Yuanbao Inc. (YB) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Yuanbao Second Quarter 2026 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. 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 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 English translation. All figures will be in RMB unless otherwise noted. 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 second quarter 2026 earnings conference call. In the second quarter of 2026, we maintained steady growth momentum with both revenue and profitability improving in tenant. Total revenue for the quarter was RMB 1.39 billion, a year-over-year increase of 30.1% as net income was RMB 413.2 million, up 35.6% year-over-year with a net income margin of 29.7%. As of the end of the second quarter, our cash reserves totaled RMB 5.16 billion providing solid support for our continued investment in AI technology, our product innovation in collaboration with insurance carriers and our ability to capture structural opportunities within the industry. We continued to invest in strengthening our data and modeling capabilities. As of the end of the second quarter, our model metrics had exist 5,100 models, which are capable of analyzing more than 5,900 labels covering the full range of scenarios from net identification and product recommendations to plans assistance, driving improvements in both service efficiency and the user experience. In addition, the USD 15 million share repurchase program we announced last quarter continues to progress steadily. As of August 31, 2026 we had repurchased approximately 114,000 ADS for a total consideration of approximately USD 1.6 million reflecting our ongoing commitment to delivering capital returns to our shareholders. In recent years, commercial health insurance has been both developing opportunities backed by a continuous stream of favorable policy signals. In March this year, the 2026 report on the work of the government explicitly cut for accelerating the development of commercial health insurance and promoting the high-quality development of innovative drugs in medical devices in order to better meet the public diverse needs for medical treatment and education. In July, the state counsel issued the national health plan for day 15 5-year plan period encouraging an increased supply of innovative health insurance products, covering areas such as hot intervention, specialized medical care and innovative drugs. Prior to that, the national financial regulatory administration expertly stated in its guiding opinions on promoting the high-quality development of health insurance that supports the development of commercial medical insurance products, targeting specific groups such as individuals with pre-existing conditions and rare diseases. Against this backdrop, we continue to deepen collaboration with insurer carriers and accelerate product iteration, adhering to a strategy built on affordable pricing comprehensive coverage and quality service. We are working to further improve the quality and expand the reach of the inclusive health protection by lowering enrollment barriers in rating coverage benefits and enhancing the service experience. On the product side, Yuanbao Super Medical Insurance series has improved over many years in response to customer needs and now offers tiered coverage, many basic outpatient and emergency care, general medical treatment and premium medical care so that users of different ages needs and budgets can all find a plan that fits them. In June this year, our Super Medical Insurance series underwent a comprehensive upgrade focused on addressing pain points across users treatment journey that upgrade advanced simultaneously across 3 divisions, good doctors, good medicine and good rehabilitation. It added access to special needs medical resources at public hospitals, expanded coverage for advanced drugs and medical devices and introduced coverage for inpatient rehalitation for specific conditions expanding health protection further across the full cycle of treatment plus reconciliation. Notably, even as we substantially upgraded our coverage, we stayed true to our principle of affordable pricing improving quality without raising prices. Next year, Yuanbao has also been actively exploring new approaches to protection for individuals with pre-existing conditions, responding to national policies that encourage insurance for this population. In May, we partnered with insurers to launch Complete Guardian guarding RMB 1 million medical insurance, which we host disclosure requirements and it covers general preexisting conditions within this group of benefits effectively lowering the eligibility threshold for individuals with pre-existing conditions to obtain medical protection. On the [ Credit Union ] side, we launched a [ know how disclosure ] version of Guardian insurance million R&D critical units insurance further extending critical in protection to more people who need it. From medical insurance to critical [indiscernible] insurance, we continue to use product innovation to broaden access to health protection, directly addressing the rail protection needs of the more than 400 million people in China living with preexisting conditions. On the technology invention front, we continue to advance the application of multimodal AI technology. Across insurance business scenarios, building multi-model understanding and analysis capabilities tailored to the insurance industry. Insurance operations involved large volumes of unstructured information, including images, documents, videos and the text. By leveraging our multimodal model and proprietary knowledge system, Yuanbao enables AI to more accurately recognize, understand and analyze this complex content turning on structural data that was once difficult to put to use into truly usable data assets. In claims assistance service scenarios, we applied multimodal model to intelligently pass various types of materials, including medical records, diagnostic certificates, medical indices in examination reports, enabling document recognition, information extraction, fact consolidation and review assistance. The system also cross analyzes key information across materials from different sources to generate structured claims case file and combined with our insurance knowledge base to support liability analysis and user service, thereby improving insurance carriers with processing efficiency, consistency in review standards and user experience. These capabilities have already been deployed in medical insurance claims assistance scenarios, achieving a material classification accuracy of 95% and average key field [ extraction ] of approximately 94% compared to the indoor solutions previously tested. Our current solution shows improvements in both processing efficiency and accuracy. In user growth scenarios, we applied multimodal model to intelligently understand and analyze business content. In this way, we effectively identify product information, expression, characteristics and user feedback across images, videos and text and combine this with business performance data to support content analysis and strategy optimization, improving user average efficiency in business operations. At the same time, we continue to build our insurance domain knowledge base. We structured core content covering product terms, medical knowledge, service workflows, claims rules and historical cases into a professional knowledge foundation that underpins our AI applications. We also deeply integrated the knowledge base with multimodal model and agent technology further enhancing the accuracy, interpretability and business adaptability of AI in complex insurance scenarios and driving the evolution of insurance services from a traditional manual processing model towards an AI-assisted human machine collaborative model. Finally, turning to our industry influence and the Frontier practices. We continue to support industry development through professional research and drive insurance service upgrades through technology innovation. We also continue to strengthen our industry influence, growing on deep insights to capture structural opportunities in the industry. In May, together with the research center for China Insurance in the pension finance at [indiscernible] University's PBC School of Finance. We published the 2025 China Internet insurance Consumer Insights report. The report systematically tracked shift in consumer behavior to an in-depth look at the trends towards online, intelligent and more rational consumption and comprehensively the direction of industry evolution and AI-driven upgrades. This provided an important reference for high-quality development across the industry and more importantly, we have channeled these insights deeply into our joint product innovation with insurers in service upgrades, further strengthening our overall competitiveness in Internet insurance. We are also translating our technological advantages into strong operating efficiency and delivering on our service commitments. According to our 2026 first half claims report released in July, Intelligent cleanses assistance helps parter insurance carriers shorten the claim settlement time for small claims under RMB 10,000 by 41%. At the same time, we introduced our claims follow-up service and upgrade our claims mediation service, bringing greater worms to our service through technology and achieving a dual improvement in user experience and operating efficiency. Looking ahead at the 15th 5-year plan continues to advance. The multi-tiered health care security business continues to improve. The artificial intelligence rapidly empowers industry across the board. The insurance sector is entering a new phase where technology innovation and the rising protection needs coverage, how to give more consumers access to health protection that is affordable, high-quality and compassionate is both a defining questions for the industry and a direction Yuanbao has long pursued. Going forward, we will continue to strengthen our AI technology foundation, branding technologies such as AI agent and multimode model into -- and use across our insurance business and operating core capabilities, including user insights, product recommendations, user consulting and Claims Assistance Service. We will also continue to refine our inclusive product metrics, including Super Medical Insurance and Complete Guardian, putting into practice our service philosophy of accessible affordable insurance with high client satisfaction backed by stable operations, our accumulated technology capabilities and a deep understanding of user needs. Yuanbao will seize the opportunity presented by the insurance industry, high-quality development, drive innovation in commercial health insurance support the development of the multitiered health care security system and create longer value for consumers, partners and shareholders. Now I will turn the call over to our CFO, Huirui Wan, to present our financial results for the second 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 take an overview of our second quarter '26 financial results. All tiers below are in RMB investment otherwise. We carried strong momentum into the second quarter, delivering robust growth across our core business lines while continuing to deepen AI integration across our operations. Total revenues for the second quarter reached RMB 1.39 billion, representing a 30.1% year-over-year increase. This growth was primarily driven by strong increases in both our insurance distribution and system service revenues. Breaking down our revenue mix. Revenues from insurance distribution services reached RMB 457.4 million, a 30.4% year-over-year increase driven by a continued increase in number of policies purchased through our platform. supported in part by our enhanced targeting marketing efforts. System Services revenue reached RMB 881.9 million up 22.8% year-over-year, reflecting continued improvements to our full consumer service cycle engine, which strengthened our ability to deliver more effective marketing, analytics and customer-related services to our insurance carrier partners along with expanded system services to both existing and new carrier partners. We also generated RMB 52.8 million in revenue this quarter from advertising services, a new revenue stream we began offering this quarter. the newly provided advertising services powered by the company's proprietary intelligent marketing platform, offer customers integrated intelligent marketing and traffic optimization solutions. Turning to expenses. Total operating costs and expenses increased by 21.9% year-over-year to RMB 941.3 million. Operations and support expenses were RMB 97.8 million, up 139.1% year-over-year. primarily due to costs associated with our newly launched advertising services. Selling and marketing expenses increased 12.8% year-over-year to RMB 679.3 million, consistent with our ongoing focus on consumer growth. and retention. General and administrative expenses were RMB 64.8 million, up 36.3% year-over-year primarily driven by higher professional service fees and increased personnel-related costs. Research and development expenses increased 21.7% year-over-year to RMB 99.5 million, driven by continued head count growth in our R&D organization and ongoing investment in tenant capability building. which remain key pillars of our positioning as a technology-driven online insurance distributor. Below the operating line, income tax expense for the quarter was RMB 59.9 million compared with RMB 11.1 million a year ago. primarily driven by a higher effective tax rate during the quarter. Net income for the quarter was RMB 413.2 million, a 35.6% year-over-year increase with a net income margin of 29.7%. Non-GAAP adjusted net income reached RMB 431.2 million, up 32.6% year-over-year with a non-GAAP adjusted net income margin of 31%. Our cash position grew during the quarter. As of June 30, 2026, our cash and cash equivalents, time deposits, restricted cash and short-term investments totaled RMB 5.16 billion, up 50.9% year-over-year and 8.8% from the end of first quarter. Net cash provided by operating activities in the quarter was RMB 49.1 million. Before I close, let me provide an update on our shareholder return progress. Under our USD 50 million share repurchase program as of August 31, 2026, we have repurchased approximately 114 ADS for a total consideration of approximately USD 1.6 million, reflecting our continued commitment to returning capital to shareholders. To conclude, our second quarter results reflect the durability of our growth model and our ability to scale with discipline. Looking ahead, we will remain focused on high-quality growth, operational efficiency and a healthy liquidity position, giving us the flexibility to invest in our strategic priorities while continuing to deliver long-term value for our shareholders. Thank you. And I would now like to open the call to Q&A. Operator, please go ahead.

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

I have 2 questions. I'll first state in Chinese and then English. [Foreign Language] How do you think of license [indiscernible] promoting insurance products to our live streaming we do adopt some or purchase going forward? And would this be to more intense market competition in terms of home on distribution of insurance products going forward. [Foreign Language] Do you think Agentic economy would reshape insurance distribution industry? And then how do you plan to capture the opportunities that related to Agentic payment.

[Interpreted] Recent regulations have made clear that online marketing of financial products must be conducted through licensed institutions and by licensed individuals licensed celebrity live streaming is essentially a new form of cost per education and the traffic conversion within this compliance framework, leveraging public influencers which -- we believe that live streaming is merely a traffic into point. The real barrier to insurance sales like in back-end product interpretation and matching consumers with the right products. Therefore, we focus on funding traffic into Yuanbao [indiscernible] service ecosystem rather than relying on external personal IP. As for industry competition, celebrity participation may temporarily raise the intensity of traffic exposure and intensified customer acquisition costs competition for standardized products. However, stringent regulatory restrictions have limited how far the economy monetization tangle over the long-term Competition will continue to center on industry know-how, proprietary data assets and ecosystem synergies. What matters more to us is that as this interest rate expense and the public awareness of insurance growth through live streaming and other formats. Overall, market penetration will continue to rise, and we can capture share through differentiated technology and service. We believe AI agents could become a new entry point for insurance sales. Yuanbao currently distributes primarily through [ membrane ] Internet platforms. And for the foreseeable future, the Super platforms will remain the dominant holders of user time, so our existing distribution base remains solid. At present, user interactions with general purpose AI are confined to information requires the conversion path for transactions such as e-commerce or insurance purchases remains relatively weak and is not yet sufficient to support a full insurance purchase journey. Even though our China Internet insurance consumer insights report found that AI agents through their convenience and the continuous advancement for large language model technologies have significantly lowered the barrier for users to access insurance information and meaningfully improved efficiency in the consultation experience for standardized relatively simple interest inquiries, there is no question that AI's capability now rival those of human agents. That said, we are also [ clear ] that for complex in-depth coverage need in personalized plan line, AI may still be subject to hallucinations and accuracy limitations and the technology is still maturing. On the implementation front, we are actively integrating our insurance-focused vertical AI with external high-traffic platform ecosystems participating in the early-stage development of the emerging traffic arena. We acknowledge that the application of AI agents in insurance scenarios is still at an early stage with both the ecosystem and our capabilities still maturing. At the same time, we firmly believe this represents an important shift in traffic entrant points and how users interact and it is an emerging trend and market that deserves close attention.

Your next question will come from the line of Yue Xu from China Securities.

My first question is regards of the digital [indiscernible] softing or major Internet platform lately. How is that impacting our customer acquisition also, are you seeing any shifts in demand for short-term insurance. Second -- my second question in regards to overseas business progress. Could you management update on Hong Kong brokerage business since securing license last summer?

If customers scale were how constant continuous optimization of our models and products will keep driving ROI higher. However, we continue to grow absent and spend into new user segments and external traffic competition dilutes ROI to some. Currently, our ROI is holding at a fairly stable level, and we have not seen any negative impact from softer advertising demand. The demand base for short-term insurance products in China remains substantial. The key is whether we have coverage products that match that demand we will continue to iterate on coverage terms and upgrade deductible roles to serve different tiers of user needs and keep unlocking incremental growth. We continue to explore various new business lines while strictly managing the ROI performance of new initiatives. Currently, we don't have any other new update.

The next question comes from Thomas Wang of Goldman Sachs.

Two questions and thank you for the oppurtunity. So firstly, on the advertising business, we want to see initial expense is quite high bone was managing now our medium- to long-term margin. And second point is on the trend in terms of net of policies sold during the quarter and also the average ticket time.

For the advertising new business right now, we don't disclose any details. But right now, it's on healthy trend. As for the average price of our product, also, we don't disclose any details in our quarterly report but our momentum continues healthy.

Next up, we have the line from [ Ling Tan ] from Haitong International.