Good morning, ladies and gentlemen, and thank you for standing by for Waterdrop Inc.'s First Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the management's prepared remarks, there will be a Q&A session. As a reminder, today's conference call is being recorded. I would now like to turn the meeting over to your host for today's call, Ms. Xiaojiao Cui. Please proceed, Ms. Xiaojiao Cui.

Thank you, operator. Hello everyone, thank you for joining Waterdrop’s first quarter 2022 earnings conference call. Please note that the discussion today will contain forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities and the 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 under 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. Shen Peng, our Founder, Chairman and CEO; Mr. Yang Guang, Co-Founder, Director and General Manager of Insurance Marketplace; Mr. Hu Yao, Co-Founder, Director and General Manager of Medical Crowdfunding and Healthcare; and Mr. Kevin Shi, our CFO. We will be available for a Q&A session after the remarks. Now, I would like to turn the call over to our CEO Mr. Shen Peng. Please go ahead.

[Foreign Language] [Interpreted] Hello, everyone. Thank you for joining our first quarter 2022 earnings conference call. Since the beginning of this year, the capital markets have further plunged amid a volatile geopolitical environment and the COVID resurgence. Since last year, both the global capital markets and domestic insurance industry have transformed in profound ways, so we adjusted our pace and promoted a strategic realignment in order to pursue a healthier development. We have seen new opportunities emerging at the same time. Looking at our operating results and business trends over the past two quarters, we are tipped to have a good overall performance for the full year. Apart from consistently establishing our competitive strengths, we have also improved our operational efficiency and profitability, thereby securing a healthier and more sustainable development for the company. The company is reaching the six years milestone since its inception. Nonetheless, I believe we are currently standing at a new beginning. We are pleased to report that after turning profitable on a non-GAAP basis in Q4 2021, we made further breakthrough that we now for the first-time delivered a GAAP net profit of RMB105 million in Q1 2022. While against the backdrop of industry downturn situation, we resumed positive growth and our net operating profit achieved an increase of 7.4% quarter-over-quarter. We will maintain this positive momentum and have confidence in meeting the goal we set at the beginning of the year, which is to accomplish a healthy and sustainable profit for the entire Waterdrop group for the year of 2022. The moat we built around our product designs, innovation capabilities, and synergies within various business segments have enabled us to maintain vitality and resilience to counter challenges and navigate (ph) the tough times. In particular, the resurgence of the pandemic and the ever-growing demand…

Thanks, Shen Peng. China’s insurance industry has experienced a period of profound adjustment in Q1 due to various factors, notably the COVID resurgence and the equity markets shake-up. Publicly our traded insurers suffered from a setback on both their assets and liabilities. In Q1, listed China insurance companies recorded an average of 3.2% decline in new business premiums and an average of 36% decline in net profit year-over-year. And NBV also reduced by more than 30%. While demand for individual insurance remained sluggish, the growth from insurance agents was also weak, and traditional insurance business that carries out on-site is hindered. Thereby it was especially slow for sales of protection products, primarily health insurance to recover. This should be partially put down to the high base for comparison last year that was triggered by speculative sales of critical illness health insurance. Meanwhile, there is a clear industry trend that insurers adopting the less-efficient traditional sales model are facing more challenges, while those capable of pioneering diversified and innovative channels are enjoying a faster recovery. Indeed, the business performance of top-tier players has shown some signals of stabilization following the recent adjustment period. Against this industry backdrop, in Q1 2022, we continued to firmly execute the strategy we set out in the third quarter last year, which is to reform our business model and optimize our business operations. This has helped us achieve significant improvements in our operational efficiency and in other business metrics. In Q1, we recorded an adjusted net profit of RMB127 million, increasing by 2,054% (ph) quarter-over-quarter, and for the first-time we achieved a net GAAP profit of RMB105 million in this quarter on top of a non-GAAP profit in the previous quarter. I will now walk through our insurance business updates in three aspects. Firstly, regarding the…

[Foreign Language] [Interpreted] Before we start, let me give you an update on our Medical Crowdfunding business. Despite the COVID-19 has kept resurging, our Waterdrop Medical Crowdfunding business maintained steady growth, and we are persisted in serving patients during this challenging time. As of the end of Q1, the cumulative number of donors reached 403 million, helping 2.5 million patients with the cumulative funds raised of RMB50.9 billion. Next, let me talk about the progress of our patient recruitment business. In Q1, our Yifan platform newly enrolled over 50 clinical trial programs by partnering with leading innovative pharmaceutical manufacturers in China and worldwide, including Chia Tai Tianqing, CSPC, and Innovent. Leveraging our excellent project delivery capabilities and our abilities to accelerate the process of CRO clinical trials, not only have we received a steady flow of new orders from existing pharma partners, but also attracted leading domestic and foreign pharmaceutical companies such as Bayer, Fosun Pharma, BeiGene, Junshi, Shanghai Pharma BIOCAD and Kelun to establish long-term business relationships with us. In Q1, we successfully recruited more than 500 patients in clinical trials, maintaining solid growth compared with the previous quarter. Let me give you two examples. Firstly, in our strategic partnerships with Chia Tai Tianqing and CSPC, we completed more than 20 clinical trials projects, which greatly accelerated their R&D progress. In addition, we have also established extensive collaboration with many top biotech companies and are highly recognized by them. Another example is the project with Henlius, within a time span of less than half a year, we have successfully enrolled more than 50 candidates who are in need of financial assistance and have the willingness to participate in Henlius’ key clinical trials, which dramatically promoted its R&D efficiency and trial progress. As we continue to deepen our efforts in…

Thank you, Hu Yao. Hello, everyone. I will now walk you through our key financial results for the first quarter of 2022. Before I go into details on the financial performance, please be reminded that all the numbers quoted here will be in RMB, and please refer to our earnings release for detailed information on our comparative financial performance on both the year-over-year and quarter-over-quarter basis respectively. Despite the challenging external environment from industry slowdown and the macro headwinds, our net operating revenue firmed up quarter-over-quarter basis which benefited from our strategic goal of business reform to focus on quality revenue. Our net operating revenue decreased by 26.6% year-over-year to RMB649 million from RMB883 million year-over-year, mainly due to the decrease in FYP but offset by the improvement of our take rate. After the strategic realignment in quarter three and quarter four last year, there has been positive indications for the growth recovery in our operating revenue, which demonstrated a quarter-over-quarter increase of 7.4% in quarter one. This take rates stabilized at around 34% level, which was primarily driven by the quality enhancement in our insurance business. Operating costs and expenses for quarter one decreased by 60.4% year-over -year to RMB532 million. On a quarter-over-quarter basis, operating costs and expenses further decreased by 21.5%, demonstrating our cost control measures have had a significant effect, laying a solid foundation for our high-quality growth down the road. In quarter one, we remained highly disciplined on cost control, including spending reductions, improving the effectiveness and ROI of traffic acquisition, optimizing our organization structure, reducing redundant headcount, and improving operating efficiency. To break it down, the operating costs were RMB155 million, a decrease of 48.5% year-over-year, mainly due to the decrease of RMB39 million in professional and outsourced customer service fees, a decrease of…

Hi, operator. We can follow with…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question will come from Michael Li with Bank of America. Please go ahead.

[Foreign Language] [Interpreted] Thank you, management, for giving me this opportunity to ask questions. My name is Michael Li, and I'm from Bank of America Securities. I have two questions. The first question is about the impact of COVID on our business in first quarter and also second quarter. We noticed that Shanghai and some other cities in China were under lockdown from March to April and May, so we believe that a lot of offline insurance companies have been negatively impacted and what is the impact on our business model and whether we could actually benefit from this kind of lockdown? The second question is about the SECs list. We noticed that Waterdrop and others, like more than 100 Chinese ADRs are now on the list of SEC like issuance identified under the HFCAA. So that means if we cannot meet the requirement of PCAOB or SEC in the next three years, we'll be forced to de-list from the U.S. market. May I know if you have any comments on this and if any measures we could take. Thank you.

Thank you, Michael for the question. This is Yang Guang speaking. I'm going to answer your first question, I think the pandemic resurgence caused a temporary impact and held back the operations of our offline businesses such as our Medical Crowdfunding business, as many patients reduced the frequency to visit the hospital. However, after going through the pandemic two years ago in 2020, our Medical Crowdfunding business has shown strong resilience, and it’s already in the dominant leading position through the industry ups and downs. So the pandemic did not have a significant negative impact on our market position or business stability. Also, the COVID-19 resurgence to some extent has given our users a better understanding about the advantages of our omni-channel business model. Particularly, it helped improve the user acceptance of our online business, and cultivate user habits gradually. The result is, it accelerated the development of our users’ awareness, and made the traditional insurance companies more inclined to rely on online channels. It will benefit the development of our omni-channel model in the long run. In addition, it also provide a precious opportunity for our O2O business to expand the salesforce and prepare ourselves for future business growth. While the pandemic slowed down our offline operations, we seized the window of opportunity to recruit outstanding professionals. For example, by doing that, we established two new branches in Q1, and a number of new local branches are also on the way. Our sales team attracted over 100 new staffs and expanded the team to over 400. A lot of them are veterans of the industry. The categories of products sold by this team has reached about 200. And these factors directly helped increase the average productivity efficiency to reach 2 times the industry average. This team generated a total premium income of over RMB10 million in Q1, up by 150% quarter-over-quarter. That's all for the first question and I'm going to leave the second question to Kevin.

So Michael, that's four questions. Regarding your second question, on April 28 2022, Waterdrop filed annual report on Form 20-F for fiscal year 2021 with SEC. On May 5, it was identified by the SEC under the HFCAA. About 80 other Chinese ADRs were identified as well in the same batch. In fact, as you may know, almost all Chinese companies listed in the U.S. list were included in the list after filing their annual reports with SEC. Being identified is not being delisted. According to applicable rules, only if a company has been identified by the SEC for three consecutive years due to the PCAOB's inability to inspect the registered public accounting firm’s working paper related to the company, the company’s shares or American depositary shares would be prohibited from being traded on a U.S. stock exchange. We believe this is a normal administrative measure and a common issue encountered by almost all Chinese companies listed in the U.S. It does not materially affect the company’s business operation. And we noticed that CSRC has issued multiple statements this year signaling that progress has been made in negotiations with SEC. At the same time, we will continue to comply with applicable laws in China and U.S. and maintain our listing status on the NYSE. We never think of voluntary delisting from the exchange. As of date, our business and operations are running as usual and we are actively exploring feasible offer to protect our shareholders’ interest in our best effort. Hope this answer your question, Michael. Thank you.

Thanks, Yang Guang. Thanks, Kevin.

[Operator Instructions] Our next question will come from Qingqing Mao with CICC. Please go ahead.

Thanks, operator. This is Qingqing from CICC. Congrats on the results first. I have only one question. Can you elaborate more on the financial guidance and how would the company balance revenue growth with profitability objectives? That's all from me.

It's a good question. Actually, it is difficult to do a financial outlook for the full year at this point due to external factors including COVID-19 and macro-economic uncertainties. But, considering of various factors including industry trends, the development stage of our company and our business strategy adjustment, we will seek a balance between business growth, efficiency improvement and cost management. We regard quarter four last year and quarter one this year as a new starting point for our growth, which will serve as the solid foundation for a healthier, more solid, and more resilient growth path against various external factors. We expect that our business will stabilize and recover from this new starting point quarter-by-quarter. In the meanwhile, we will actively explore and innovate, pursue further progress in our healthcare business, and develop additional growth momentum in our new business initiatives. In terms of profitability, last quarter we announced our goal to achieve non-GAAP operating profit for our established business for the full year of 2022 and we continue to deliver on this promise. In this release, we further provided the guidance on overall profitability for our group on non-GAAP basis for the year. On the premise that we keep investing in our established businesses and new initiatives. We have been seeing positive results in cost control since quarter three last year. As we strictly manage our expenditure and have squeezed out the part of revenue which is less cost-efficient. Our revenue decreased year-over-year in quarter one. Nevertheless, there have been signs of stabilization in this trend and we resumed positive growth in revenue quarter-over-quarter. On the industry landscape, the insurance industry is undergoing profound regulatory changes and the cyclical fluctuations. Against this backdrop, the old growth model focusing on scale expansion can no longer adapt to current user demands and market conditions, and the launch of regulatory policies has intensified the industry adjustments. The competitive environment of the insurance industry is evolving in a direction that is more favorable for Waterdrop. For example, a number of peers have exited the market, and our external customer acquisition environment actually has improved. In terms of business operations, as we drive our business transformation towards higher-quality development, we have seen significant improvements in our retention rates and various operating metrics, as well as ongoing increases in the renewal rate and repurchase rate. All of these improvements will provide strong support for our further sustainable growth. Looking ahead, we believe that as we continue to transform and upgrade our business model and invest more in the management and services of our existing users, when the next booming phase comes, we will emerge stronger with healthier and stronger business fundamentals, and achieve higher-quality growth. As a top player in the industry and with our large user base, compliant and robust operations and wide competitive moat, we believe that we will benefit more during the transition period. I hope this answers your question. Thank you.

We are now approaching the end of the conference call. Thank you for your participation in today's conference. You may now disconnect. Have a good day.