Good morning, ladies and gentlemen, and thank you for standing by for Waterdrop Inc.'s Second 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.

Thank you, operator. Hello, everyone. Thank you for joining Waterdrop second 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 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 relation between non-GAAP and GAAP. With us today on the call are Mr. Shen Peng, our Founder, Chairman and CEO; Mr. Yang Guang, Co-Founder, Director and VP; Mr. Hu Yao, Co-Founder, Director and VP; Mr. Ran Wei, our Partner; Mr. Zhu Zetao,, Partner and General Manager of Medical Crowdfunding and Patient Services. 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.

Hello, everyone. Thank you for joining our second quarter 2022 earnings conference call. There have been a range of external challenges and uncertainties in this quarter. Demand for insurance products has been delayed, as a result of weakening consumer confidence caused by the COVID resurgence and other external factors. Despite these headwinds, Waterdrop is still firmly committed to being user centric, steadily developing its business and creating shareholder value. We also proactively explored new businesses opportunities in the evolving market environment. In the second quarter, we made further progress on reforming our business strategy, maintain momentum and achieved record high profitability. Our revenues increased by 8.1% quarter-over-quarter. We achieved non-GAAP net profit for three consecutive quarters and GAAP profit for two consecutive quarters. On top of this, our net profit almost doubled sequentially reaching RMB207 million and once again exceeding market expectations. Despite some cross quarter fluctuations and the fact that our insurance business is currently the only profit contributor, our brilliant result confirmed that we have entered into a phase of steady profitability. In the second half of 2022, we will appropriately increase our investments in new businesses. Although the current economic cycle is near bottoming, we remain optimistic about the Chinese economy and the health care industry, and we'll maintain our strategy of achieving high-quality and sustainable development. Our confidence comes from our strong determination. We will strive to achieve the goal we set for the shareholders at the beginning of the year, which is to achieve a healthy and sustainable operating profit for our existing business for 2022. In the last few quarters, we have adjusted our business strategy from pursuing scale expansion and rapid growth to cultivating a healthier and more sustainable growth. Our operating and financial performance is heading in a positive direction. Having said…

Okay. Thank you, Shen Peng. Hello, everyone. Let me give you an update on our insurance business development, life and health insurance premium growth in China was sluggish for the first half of 2022 and has underperformed the P&C insurance industry. Meanwhile, the life and health insurance reform has not yet had a pronounced effect on the market and the demand for critical illness insurance products remained weak. Share performance of the listed insurance company has been languished and a low level for a long time, and their valuation touched a new lows in the end of April. Against this backdrop, we have been proactively reforming our business model, optimizing our business operations and deepening the transformation of growth model. This has helped improve our operational efficiency and strengthen the resiliency of business with new growth drivers. In Q2, our net profit reached RMB207 million, up by 97% on a sequential basis with the entire profit derived from our insurance business. Now I will go through the business performance of our insurance business across four aspects. First, results of our business model reform. Looking at the key parameters that demonstrates the continued profitability of our business. In Q2, we further optimized and upgraded our operating system with multiple platforms, multiple product supplies and multiple service models, while relentlessly pursuing improvements in both operating efficiency and quality by streamlining our transaction processes to be more user friendly and enriching our product offerings. We continue to see increased revenues from new customers, and our take rate remains at a relatively high level. One year LTV increased by 22% quarter-on-quarter and 101% year-over-year. In terms of the long-term insurance business, we refined our user group tags based on which we upgraded the sales leads match model to identify customers need more precisely. This…

Thanks, Ran Wei. I would like to share some updates on our Medical Crowdfunding business. As of the end Q2, the cumulative number of donors, reached 412 million helping 2.58 million patients raise approximately RMB53.3 billion cumulatively. Since April of this year, our platform has ceased to fully subsidize service fee and started to charge a service fee of 3% up to a maximum amount of RMB5,000 for a single campaign. This is to cover part of the operational cost and help more patients with critical illnesses raise fund. The user number and fundraising amount on our platform has remained stable even after the charge of the service fee. As part of our commitment to promote best practices and orderly development of the industry, we have recently established an Operational Transparency Committee to continuously promote the authenticity of the campaigns initiated at our medical fund raising platform. The fund flow transparency as well as the rationality and transparency of the platform rules. The committee consists of Waterdrop's core management team experts in the field of law charity and public media with our CEO Mr. Shen Peng, as Head of the committee. To better safeguard rights and interest of both the fund raisers and donors, the committee will collaborate with public security authorities, hospitals and other industry partners to crackdown on fundraising fraud while actively seeking advice from the public to ensure that each donation is open, transparent and traceable. Meanwhile, the committee will constantly interact with the experts and optimize the rules of the platform. In the future, Waterdrop will make the effort to avoid fraudulent fundraising and misappropriation of funds, ensuring the overall security of fund raised from our platform. Next, let me talk about the progress of our patient recruitment business. In Q2, the COVID outbreaks in various…

Thank you, Zetao. I'm going to talk about our second quarter technology innovation update from three aspects. First, let’s start from the intelligent risk control for medical crowdfunding business. In response to malicious intermediaries who refer the needy to our Medical Crowdfunding services just to collect commission, our AI team has applied knowledge mapping technology to analyze the statistical characteristics of sample cases and developed two models to identify the high-risk unauthorized fundraising activities and the malicious intermediaries engaged in such activities respectively. To date, the models have realized an accuracy rate of over 90%. This has effectively reduced the number of malicious and unauthorized fundraising activities and enhanced our risk control capabilities for our medical crowdfunding business. The second one is intelligent dialogue platform. In Q2, we completed a major upgrade of our chatbot platform. We have upgraded it into an intelligent dialogue platform by integrating various functions such as outbound chatbots, customer service chatbot, virtual employees and technology export projects. For instance, we added the chat status features in our outbound chatbots. By including eight types of chat status features and several modes, the chatbot is capable of engaging in more human-like dialogues with users, further improving its intention recognition accuracy rates by 15%. In addition, our customer service chatbot can solve more than 80% of inquiries raised by users and the intention recognition technology achieved an accuracy rate of over 95% for the overall intelligent dialogue platform. For transferring customers requested from chatbot mode to manual mode on a real-time basis, we have upgraded our loss control model for phone calls to an intelligent dispatching algorithm, which enables us to further improve sales force productivity. According to users' needs and choice, we have also integrated this algorithm with our recommendations algorithm to offer a better user experience…

Thank you, Yao. Hello, everyone. I will now walk you through our financial highlights for the second quarter. Before I go into details on this financial performance, please be reminded that all numbers quoted here will be in RMB and please refer to our earnings release for the detailed information on our comparative financial performance both the year-over-year and quarter-over-quarter basis, respectively. Despite the challenging external environment, we have entered a relatively stable profit making stage after we turned profitable for three consecutive quarters. Our net operating revenue firmed up and our net profit almost doubled on a quarter-over-quarter basis. Our net operating revenue decreased by 25.3% year-over-year to RMB701 million from RMB939 million mainly due to the decrease in insurance-related income by RMB273 million, but partially offset by the increase in the crowdfunding service fee of RMB56 million. The decrease of interest-related income was mainly due to the decrease in the first year premium, but offset by the improvement of our take rate. Our operating revenue growth sustained with a quarter-over-quarter increase of 8.1% in Q2, which demonstrated a more healthy and a solid growth trend. The take rate further increased from 34% in Q1 to 38% in Q2, primarily driven by the consistent quality enhancement in our insurance business. Operating costs and expenses for Q2 decreased by 68.9% year-over-year to RMB546 million. On a quarter-over-quarter basis, operating costs and expenses increased marginally by 2.5%. To break it down, operating costs were RMB245 million down by 6.1% year-over-year, mainly due to the decrease in professional and outsourced customer service fee of RMB36 million and a decrease in personnel costs of RMB58 million. On quarter-over-quarter basis, operating costs increased by 57.9%, mainly due to the accounting reclassification of certain crowdfunding related service fees from sales and marketing expenses to operating…

[Operator Instructions] And today's first question comes from Michael Li at Bank of America. Please go ahead.

Congratulations management on the performance in second quarter. And I saw the improvement of your insurance business in terms of like take rate and also product mix. So my question is that what is your growth strategy for insurance business? And any plans to upgrade your product mix and channels?

Okay. Thank you, Michael. That's a very good question. From a user growth perspective, there were three business models for growth directly to C, 2A2C and 2B2B. Our core growth driver is Directly 2C in the past. We also have built up our capability in 2A2C and 2B2C for a while. Going forward, there are opportunities in all of the three business models. So on the Directly 2C front, we need to explore the opportunities in traffic ecosystems and deploy our results accordingly. First, let's look at the WeChat ecosystem. I will talk about four growth opportunities of WeChat ecosystem. First of all, is the growth opportunity from Waterdrop Medical Crowdfunding. Waterdrop Medical Crowdfunding operates a 10 million level DAU platform, where we effectively educate users about insurance protection and insurance awareness. And it can help us convert users into millions of new short-term insurance customers and new gift insurance policyholder each year. The conversion efficiency in our crowdfunding channel increased by more than 30% from the first half of 2022. The second is growth opportunity from the rise of WeChat video accounts. WeChat had shifted its focus and traffic to WeChat video accounts, which already have 450 million DAU so far. So users have seen better connection between their WeChat video accounts and WeChat official accounts and mini-programs, making it a very new growth venue for customer education and conversion. So our WeChat video account has now surpassed their 100 million in monthly video viewership, directed a monthly flux of a few hundred thousand new followers to our WeChat official account and posted twofold growth in monthly premiums for the past few months in a row. The third one is growth opportunity from private domain operations of our enterprise WeChat account. The private domain operations of enterprise WeChat is…

Thank you. And our next question comes from Qingqing Mao with CICC. Please go ahead.

Management this is is Qingqing from CICC. We have seen some reports posted in media regarding the unauthorized fundraising activities and malicious intermediaries in the medical crowdfunding industry. You also mentioned about it in the previous presentation. My question is. Could you further explain the service and the revenue model of your crowdfunding platform? And with the current revenue contribution in Q2, can you please tell us more about the details? That's all for me. By the way, I wish you a happy Mid-Autumn Festival.

Thank you for your question. And let me translate for Zetao. As the leading online platform for patients with critical illness to seek financial help in China. For Waterdrop Medical Crowdfunding provide users with comprehensive detailed fund raisers services, including detailed dedicated customer services, instant withdrawal of the funds, fundraising acceleration and more. In order to maintain high-quality services to our users, we ceased to fully subsidize the service fees and started to charge the service fees from April 7 this year. The decision was made after taking into account the industry research expert advice and platform's operational needs. The service fee was equal to 3% of the withdrawal amount for a single campaign up to a maximum of amount RMB5,000. This is in addition to the 0.6% payment channel charged by the third party. It should be clearly noted that the purpose of charging the service fee is to support the operational maintenance cost and expenses of the platform in order to realize the sustainable and healthy operations of the platform. As mentioned just now, we are committed to -- as reported just now, the platform has facilitated fundraising of RMB2.3 billion this quarter, and we generated service fee income of RMB56 million for the funds raised, meaning that the overall take rate is still lower than 3% because we still subsidize certain special cases where the patients are in critically serious situation. We haven't covered all the costs for fundraising business yet. All of our profit of the Waterdrop Group still came from the insurance-related business only. As mentioned just now by Shen Peng, we are committed to driving the healthy development of the whole industry. In response to the unauthorized fund raising activities and the malicious intermediaries in the medical crowdfunding industry, we will continue to crackdown on such activities. The issue of unauthorized fund raising activity is not only the phenomenon in the field of medical crowdfunding industry, but also an issue relating to the Internet governance. In the future, we will continue to improve the quality of our services and provide users with more professional, detailed and sustainable services. We will always actively take social responsibility and work hand in hand with the National Healthcare Security Administration and the regulatory authorities as well as other relevant social organizations to make joint efforts to maintain the healthy ecosystem of the whole industry. Thank you.

Thank you. And ladies and gentlemen, we are now approaching the end of the conference call. Thank you for your participation in today's conference. You may now disconnect, and have a nice day.