Waterdrop Inc. (WDH) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and thank you for standing by for Waterdrop Inc.'s Second Quarter 2026 Financial Results Earnings Conference Call. [Operator Instructions] As a reminder, today's conference call is being recorded. I would now like to turn the meeting over to Ms. Tracy Lee. Please proceed, Ms. Lee.

Thank you, operator. [indiscernible] investor and analysts, this is Tracy Lee from Waterdrop Investor Relations. Please note that discussion today will contain forward-looking statements made in the safe harbor provision of 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 risk 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 under applicable law. Also, this call includes discussion of certain non-GAAP measures. Please refer to our earnings release for reconciliations 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; [indiscernible], Finance VP, Head of Strategy and Capital Markets. Certain members of our management team will deliver their remarks in Mandarin, followed by an English translation. Moreover, a webcast replay will be available on our Investor Relations website. I will now turn the call over to our CEO, Shen Peng. Please go ahead.

Dear investors and analysts, thank you for joining Waterdrop's Second Quarter 2026 Earnings Conference Call. In this quarter, we maintained growth momentum and achieved a total revenue of CNY 1.45 billion, up 72.8% year-over-year, and the net profit attributable to our ordinary shareholders of CNY 130 million. In the first quarter of [indiscernible] 6, we have maintained probability for 18 consecutive quarters. Segment-wise, our insurance business continued to optimize user acquisition and conversion, driving 80.5% year-over-year revenue growth. Waterdrop Medical Crowdfunding has accumulated [indiscernible] 3.82 million patients at the quarter end. Our digital [indiscernible] business performed strongly with quarterly patient enrollment at over 50% year-over-year. This growth trend were underpinned by a deep integration of AI across our core businesses, [indiscernible]. As at the end of June, the company has filed [indiscernible] patents, including 10 of them overseas. With strong performance and tax reserves, we continue to prioritize shareholder returns. Our Board recently approved 2 new initiatives. Personally, the Board has approved a cash dividend of $0.03 per ADS or $0.03 per ordinary share payable to holders of the record on October 9, 2026. The aggregate dividend payment is approximately $10.8 million, with payments to be made in early November. Second, the Board approved the share repurchase program of up to $50 million over the next 12 [indiscernible] a month. The initial program launched in 2011, we have repurchased approximately $62.9 million ADS for $121 million as of August 31, 2026. The company remains committed to sustainable development and to getting back to [indiscernible] in meaningful ways. As of June 30, 2026 Waterdrop [indiscernible] with 119 public charitable [indiscernible] and launched more than 50,600 [indiscernible]. Waterdrop remains focused on growth and investment in core businesses. We expect our current incremental investment to continue translating to a solid user base in its future [indiscernible]. We always regard technology and the core driver of the economy's growth. Today, our AI capabilities are [indiscernible] across the platform, enabling us to better capture growth opportunities in our existing businesses and further sharpen our competitive edge. At the same time, we are actively piloting new AI-driven initiatives for global markets and have made early [indiscernible] markets. For full year 2026, Waterdrop targets more than 40% year-over-year growth in total revenue and over 10% growth in operating profit. This concludes our overview of Waterdrop's business performance. Now we will walk you through each of our business segments in more detail.

Hello, everyone. This is [indiscernible]. Let me briefly update you on our insurance business. In the second quarter, insurance-related income reached CNY 1.33 billion at 80.5% year-over-year and 16.4% quarter-over-quarter. Operating profit was CNY 180 million, up 20% from the previous quarter. We continued refinement in our AI-driven user insight and conversion capabilities, newly acquired customers rose 32.3% sequentially. The first year premium of long-term insurance grew 33.4% sequentially as we capture market demand for endowment insurance this quarter. On the product side, our core strategy remains improving the acceptability of the insurance products. This quarter, we delivered several new products in line with this direction, including the launch of [indiscernible] the market first long-term critical illness insurance products [indiscernible] new health this quarter [indiscernible] bring 5-year guaranteed renewability. We also expanded our [indiscernible] product metrics which now includes the [indiscernible] market for specified disease insurance offering lifetime coverage with no health disclosure. During this quarter, products [indiscernible] with pre-existing additions contributed [indiscernible] 310 million FRP and disability insurance at CNY 84 million. On the service side, we've adopted depreciated [indiscernible] operations across customer touch points. In this quarter, applications across our user-facing interactions, [indiscernible] helped generating nearly CNY 100 million. Among them, AA Pro insurance generates FYP [indiscernible] each month. [indiscernible] by our AI medical insurance exports rose by [indiscernible]. In WeCom [indiscernible] executed our strategies directly from the demand identification and user profiling to key moment engagement and batch [indiscernible], contributing over CNY 10 million during this quarter. The long-term insurance balance, the value of AI ultimately comes down to expanding what our life planners can do as a core in our underwriting [indiscernible] more than 13,000 [indiscernible] in this launch, our AI Super Pre-Sales Assistant have constantly outperformed the human life planners on annual premium [indiscernible], and the number of users is served to grow nearly 50% sequentially, powered by multi-agent collaboration, our AI conversion model capturing [indiscernible] preference from natural language interaction turning them to doable profile we can draw on over time and proactively service topics tailored to each user effectively extending the range of [indiscernible] planner we have. That concludes our update on the insurance business for the second quarter.

Next, let me firstly update on Waterdrop Medical Crowdfunding and health care businesses. As of the end of June 2026, Waterdrop Medical Crowdfunding has cumulatively contribution from around $499 million, up to 3.82 million patients in [indiscernible] CNY 74.7 billion. This quarter, we continued to upgrade our AI-driven risk control model, further improving asset [indiscernible] and sensitive identity detection. By combining semantic analysis, the ID information, medical materials and user-generated content, the upgraded engine can better [indiscernible] inconsistency and improved risk control efficiency. In our health care businesses, our performance excluding expectation across several key metrics, we enrolled more than 1,500 patients in this quarter, up 54% year-over-year and accumulated patient is surpassing 17,000. Growth was driven mainly by the higher machining efficiency and a stronger enrollment capability. Oncology projects remain our core focus, while current disease projects are growing most of the sequential growth this quarter. Although chronic disease studies have a larger patient pool, they typically carry a high screening failure rate and place greater demand on matching profession and speed. Chronic disease enrollments increased 80% year-over-year in the second quarter, further validating our enrollment ability in high screening [indiscernible]. Meanwhile, our proven [indiscernible] track record is translating into deeper and broader trust among [indiscernible] and this quarter, [indiscernible] signed 167 new products and the number of pharmaceutical companies and CROs we partnered with to 255. Going forward, we will continue to optimize the operational efficiency and work with our partners to advance digitalization across the clinical business production. This concludes our update on the Crowdfunding and Healthcare businesses.

Hello, everyone. This is [indiscernible]. Next, I will walk you through our financial highlights for the second quarter of 2026. Before I go into details, please remind you that all the numbers quoted here will be in RMB. Now please refer to our earnings release for detailed [indiscernible] on our financial performance on both the year-over-year and quarter-over-quarter basis, respectively. In the second quarter of 2026, Waterdrop delivered net operating revenue of CNY 1,448 million, up 72.8% year-over-year, maintaining a strong growth momentum. Our insurance business contributed about CNY 1,333 million in revenue, representing an 18.5% increase year-over-year. Net insurance businesses accounted for around 7.9% of total revenue, including CNY 63.6 million from Medical Crowdfunding service fees and CNY 35.2 million from our digital clinical trial solution. Total operating costs and expenses came in at about CNY 1,337 million in the second quarter, up 8.5% year-over-year. Operating costs were CNY 537 million, increasing 29% year-over-year. The increase was primarily driven by business scale expansion, including an increase of around CNY 63.8 million in cost of referrals and service fees as well as an increase of CNY 21.4 million in short message service cost and CNY 11.2 million in personnel costs, respectively. Sales and marketing expenses reached nearly CNY 638 million compared with CNY 199 million in the same quarter of 2025. The year-over-year increase mainly reflects the year-over-year increase mainly reflected our active step-up in public domain traffic investment with marketing expenses for third-party traffic channels increasing by about CNY 450 million and marketing-related professional technical service fees increasing by around CNY 21.8 million. G&A expenses were CNY 93.4 million, up 27.2% year-over-year, mainly due to an increase of CNY 33.3 million in allowance for credit losses. This was partially offset by decreases of nearly CNY 10.5 million in personnel costs and share-based compensation expenses. R&D expenses were CNY 68.8 million, up 32.4% year-over-year. The increase was mainly driven by cloud server fees, token fees and other [indiscernible] expenses which rose by about CNY 11.1 million as well as an increase of CNY 6.3 million in personnel costs and share-based compensation expenses. For this quarter, operating profit reached about CNY 111 million, up 14.3% year-over-year and 39.2% quarter-over-quarter. However, due to tax-related items and nonrecurring gains and losses, net profit attributable to shareholders was around CNY 126 million, down 10.3% on year-over-year but up 27.9% quarter-over-quarter. As of June 30, 2026, cash and cash equivalents, short-term investments and other cash positions totaled about CNY 2.653 billion. Our cash reserve maintains ample and provide solid support for both business investment and shareholder returns. In terms of shareholder returns, since the long-term first share repurchase program, we have cumulatively repurchased 62.9 million ADS for approximately USD 120 million as of August 31, 2026. And recently, the Board approved the fixed share repurchase program in which we plan to repurchase up to $50 million over the next 12 months. And also approved the cash dividend of approximately USD 10.8 million. Overall, both the quality and scale of growth in our core businesses improved this quarter. The continued deployment of AI across every scenario in our business is becoming an important driver of efficiency gains. Meanwhile, we are expanding proactively while investing [indiscernible] in new initiatives in global markets, which for now have very limited impact on our current period financial results. As these initiatives reach a larger scale, we will keep the capital markets informed in a timely manner. In the future, the company will remain committed to disciplined strategic investments and continue creating long-term value for users and shareholders. That concludes the company's financial results for the second quarter of 2026. We will now move on to the Q&A session.

[Operator Instructions] We now proceed to take our first question, and it comes from the line of [ Amy Chen ] of Citi. The question is in terms of the Mainland China -- Chinese business in Hong Kong, media reported back [indiscernible] tax authorities may tax policy dividends. Has management seen any change either in international business or domestic business?

Regarding recent market attention, we're reading that where we are seeing reflects the enforcement of tax rules that have long been place rather than a new policy specifically targeting new online insurance. In the near term, the media coverage has some effect on our customer sentiment, the depreciated value of Hong Kong insurance product [indiscernible] currency allocation access to global health care resources and [indiscernible] fundamental drivers of the Hong Kong insurance market has not changed. Turning to the drivers of Mainland China insurance market today, the growth is driven by a [indiscernible] production awareness, policy tailwinds for commercial health insurance, continued product innovation, and the structural shift of household savings into long-term assets such as insurance in the current low interest rate in a month. Waterdrop [indiscernible] diversifying the customer base across [indiscernible] markets and [indiscernible] service models and our business remain solid, and we're confident in serving [indiscernible].

We will now take our next question from [indiscernible]. The question is, we have noticed that several insurers have recently launched health insurance products targeting customers with pre-existing positions, how does management evaluate this opportunity in this category? And what is product strategy in this area?