me walk you through the progress of the insurance business. In the first quarter, insurance-related income reached RMB 1.15 billion, up 74.1% year-over-year with operating profit of RMB 150 million. Operating margin of Q1 is 13.3%. The year-over-year top line growth mainly reflects the continuation of our last year user acquisition strategy. In the first quarter, we continued to step up public domain user targeting and increase our investment in traffic and AI, driving significant premium growth. And on a quarter-over-quarter basis, while the income declined, our insurance operating margin rose by 2 percentage points. This was mainly because we proactively cut some lower ROI channels during this quarter. At the same time, we are actively expanding into other high-quality traffic channels while running our mature ones with refined operations, enhancing our traffic infrastructure and optimizing our model to drive continued improvement in ROI. On the supply side, we are committed to giving users more diverse offerings product offerings, which continue to earn user recognition. During this quarter, FYP for -- from our pre-existing condition products rose 24.3% year-over-year and the disability insurance products contributed RMB 89 million in FYP. At the product level, we continue to iterate. For example, we upgraded our inclusive cancer worry-free medical insurance business, expanding the coverage for out of the hospital prescription and related medical devices as well as a range of advanced cancer therapies. We also recently launched focused cancer specified disease product with a simpler health disclosure and lower the bar to lifelong cancer protection. On the service side, we took multiple steps to improve the customer experience. We launched a dedicated customer complaint top line to make it easier for users to raise concerns, and we also connect the payment channels with our customer service system, expanding frontline operation and enable faster response processing. And for elderly customers, we simplify procedures for the children acting on their behalf and introduce a faster track service channel. Together, this initiatives upgrade our aftersales service capability. We also continue to apply our LLM capabilities and AI tools to streamline workflow and improve operating efficiency. The user-facing AI applications contributed approximately RMB 87 million in incremental premiums in Q1, up 17.7% sequentially through real-time support on our mini program, WeChat, phone calls and WeCom, including our AI Pro insurance and AI medical insurance experts, WeCom AI and other tools. For our frontline consultants AI has handled more than 10,000 underwriting inquiries to date. In late March, we began internal beta testing of the Claude Copilot on CRM and WeCom, bringing together our product knowledge based [indiscernible] AI and other 2 agent tools. So our consultants can get instant answers on product underwriting and other common questions with less switching between the systems and documents. Copilot also supports the sales review, top track play and refining and performance analysis. In aftersales service, our AI user service agent now in regular operation supports more than 1 million service interaction per month. And the AI service quality copilot continue to deliver efficiency of more than twice the manual basis baseline. On the AI infrastructure side, our low-code platform, waterdrop.ai now offers more than 30 purpose-built agents, each tailored to a specific scenario for our internal team and external clients in all the user-facing work. So that concludes our insurance business update for the first quarter.

Thank you, Ram. This is [indiscernible] And now next, I will walk you through our first quarter performance on our and health care business. As of the end of March 2026, approximately 494 million people had cumulatively donated a total of TWD 73.5 billion to 3.75 million patients through the Waterdrop Medical Crowdfunding platform. This quarter, we pursued 2 priorities for Waterdrop Medical Crowdfunding, AI capability building and better service in diverse regions. For AI review, we complete an quarterly upgrade involving towards an AI-assisted model without compromising risk control quality. Our risk model structured can structure the campaign material quickly and apply the present rules for preliminary screening, shorten intake and first pass review and create our risk specialists for complex cases. Secondly, we improved the service location in linguistically diverse communities, including areas where minority language are widely spoken. And this quarter, we systematically refined our service workflows and adapted the review standards to their real needs. We added minority language specialists to work alongside our existing campaign consultants on upfront consultation and the document guidance and dispute resolution and reducing the communication costs caused by language barriers. In addition, we set up a dedicated service team in which the translator and the risk control specialists can track each case end-to-end and promptly resolve the bottlenecks, ensuring a strict risk control compliance while respecting local culture sensitivities. Turning to our health care business. We sustained high-quality growth this quarter, broaden LLM application across the core business scenarios. We partnered with 243 pharmaceutical companies and CROs and initiated services for 128 new programs. Our Eifund platform single quarter patient enrollment rose 16% year-over-year and the newly signed products in this quarter increased 53%, reflecting the wider partnership coverage and deeper client engagement. As of the end of the first quarter of 2026, the platform had cumulatively enrolled over 50,500 patients. In January 2026, our intelligent drug patient matching technology secured a national invention patent, which is the first of this kind in China. This quarter, we focused on building up our upstream data structuring capability and connecting it with the matching engine. Across part of our service portfolio, the platform has now established a standardized pipeline from the data structuring to intelligent product matching, promptly generating suitability recommendation against the trial protocol. Supported by this AI capabilities, we continue to build our case library, medical case library and complex indications and rare cancers with a more balanced mix across therapeutic areas, strengthening the foundation for sustainable mid-term to long-term growth. And that covers our corresponding and health care businesses.

And hello, everyone. This is [indiscernible] I will now walk you through our financial highlights for the first quarter of 2026. Before I go into details, please be reminded that all numbers quoted here will be in RMB, and please refer to our earnings release for detailed information on our financial performance on both year-over-year and quarter-over-quarter basis, respectively. In the first quarter of 2026, Waterdrop total revenue reached RMB 1.24 billion, up 64.8% year-over-year, sustaining rapid growth segment, the insurance-related income contributed approximately RMB 1.15 billion, up 7.1% year-over-year, while the noninsurance business together accounted for about 70.8% of total revenue with service fees of approximately RMB 60.73 million and digital clinical trial solution income of approximately RMB 24.2 million. Turning to cost. Our total operating cost and expenses for this first quarter were approximately RMB 1.16 billion, up about 1.5% year-over-year. Operating costs for this quarter reached RMB 487 million up 30.1% year-over-year, driven by our business expansion. Cost of referral and services increased by about RMB 53.9 million, while short message service costs and personnel costs rose by RMB 38.9 million and RMB 7.3 million, respectively. Sales and marketing expenses reached RMB 541 million, a significant increase from RMB 172 million in the same period last year, mainly because we progressively scaled up traffic investments over the past year and reinforced growth momentum. Marketing expenses for third quarter traffic channels rose by approximately RMB 361 million year-over-year. General and administrative expenses were RMB 71.7 million, down 4.3% year-over-year, mainly due to the lower professional service fees this quarter. Research and development expenses were about RMB 62.7 million, 11.5% year-over-year increase, primarily due to an approximately RMB 6.7 million rise in cloud and technical services. For the first quarter, operating profit was around RMB 79.95 million, a modest year-over-year increase of 5.3%. However, affected by the net operating items in this quarter, the net profit attributable to ordinary shareholders was approximately RMB 98.4 million, down 9.1% year-over-year. As of the end of March 2026, the company maintained an ample cash reserve with cash and cash equivalents, short-term investments and other cash position totaled about approximately 2.88 billion. And on the capital return since our IPO through May 1, 2026, we repurchased accumulated repurchased a total of approximately 61.8 million ADS for about USD 120 million and recently completed a cash dividend of approximately $10.8 million. Overall, the growth momentum of our core business remains strong. And in the first quarter, Waterdrop delivered 64.8% year-over-year revenue growth and by stepping up the investment in traffic and AI continue to strengthen our long-term competitiveness. And ladies and gentlemen, with that, we will conclude today's conference call. We do thank you for joining. Have a good time.