Ladies and gentlemen, good day, and welcome to Yuanbao Inc.'s Second Quarter 2025 Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Ms. [ Della 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 the 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 our second quarter 2025 earnings conference call. This quarter, our stellar results once again demonstrated our technology-driven growth momentum. In the second quarter of 2025, our total revenues reached a record RMB 1.07 billion, an increase of 25.2% year-over-year and 10.3% quarter-over-quarter. Net income surged 55.6% year-over-year to RMB 305 million, with a net income margin of 28.5%, marking our 12th consecutive quarter of profitability. As of the end of June, our cash reserves stood at RMB 3.42 billion, providing a solid foundation for future strategic expansion and technological innovation. Our strong financial performance was underpinned by continued operational breakthroughs. In the second quarter, the number of new policies issued reached a record high of 7.9 million, while our user base and market penetration continued to expand. This achievement fully validates our forward-looking technology investments and highlight our sustained improvement in profitability. In terms of quality of service and protection coverage, we achieved substantial progress across 3 key areas: expanded coverage, drove additional efficiency with technology and updated our service ecosystem. To date, Yuanbao has expanded coverage to all provinces in Mainland China, penetrating underserved markets with cost-efficient products. Our interconnected empowering -- our interconnected networks of model delivers seamless support throughout the entire customer journey, deeply empowering our operations and enabling us to capture new opportunities in the inclusive insurance market. We continue to increase our R&D investments in AI technologies. As of the end of June, our AI R&D team represented over 10% of our total workforce, providing solid technical support for the ongoing optimization and iteration of our core engine. From a technology strategy standpoint, we have been further integrating large language model applications across our operations to reinforce our competitiveness and improve efficiency. Our approach is anchored in 3…

Thank you, Mr. Fang. Thank you all for joining today's earnings conference call. I'm pleased to walk you through another quarter of strong financial performance, marked by double-digit growth in both revenue and profitability, enhanced operational efficiency and a strengthened cash position. Starting with our top line results. Total revenues for the second quarter reached RMB 10.07 billion, representing a robust 25.2% year-over-year increase and a 10.3% quarter-over-quarter increase. This performance was primarily driven by continued momentum across our insurance distribution and system services revenue business. Breaking this down further, insurance distribution services revenues grew to RMB 350.6 million, up by 29.6% year-on-year, fueled by an increasing number of policies transacted on our platform, supported by our enhanced targeted marketing efforts. System services revenues reached RMB 718.2 million, a 23.8% increase compared with the same period last year, driven by ongoing improvements to our AI integrated full consumer service cycle engine, which enhanced our marketing and personalized analytics services and strengthened our system service offerings for both new and existing insurance carriers. Moving to expenses. Total operating expenses increased by 16% year-over-year to RMB 772.2 million. Operations and support expenses came in at RMB 40.9 million, remaining stable compared with the same period last year. Selling and marketing expenses rose by 14.1% year-over-year to RMB 602.1 million as we ramp up our marketing efforts to attract new consumers and retain existing ones. General and admin expenses increased by 6.3% year-over-year to RMB 47.5 million, primarily due to higher personnel costs, including salary, bonus and benefits. R&D expenses increased by 55.4% year-over-year to RMB 81.7 million, reflecting our intensified research and development efforts and the expansion of our R&D team to reinforce our leadership position as a technology-driven online insurance distributor. As a result of this strong top line growth and disciplined cost management, our profitability improved significantly. Net income jumped by 55.6% year-over-year to RMB 304.7 million with the net income margin expanding to 28.5% compared to 22.9% in the same period last year. Non-GAAP adjusted net income rose by 57.8% to RMB 325.2 million, representing a non-GAAP net income margin of 30.4%, up from 24.1%. We also maintained strong cash flow and a healthy cash position. This quarter, we generated RMB 453.2 million in operating cash flow, ending the quarter with total liquidity of RMB 3.42 billion, representing a 99% year-over-year increase and a 23.6% increase quarter-over-quarter. In summary, our second quarter performance builds on the strong momentum from the first quarter, establishing a clear growth trajectory for the second half of this year. With our robust financial foundation and substantial liquidity reserves, we are strategically positioned to capitalize on emerging opportunities while advancing our long-term strategic priorities. Thank you, and I would like to open the call to Q&A. Operator, please go ahead.

[Operator Instructions] We will now take our first question from the line of Thomas Wang from Goldman Sachs.

[Foreign Language] Congrats on the results. And just three areas. So firstly, I think some operating metrics. Can you just briefly explain how commission rate, take rate and also premium per policy, how is that changing? And secondly, just if we don't see any macro stimulus policy in the second half of this year, how do we see that potentially impact our growth outlook? And thirdly, given that there's ample cash on the balance sheet, how does the company think about shareholder return policy such as dividend and buyback?

Yes. Thank you, Thomas. This is Rui Wan. I'll take the Q&A session. So in terms of metrics, we don't disclose commission rate on a quarterly basis, but our commission rate historically for second quarter has remained relatively stable. For take rate, it can be roughly estimated by dividing revenue by premiums. The take rate was around 10% in the second quarter. Going forward, we expect that rate to remain at that level. Now looking at the full year picture, we still expect most of our metrics to remain stable. But to emphasize, what we focus on is really to optimize -- continue to optimize our ROI to make sure that as we acquire new consumers and customers, we can always maintain a very healthy level of ROI, which translates to a healthy level of growth and profitability. Your question on premium per policy, our average short-term premium policy remain relatively constant with historical levels, tracking normal range within the year-end quarter-over-quarter. Now we do see a slight decrease on premium per policy, mainly because two reasons. One, we have been adjusting our marketing approach in real time and different approaches lead to different outcomes such as shift in age profile spending power and consumption habits. For example, if you go to a lower age group, your typical premium per policy is slightly lower. At the same time, there is a change in product mix. Our short-term critical illness policies typically have slightly lower premium per policy compared to short-term medical insurance and slightly increased proportion of critical illness products in Q2 contributed to a very marginal decrease overall. Your second question on potential impact of weaker macro backdrop in the second half. And while the economic trajectory for the second quarter remains uncertain, our platform is always positioned to…

Our next question comes from the line of Amy Chen from Citi.

I have three questions. The first one on business outlook. I appreciate your insights on the resilience of your business model despite macro uncertainties. I'm wondering if you could provide some guidance on revenue growth as well as earnings growth for the full year of 2025 as well as 2026. The second question is about compliance. We saw news recently that some health insurers were being fined for automated renewals that were implemented on their website when selling online health insurance policies. As a broker, how -- what kind of measures did you adopt to avoid such scenarios and to avoid customer complaints? And the third question is on revenue mix. We noted that in the second quarter, distribution services actually booked a relatively faster year-on-year growth compared to system services. What's driving this growth? And how should we think about revenue mix going forward?

Thank you, Amy. So your first question on guidance for revenue and earnings for this year and next. So we haven't given explicit guidance for 2026 for '25. We maintain that we're always balancing growth and profitability. We expect full year revenue to continue to grow at least 20% to 30% year-on-year and profit margin to remain at least above 20%. Your second question on potential insurance being fine for automatic renewals. Now currently, we're not -- we have not been affected by the incident that you mentioned. We always provide consumers with clear policy term explanations and demonstration during policy signing, so our customers can choose their preferred auto renewal settings during the insurance sign-up process. Regarding regulatory compliance, we remain effective communication with regulators and have established comprehensive governance documents, including marketing conduct policies complemented by mandatory compliance review processes to standardize business practices. So all of our insurance products are developed with partner insurers and every policy term and renewal process is approved by regulators. Your last question on the difference in growth rates of the 2 business segments. So the revenue recognition methodology differs between these 2 insurance distribution service and system services revenue. System services revenue is recognized as a onetime event, while commission income from insurance distribution services follows an amortization model. So as we see system service demonstrated the value we deliver to insurers, including our customer acquisition capabilities, technological expertise and AI-driven engine. So there's mainly a timing difference in terms of difference in growth rates, but also the difference in how we recognize these revenue items also affect on a quarterly basis, the growth rates. But if we smooth out or look in the longer period, we're probably going to see more smooth trajectory.

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

I would like to ask three questions. First, against the backdrop of ongoing health care payment reforms in China. So I would first like to ask what potential opportunities these reforms present to Yuanbao and how the company is preparing at the product level. And secondly, regarding the widespread application of AI, I am curious, I want to ask about the specific areas where AI is currently supporting the company's operations and what financial benefits or impact has been realized. And finally, based on the release documents, I would like to understand the key reasons or key drivers behind the noticeable difference between the company's premium growth and revenue growth in the second quarter.

Thank you, Xintao. Your first question on the medical payment method reform. So under the payment reform for health care insurance, the utilization of innovative medicines may be constrained due to lost cost control measures. So in response, the National Healthcare Security Administration introduced commercial health insurance Innovative Medicine list, aiming to address the unmet demand for high-value innovative medicines, not covered by basic insurance through commercial health insurance channels. So the introduction of this policy will effectively address the value perception issue in commercial insurance for consumers. So we do think that's a very beneficial trend, showcasing that the regulators are clearly supportive of commercial insurance. By enabling access to premium medications beyond the national medical insurance coverage list, it can help boost conversion rates. So overall, against the backdrop of Medicare payment method reform, the commercial health insurance innovative medicine catalog establishes new reimbursement channels for innovative medicine through policy deregulation and expanded payment coverage while simultaneously creating incremental market opportunities for players like us that sell primarily commercial health insurance. Number two, your question on AI. So as you know, our entire engine or business is run on our AI engine, which leverages gradient boosting machine and an approach that progressively optimizes through multiple decision trees. So we have 4,800 or 4,900 models that's already existing in our engine. This makes it particularly effective for highly complex multistage decision processes with strong structured data patterns. So we created a deep integrated modeling system where multiple models simultaneously run A/B test across several future data warehouses. So that's the underlying engine of our business. So as you can see, we -- the reason we're able to maintain profitability for the last 12 quarters is because we have been continuously optimizing our core engine. Number two, while AI powers…

Our next question comes from the line of Yu from China Securities.

My first question is about the unit economics. How do we think about the ROI as you scale up your business going forward? And the second question is about how the management team think about the caused by major tech platforms like Alibaba or Tencent? And lastly, my question is about the international expansion. Could you share your thoughts about the future road map? Like are you considering expanding your product portfolio into new insurance categories or to area outside China?

Yes. So thank you. Thank you, [indiscernible]. Our engine played a crucial role in expanding our scale and achieving profitability. Now our ROI has remained positive for over 10 quarters and mainly due to our engine. So the system calculates real-time return rates across different service paths for every consumer that we acquire at every stage. So identifying optimal solution to maintain our current ROI above 1 is arguably our most important metric. Now going forward, as we continue to scale, we still believe that this market is still highly underpenetrated. And we see a continued path of a very healthy growth and very healthy profitability going forward, which as you can translate into a very healthy ROI. Now if large platforms incumbent tries to adopt our model or enter this market, we do think it will be very helpful for the overall industry because right now, if the industry is still growing very, very quickly, more entrants coming in will provide more consumer and consumer guidance and support and awareness of lack of commercial insurance coverage to the industry. However, as we have seen for the past few years, major players are already competing in this market just through different business models. So we do think increased competition may be helpful for the entire industry. Now in terms of who we are competing with, because we are advertising primarily on fee-based systems online, we're not only competing with existing distributors, but also other advertisers that compete for user time across these platforms, including e-commerce players, game advertisers, et cetera. Your last question on international expansion to replicate this model overseas. So our Hong Kong office officially opened in July this year. With this expansion, we're building a key platform to tap into new markets and create fresh opportunities down the road. In August, we successfully acquired an insurance brokerage license in Hong Kong. Moving forward, we will continue to explore different businesses and actively seek a second and third growth curve. But as of now, we don't have additional information to share. But obviously, we'll share more details as specific plans and scale-up takes shape. Thank you.

Thank you all for your questions. And that concludes the question-and-answer session. I would now like to turn the conference back to Ms. [indiscernible] 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. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]