Yuanbao Inc. ($YB)

Ladies and gentlemen, good day, and welcome to Yuanbao Inc.'s First Quarter 2026 Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Ms. Stella Liu, Investor Relations and Strategy Associate Director. Please go ahead.

Thank you, operator. Please note that today's discussion will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Such statements are not guarantees of future performance and are subject to certain risks and uncertainties, assumptions and other factors. Some of these risks are beyond the company's control and could cause actual results to differ materially from those mentioned in today's press release and discussion. A general discussion of the risk factors that could affect Yuanbao's business and financial results is included in certain filings of the company with the Securities and Exchange Commission. The company does not undertake any obligation to update this forward-looking information, except as required by law. During today's call, management will also discuss certain non-GAAP financial measures. For a definition of non-GAAP financial measures and a reconciliation of GAAP to non-GAAP financial results, please see the earnings release issued earlier today. Joining us today on the call from Yuanbao's senior management are Mr. Rui Fang, our Chairman and Chief Executive Officer; and Mr. Huirui Wan, our Chief Financial Officer. Mr. Fang will deliver his remarks in Chinese, followed by an English translation. We will conclude the call with a Q&A session. As a reminder, this conference is being recorded. In addition, a webcast replay of this conference call will be available on Yuanbao's Investor Relations website. I will now turn the call over to our Chairman and CEO, Mr. Fang. Please go ahead, sir.

[Interpreted] Hello, everyone. Thank you for joining us today for our first quarter 2026 earnings conference call. Please note that all figures will be in RMB unless otherwise noted. In the first quarter of 2026, we extended the solid growth trajectory we established last year while maintaining a healthy balance between business expansion and profitability quality. We generated total first quarter revenues of RMB 1.32 billion, representing a year-over-year increase of 35.6% Net income reached RMB 388 million, up 31.4% year-over-year with net income margin at 29.5%. This performance underscores our comprehensive strength in collaborating with insurers to drive product innovation, personalized recommendations, refined operations, claims service and advanced AI integration. As of the end of the first quarter, our cash reserves totaled RMB 4.74 billion, providing a strong financial foundation for continued investment in technology, deeper application of AI and big data and capturing structural opportunities within the industry. Meanwhile, we continue to strengthen our data and modeling capabilities. As of quarter end, our model matrix comprised more than 5,000 models capable of analyzing over 5,800 labels, playing a critical role in end-to-end service optimization across demand identification, product recommendations and claims service. In addition, supported by our robust cash position and sustained robust operating cash flow, we are pleased to announce that our Board of Directors has approved an annual cash dividend of USD 1.26 per ADS, together with a USD 15 million share repurchase program. We believe these actions underscore the strength of our financial foundation and reflects our ongoing commitment to enhancing shareholder returns as we steadily grow the long-term value of our company. The insurance industry is entering a new phase of high-quality development characterized by structural optimization, value-driven efficiency enhancement and ecosystem integration. At the same time, the demand side is undergoing a fundamental shift consumers' awareness of risk protection continues to strengthen and insurance purchasing behavior is becoming increasingly proactive. Meanwhile, the accelerated development of China's multi-tier health care protection system is expanding the role of commercial health insurance across health care services, innovative drug payment solutions and family risk management. The overall industry environment continues to improve, expanding the industry's long-term growth potential and creating more favorable external conditions for the commercial health insurance market on which Yuanbao is focused. The supply side of the industry is also keeping pace with market dynamics. Accelerating iteration and upgrade to better meet evolving consumer demand. For example, in the health insurance sector, the nationwide rollout of DRG DIP payment system has significantly increased demand for coverage related to innovative medical treatments and drugs, driving continued expansion and upgrading of medical insurance product coverage and border protection for advanced medical treatment. In addition, the insurance plus services ecosystem model is becoming an increasingly mainstream industry trend. Insurance products are now being more deeply integrated with wider ecosystem such as health management, rehabilitation and consultant services. As a result, industry competition is evolving from pure product supply capabilities to a broader context of ecosystem integration. Against this backdrop, we have consistently placed products and services at the center of our long-term development strategy. On the product side, we continue to work closely with insurance carriers to enhance and iterate our inclusive insurance offerings with a focus on addressing the needs of specialized customer segments, including individuals with pre-existing conditions and new urban residents. We acted swiftly to fully integrate the commercial insurance innovative drug catalog into our product offerings, keeping pace with emerging policy trends and broadening public access to advanced therapies and high-quality medications. On the service side, we have integrated our technological capabilities throughout the claims process with the launch of our intelligent claims assistance feature, which assists partnered insurers in conducting preliminary reviews of low-value, low-risk claims. Our proprietary claims review system automatically verifies claims documents and calculate claims amount, improving insurance claims processing efficiency, enhancing the overall user claims experience and significantly shortening response times for small value claims. Amid this industry evolution, the role of Internet insurance has undergone a fundamental transformation. It is no longer merely an online extension of traditional insurance distribution channels. Instead, it has evolved into industry infrastructure by leveraging data and technology to connect user demand, insurance product supply and service capabilities. It has become a pivotal force driving business model upgrades and reshaping industry efficiency. This shift is particularly evident in the health insurance and inclusive protection segment, where product offerings have grown increasingly diverse, while policy terms, coverage benefits, underwriting rules and claims processes have become more specialized and comprehensive. Consumers increasingly prefer to obtain information and compare solutions online, leveraging AI-powered tools to better understand and select insurance products. As a result, the industry's competitive focus is gradually shifting away from pure traffic acquisition and product sales towards the comprehensive development of AI capabilities, professional service expertise and long-term user trust. Against this backdrop, Yuanbao has prioritized the development of integrated AI capabilities as a core strategic initiative for organizational upgrading. Our AI insurance large language model has now been deployed at scale and is deeply integrated into our core business operations, delivering meaningful improvements in both operational efficiency and user experience. In terms of AI applications, we have developed an AI-powered service system based on multi-agent collaboration and launched an intelligent insurance consultation and planning tool for consumers. The system focuses on key stages of the insurance decision-making process offering functions such as interpretation of product coverage and benefits, underwriting eligibility assessment for users with preexisting medical conditions, insurance planning suggestions and policy explanation and comparisons. Through multi- conversations, the system continuously refines user profiles to deliver personalized insurance consultation and planning services. From a tech standpoint, we have built a structured knowledge system centered on an insurance expertise, knowledge base and domain-specific modeling capabilities, covering product clauses, underwriting rules and service workflows. The knowledge base currently encompasses thousands of insurance products and their policy details with millions of accumulated professional knowledge, data, in planning, insurance, health care and service processes through model training and optimization tailored to insurance scenarios. The system consistently enhances its own understanding of complex semantics, health condition descriptions and policy rules. Architecturally, a multi-agent collaborative mechanism enables modular execution of such as requirement comprehension, information completion, knowledge retrieval and solution generation, improving response quality and stability across complex competition scenarios. In terms of business outcomes, these capabilities have measurably enhanced users' understanding of insurance products, improved their decision-making efficiency and strengthened the professionalism and trustworthiness of the consultation process. At the same time, by productizing professional knowledge and service capabilities, we continue to improve the level of standardization, professionalism and intelligence in consumer-facing insurance consultation services. We have adopted integrated AI capability development as our core strategic organizational upgrade strategy, driving the large-scale deployment and deep integration of AI agents across all functions and processes and accelerating the paradigm shift from tool-based AI to organization-wide AI. Our 3-tier architecture of platform plus skills plus scenarios enables rapid compensation and reliable operation of AI agents across complex business scenarios. Before I conclude, I want to touch on industry influence and thought leadership. In May this year, Yuanbao, together with the China Center for Insurance and Pension Finance Research at Tsinghua University PBC School of Finance released the 2025 China Internet Insurance Consumer Insights Report for the fifth consecutive year. The report continues to track evolving consumer behavior and changing demand trends in China's Internet insurance market. It serves as a valuable reference point for the industry while allowing us to develop deeper insights into the ongoing shift towards digitalization, intelligent services and increasingly rational consumer decision-making. We incorporated this insights into our product matching capabilities. AI-powered services and operational system development, reinforcing Yuanbao's leading position in the Internet insurance industry. Looking ahead against the backdrop of the launch of the 15th 5-year plan and the ongoing implementation of the Healthy China strategy, public awareness of health protection is rising and demand for more professional, personalized and full life cycle insurance services is growing with this. The industry's accelerating transition from skill-driven expansion to high-quality development aligns closely with Yuanbao's long-standing strategic focus on technology-driven development, user centricity and commitment to inclusive protection. Going forward, we remain focused on building integrated AI capabilities, deploying AI agent deployment across the full insurance process. We will continue to enhance our ability to identify user needs, match users with suitable products and deliver advisory services, thereby upgrading both operational efficiency and user experience. These efforts will lay a solid foundation for establishing a full life cycle health and protection ecosystem, supported by our solid financial foundations, sustained profitability, extensive data assets and large model capabilities as well as long-term insights into users' real needs, we are confident we can capture the industry's structural opportunities. We will continue to provide users with more professional, convenient and trustworthy insurance services, generating long-term sustainable value for consumers, partners and shareholders while helping to strengthen China's multi-tiered medical protection system and safeguarding public well-being. Now I'll turn the call over to our CFO, Huirui Wan, to present our financial results for the first quarter of 2026. Thank you, everyone.

Thank you, Mr. Fang, and thank you, everyone, for joining today's earnings conference call. I'm pleased to walk you through our first quarter 2026 financial results. We started the year with a strong all-around performance marked by healthy double-digit top line growth, solid profitability and a strengthened cash position. We also continue to make meaningful progress on integrating AI more deeply across our organization. Total revenue for the first quarter came in at RMB 1.3 billion, a 35.6% year-over-year increase. This growth was broad-based with meaningful contributions from both insurance distribution and system services. Looking at our revenue mix, insurance distribution services contributed RMB 411.3 million, a 27.8% year-over-year increase. This reflected a higher volume of policies purchased through our platform, supported in part by our targeted marketing initiatives. System service revenues totaled RMB 904.6 million, up 39.8% year-over-year. Growth here was led by continued refinements to our full consumer service cycle engine, which enabled us to deliver more effective marketing and customer-related services to our partnered insurance carriers. Deepening engagement with both existing partners and newly onboarded carriers also contributed to the increase. Turning to expenses. Total operating expense costs for the quarter rose 29.1% year-over-year to RMB 878.6 million. Operations and support expenses came in at RMB 47.5 million, up a modest 6% year-over-year. Selling and marketing expenses increased 29.4% year-over-year to RMB 630.2 million, reflecting our continued investment in consumer acquisition and engagement. General and admin expenses were RMB 86.6 million, up 30% year-over-year, primarily driven by higher salaries. Research and development expenses rose 39.7% year-over-year to RMB 106.3 million as we continue to grow our R&D headcount and broaden our technical capabilities, which remain core to differentiating our online insurance distribution platform. Before the operating line, income tax expense for the quarter was RMB 69.4 million compared with RMB 6.7 million a year ago, primarily driven by a higher effective tax rate during the quarter. Net income for the quarter was RMB 387.6 million, a 31.4% year-over-year increase with a net income margin of 29.5%. Non-GAAP adjusted net income reached RMB 408.8 million, up 31% year-over-year with a non-GAAP adjusted net income margin of 31.1%. Our cash position grew during the quarter. As of March 31, 2026, our cash and cash equivalents, time deposits, restricted cash, short-term investments and long-term bank deposits totaled RMB 4.74 billion, an increase of 71.4% year-over-year and 17.4% from year-end 2025. Net cash provided by operating activities in the quarter was RMB 721.3 million, reflecting the underlying cash generation power of our business. This balance sheet strength provides us with ample flexibility to continue investing in our strategic priorities, including the build-out of our integrated AI capabilities. Our financial performance enables us to invest in growth while also delivering on our commitment to long-term shareholder value. Let me now turn to how we are returning value to our shareholders. First, regarding the dividend. The Board has approved an annual cash dividend of USD 1.26 per ADS or USD 0.21 per ordinary share. The record date is set for a close of business on July 2, 2026. We expect to pay ordinary shareholders on or around July 21, 2026, and ADS holders on or around July 28, 2026. Please note that precise timing of receipts may vary based on the processing efficiency of the respective brokerages. Future dividends remain subject to the approval of our Board of Directors. Second, regarding the share repurchase program. The Board has authorized us to repurchase up to USD 15 million of our ordinary shares in the form of ADS over a 12-month period. As Mr. Fang mentioned, this reflects our Board's confidence in our long-term growth prospects. We plan to fund these repurchases entirely from our existing cash balance. The Board will review this program periodically and may adjust, suspend or discontinue it based on market conditions. To close, our first quarter results reinforce both the durability of our growth model and our ability to expand while maintaining financial discipline and strong profitability. This financial strength also supports both a cash dividend and a share repurchase program, underscoring our commitment to capital discipline and direct shareholder returns. Looking ahead, we will remain focused on driving high-quality revenue growth, unlocking further operating leverage and delivering lasting value for our shareholders. Thank you. And I would now like to open the call to Q&A. Operator, please go ahead.

[Operator Instructions] And our first question comes from the line of Amy Chen of Citi.

This is Amy from Citi Research. And I would first like to congratulate the management on a quarter of very robust results. So my question is on marketing efficiency. So year-to-date in 2026, have you seen continuous improvement in marketing efficiency? And I would like to learn more about how AI deployment has enabled this. And in particular, in which phase, say, customer acquisition or conversion or post-sale services where AI helped the most.

[Interpreted] Our customer acquisition efficiency has remained robust as our business scale has expanded as reflected in our sustained operating leverage in selling and marketing expenses. And our customer acquisition usually based on core engine. So we don't have any changes. Now while rising acquisition costs typically complete business growth in this industry, our tech-driven engine and continuous improvements help offset this trend. Over the past 15 quarters, we have successfully controlled cost growth and stabilized margins amid intense competition. So from an AI perspective, our model has consistently been AI-driven with no major changes.

We will now take our next question from the line of Yue Xu from China Security Company.

Okay. So congratulations on another strong quarter. And my question regards on the marketing policy. We see some new rules from April 2026 banning using seasonal accounts to market financial products, including insurance products. So just wondering how much will this impact our customer acquisition model.

[Interpreted] To date, the release of this regulation hasn't had any material impact on our user acquisition model. First, prioritizing compliance. We have long established marketing management systems and mandatory compliance reviews. Furthermore, our core business model is built on deep collaboration with licensed issuers. All of our product terms are either filled with or approved by the regulators, ensuring ongoing compliance across our operations. We are also committed to maintaining long-term proactive communication with regulatory authorities to ensure our corporate strategy remains aligned with the latest policy direction.

We will now proceed to our next question and the question comes from Thomas Wang of Goldman Sachs.

[Foreign Language] This is Thomas from Goldman Sachs. My question is on shareholder return. So it's good to see positive and the dividend and the buyback. Can you just give us a little bit of color on your thinking and how you think about shareholder return in the future?

[Interpreted] As disclosed in today's first quarter results, our Board has approved 2 core initiatives, an annual cash dividend of USD 1.26 per ADS and a share repurchase program of up to USD 15 million, which is aligned with what we communicated with the market before. These actions fully demonstrated our long-term confidence in our business outlook and our firm commitment to enhancing long-term corporate value. As our Chairman, Mr. Fang emphasized, this reflects both our healthy financial fundamentals and a key component of our capital allocation strategy. Through shareholder return strategies, we aim to steadily create sustainable value for our shareholders while securing the company's future growth. And for 2026, we will review our shareholder return policies again.

We will now take our next question from Xintao Chen of CICC.

This is Chen Xintao from CICC Research. Congratulations on excellent results in the first quarter. So we noticed that the company recently co-published the 2025 China Online Insurance Customer Insight Report with Tsinghua University,, which highlights the of online insurance distribution and point to AI as a key driver in consumers' purchase decisions. So could management add some color on whether the company plan more strategies or scenarios around AI empowered consumer decision-making to enhance consumer outreach and drive higher conversion.

[Interpreted] Yes, absolutely. For example, this quarter, we developed an AI-powered service system based on multi-agent collaboration and launched an intelligent insurance consultation and planning application for consumers. This system has been deeply embedded across all decision-making stages, providing for process support such as policy interpretation, pre-existing condition assessment and personalized plan comparison. Through multi-term conversations that progressively enrich user profiles, we have addressed the pain point of complex policy terms, significantly lowered the barriers to user decision-making and enhanced both professionalism and trust. On the technical side, our core is a structured technology system spanning thousands of products and millions of data points, coupled with a domain-specific model optimized for insurance scenarios to precisely understand complex health conditions and underwriting rules. By Modularizing user intent comprehension, knowledge retrieval and plan generation through multi-agent collaboration, we ensure high service quality and consistency. This system has successfully standardized and prioritized our service capabilities. Moving forward, we will continue to leverage our proprietary tech to deepen AI application in precision, reach and decision support, consolidating our leadership in intelligent insurance services.

We will now take our next question from Yuan Liao, CITIC.

[Foreign Language] Congrats for the strong quarter results. And my question is about the AI agent influence on our business model and the competition landscape. So how should we think about the impact of the agent era on our business model and competition?

[Interpreted] Regarding whether new entry points like AI agents can become mainstream channels for insurance sales, we believe the variability of the scenario remains to be seen. There are 2 methods of selling today. One is online through in assistance and the other is through traditional human agents. The key is to understand how agentic AI will reshape the sales dynamics of content consumption platforms and whether it will transform SEO or GEO discovery methods. We believe that major Internet platforms where we currently distribute our products will continue to command a significant share of user time spent in the foreseeable future. That said, we do believe that products requiring more user mind share for decision-making, such as higher premium products, which are typically sold through search for e-commerce discovery channels will potentially be affected by the advent of agentic AI capabilities. More importantly, the widespread use of AI for information discovery and search will better educate consumers about insurance products. That in turn will help raise awareness, build trust and drive the overall adoption of commercial insurance.

We will now proceed to take our next question from the line of Yingying Xu from Zheshang Securities.

[Foreign Language] Congratulations on the results. My question is about customer retention and renewal rates. Aside from continued traffic acquisition, could management share what customer engagement and retention initiatives Yuanbao is currently focusing on to better balance conversion efficiency and user experience and further improve policy renewal rates.

[Interpreted] Customer application through online channels remains very important to us because we believe that China's commercial health insurance market remains significantly underpenetrated. We continue to invest in new products and services for our consumers to improve user experience. In terms of product innovation, we collaborated with insurers to deeply customize high perceived value products such as 0 deductible medical insurance and multi-claim critical illness plans, building user stickiness from the start. Additionally, we are continuously rolling out value-added services, particularly the deep integration of our technology capabilities throughout the entire claims process. By leveraging AI, we have enabled our partner insurance to achieve significantly more efficient and faster reaction times when handling user claims. This not only provides us with tangible positive user experience stories to share with the market, but more importantly, it fundamentally strengthens user trust, which is the cornerstone for improving long-term policy renewal rates. We believe that our efforts to continually collaborate with insurers to innovate and increase the awareness of the value of short-term commercial insurance policies will lead to improved metrics.

We will now take our next question from the line of [indiscernible] of Shenwan Hongyuan Securities.

[Foreign Language] This is [indiscernible] from Shenwan Hongyuan Securities. Congratulations on the impressive results of the first quarter of 2026. As previously mentioned on top of U's core business, the company is planning to explore some innovative initiatives. Could you please share more details on the specific areas and strategic direction of this exploration? And when should we expect to see made progress or tangible results from this effort?

[Interpreted] We are always exploring and evaluating innovative and new business while remaining anchored in our core business. However, our current explorations are not yet at a disclosed stage. Therefore, we have no specific details to disclose at this time.

That concludes the question-and-answer session. I would like to turn the conference back to the management for any additional or closing comments.

Thank you once again for joining us today. If you have any further questions, please feel free to contact us directly or Piacente Financial Communications. Our contact information for IR in both China and the U.S. can be found in today's press release. Have a great day.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect your lines. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]