Waterdrop Q1 2026 Earnings Call - AI-Driven Insurance Growth Offsets Marketing Spend Surge

Tracy Lee, Investor Relations, Waterdrop: 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. All participants are in listen-only mode in our English line. As a reminder, today’s conference call is being recorded. Please note that discussion today will concern forward-looking statements made under the safe harbor provision of the Private Securities 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 are 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. 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. Yuan Wei, Director and GM of insurance business; Ms. Xu Xiaying, Head of Finance Department; and Ms. Li Jieru, Board Secretary. We will take questions in the mentoring line at the end of the conference call. Letting our CEO, Shen Peng, 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 CNY 1.24 billion, up 64.8% year-over-year, and net profit attributable to ordinary shareholders of more than CNY 98 million. Since the first quarter of 2022, we have maintained GAAP profitability for 17 consecutive quarters. By segment, our insurance business continue its user acquisition strategy with insurance-related income up 74.1% year-over-year.

As these capabilities have been validated, we sharpen our focus on user experience while continuing to optimize our traffic channels and user targeting efficiency. The Crowdfunding business remains stable, having raised medical funds for accumulated 3.75 million patients by the end of the Q1. Our digital clinical trial solution business sustained enrollment growth, with more than 15,500 patients enrolled to date. On technology front, we are accelerating our shift toward an AI-native company. As of March 31st, 2026, we had filed 75 LLM-related patent applications, including nine international ones, and were recently granted two more national invention patents in intelligent semantic understanding and the multimodal recognition. These technologies will be progressively applied to the insurance scenario, 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 had repurchased approximately 61.8 million ADS in open market for about $120 million. As of the end of May 2026, cumulative cash dividends and share repurchases since IPO had totaled approximately $170 million. Meanwhile, we remain committed to giving back to society. At the end of the Q1, the Waterdrop charity platform had partnered with 119 public charitable organizations and launched over 15,500 charity programs. Looking ahead, we aim to seize industry opportunities and to make growth our top priority this year. Building on our proven user targeting capabilities, we were increasing marketing investments further. For 2026, we are targeting approximately 40% top-line growth, with operating profit scale is expected to remain broadly stable.

Shen Peng, Founder, Chairman, and CEO, Waterdrop: 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. That covers our overall performance in Q1. Next, I will walk through each of those business segments in detail. Hello, everyone. This is Wei Ran. Let me walk you through the progress of our insurance business. In first quarter, insurance-related income reached CNY 1.15 billion, up 74.1% year-over-year, with operating profits of CNY 150 million. Our 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. On a quarter-over-quarter basis, while the income declined, our insurance operating margin rose by two percentage points.

Tracy Lee, Investor Relations, Waterdrop: 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 product offerings, which continue to earn user recognition. During the quarter, FYP from our pre-existing condition products rose 24.3% year-over-year, and the disability insurance products contributed CNY 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 prescriptions and related medical devices, as well as a range of advanced cancer therapies.

We also recently launched the focused cancer-specified disease product with a simpler health disclosure and a 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 hotline to make it easier for users to raise concerns, and we also connected payment channels with our customer service system, expanding frontline operations and enabling faster refund processing. For elderly customers, we simplified procedures for their children acting on their behalf and introduced a faster track service channel. Together, these initiatives upgrade our after-sales service capability. We also continue to apply our LLM capabilities and AI tools to streamline the workflows and improve operating efficiency. The user-facing AI applications contributed approximately CNY 87 million in incremental premiums in Q1, up 17.7% sequentially.

Through real-time support on our mini programs, WeChat, phone calls, and WeCom, including our AI Insurance Expert and AI medical insurance experts, WeCom AI and other tools. For our frontline consultants, KEYI.AI had handled more than 10,000 underwriting inquiries to date. In late March, we began internal beta testing of the Claw Copilot on CRM and WeCom, bringing together our product knowledge base, the KEYI.AI, and other two agent tools. Our consultants can get instant answers on products in writing and other common questions with lesser switching between the systems and documents. Claw Copilot also supports the sales lead review, talk track replay and refinement, and performance analytics.

Xu Xiaying, Head of Finance Department, Waterdrop: In after-sale service, our AI user service agent, now in regular operation, supports more than 1 million service interactions per month, and the AI Service Quality Copilot continues to deliver efficiency of more than twice the manual-only basis, the baseline. On the AI infrastructure side, our low-code platform, Waterdrop CDAI, 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. That concludes our insurance business update for the first quarter. Thank you, Rhonda. This is Yao Hu, now next I will walk you through our first quarter performance on our crowdfunding and healthcare businesses. As of the end of March 2026, approximately 494 million people had cumulatively donated a total CNY 73.5 billion to 3.785 million patients through the Waterdrop Medical Crowdfunding platform.

Tracy Lee, Investor Relations, Waterdrop: This quarter, we pursued two priorities for Waterdrop Medical Crowdfunding: the AI capability building and better service in linguistic diverse regions. For AI reviews, we complete and quarterly upgrade involving towards an AI-assisted model without compromising risk control quality. Our risk model can mature quickly and applies the preset rules for preliminary screening, shorten intake, and the first pass review, free our risk specialists for complex cases. Secondly, we improved the service for patients in linguistically diverse communities, including areas where a minority language are widely spoken. In this quarter, we systematically refined our service workflows and adapted the review standard to their real needs. We added a minority language specialist to work alongside our existing content consultants on upfront consultation and the document guidance and dispute resolution, reducing the communication caused by language barriers.

In addition, we set up a dedicated service team in which the translator and the risk control specialist can track each case end to end and promptly resolve the bottleneck, ensuring a strict risk control compliance while respecting local culture sensitivities. Turning to our healthcare business, we sustained high quality growth this quarter, broaden LLM application across the core business areas. We partnered with 243 pharmaceutical companies and CROs and initiated services for 128 new programs. Our E-Find platform single-quarter patient enrollment rose 16% year-over-year, the newly signed projects in this quarter increased 53%, reflecting the wider partnership coverage and the deeper client engagement. As of the end of the first quarter of 2026, the platform has 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.

Yuan Wei, Director and GM of Insurance Business, Waterdrop: This quarter, we focused on building out our upstream data structuring capabilities and connecting it with the matching engine. Across part of our service workflow, 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 these AI capabilities, we continue to build our medical case library in complex indications and rare cancers, with a more balanced mix across therapeutic areas, strengthening the foundation for sustainable mid-term to long-term growth. That covers our crowdfunding and the healthcare businesses. Hello everyone, this is Xu Xiaoying. I will now walk you through our financial headlines for the first quarter of 2026.

Tracy Lee, Investor Relations, Waterdrop: 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 on both a 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. By segment, the insurance-related income contributed approximately RMB 1.15 billion at 74.1% year-over-year, while the non-insurance business together accounted for about 7.8% of total revenue, with crowdfunding services of approximately RMB 60.73 million and digital clinical trial solution income of approximately RMB 24.2 million. Turning to cost, our total operating costs and expenses for this first quarter were approximately RMB 1.16 billion at about 71.5% 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 63.9 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 scale up traffic investments over the past year and reinforced 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 services this quarter. Research and development expenses were about RMB 62.7 million, an 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%.

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 positions totaled approximately RMB 2.88 billion. On the capital return since our IPO through May 1st, 2026, we cumulatively repurchased a total of approximately 61.8 million ADS for about $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. By stepping up the investment in traffic and AI, continues to strengthen our long-term competitiveness. Ladies and gentlemen, with that, we will conclude today’s conference call. We do thank you for joining. Have a good time.