Yuanbao (NASDAQ:YB) reported second-quarter financial results on Thursday. The transcript from the company's second-quarter earnings call has been provided below.

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Summary

Yuanbao reported strong financial performance in Q2 2026, with total revenue reaching 1.39 billion RMB, a 30.1% year-over-year increase, and net income growing by 35.6% to 413.2 million RMB.

The company is heavily investing in AI technology and expanding its product offerings, including a comprehensive upgrade to its Super Medical Insurance series and new insurance products targeting individuals with pre-existing conditions.

Yuanbao successfully executed a share repurchase program, buying back approximately 114,000 ADS for US$1.6 million, demonstrating a commitment to capital returns to shareholders.

The company continues to advance its AI capabilities, achieving significant improvements in claims processing efficiency and accuracy, and it remains committed to enhancing user experience and operational efficiency.

Future outlook remains positive with a focus on AI technology integration, product innovation, and capturing structural opportunities in the insurance industry, supported by a strong cash position of 5.16 billion RMB.

Full Transcript

OPERATOR

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 Ms. Stella Liu, Investor Relations and Strategy Associate Director. Please go ahead.

Stella Liu, Investor Relations and Strategy Associate Director

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 definitions 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's senior management are Mr. Fong, our chairman and chief executive officer, and Mr. Ray Wan, our chief financial officer. Mr. Fong will deliver his remarks in Chinese followed by an 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. Fong. Please go ahead, sir.

Mr. Fong, Chairman and CEO

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 tandem. Total revenue for the quarter was 1.39 billion RMB, a year-over-year increase of 30.1%. Net income was 413.2 million RMB, 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 5.16 billion RMB, providing solid support for our continued investment in AI technology, our product innovation in collaborations 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 matrix had exceeded 5,100 models, which are capable of analyzing more than 5,900 labels covering the full range of scenarios from need identification and product recommendation to claims assistance, driving improvements in both service efficiency and the user experience. In addition, the 15 million US dollar 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 US$1.6 million, reflecting our ongoing commitment to delivering capital returns to our shareholders. In recent years, commercial health insurance has seen broad development opportunities backed by a continuous stream of favorable policy signals. In March this year, the 2026 Report on the Work of the Government explicitly called for accelerating the development of commercial health insurance and promoting the high-quality development of innovative drugs and medical devices in order to better meet the public's diverse needs for medical treatment and medication. In July, the State Council issued the National Health Plan for the 15th Five-Year Plan period, encouraging an increased supply of innovative health insurance products covering areas such as health intervention, specialized medical care and innovative drugs. Prior to that, the National Financial Regulatory Administration explicitly stated in its guiding opinions on promoting the high-quality development of health insurance that it 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 insurance 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 inclusive health protection by lowering enrollment barriers, enriching coverage benefits and enhancing the service experience. On the product side, Yuanbao's Super Medical Insurance series has improved over many years in response to consumer needs and now offers tiered coverage spanning 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' full treatment journey. This upgrade advanced simultaneously across three dimensions: 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 rehabilitation for specific conditions, extending health protection further across the full cycle of treatment plus rehabilitation. Notably, even as we substantially upgraded our coverage, we stayed true to our principle of affordable pricing, improving quality without raising prices. This 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 Million RMB Medical Insurance, which waives health disclosure requirements and covers general pre-existing conditions within the scope of benefits, effectively lowering the eligibility threshold for individuals with pre-existing conditions to obtain medical protection. On the critical illness side, we launched a no-health-disclosure version of Guardian Insurance Million RMB Critical Illness Insurance, further extending critical illness protection to more people who need it. From medical insurance to critical illness insurance, we continue to use product innovation to broaden access to health protection, directly addressing the real protection needs of the more than 400 million people in China living with pre-existing conditions.

On the technology innovation front, we continue to advance the application of multimodal AI technology across insurance business scenarios, building multimodal understanding and analysis capabilities tailored to the insurance industry. Insurance operations involve large volumes of unstructured information, including images, documents, videos and text. By leveraging our multimodal models and proprietary knowledge systems, Yuanbao enables AI to more accurately recognize, understand and analyze this complex content, turning unstructured data that was once difficult to put to use into truly usable data assets.

In claims assistance service scenarios, we applied multimodal models to intelligently parse various types of materials including medical records, diagnostic certificates, medical invoices, and 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 claim case files and combines with our insurance knowledge base to support liability analysis and user service, thereby improving insurance carriers' claim 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 accuracy of approximately 94%. Compared to the solutions previously tested, our current solution shows improvements in both processing efficiency and accuracy. In user growth scenarios, we applied multimodal models to intelligently understand and analyze business content.

In this way, we effectively identify product information, expression characteristics and user feedback across images, news and text and combine this with business performance data to support content analysis and strategy optimization, improving user outreach 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 models 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 toward an AI-assisted human-machine collaborative model. Finally, turning to our industry influence and 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, drawing on deep insights to capture structural opportunities in the industry. In May, together with the Research Center for China Insurance and Pension Finance at Tsinghua University's PBC School of Finance, we published the 2025 China Internet Insurance Consumer Insights Report. The report systematically tracked shifts in consumer behavior, took an in-depth look at the trends toward online, intelligent and more rational consumption, and comprehensively examined 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 and 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 claims assistance helps partner insurance carriers shorten the claim settlement time for small claims under 10,000 RMB by 41%.

At the same time, we introduced our claims follow-up service and upgraded our claims mediation service, bringing greater warmth to our service through technology and achieving a dual improvement in user experience and operating efficiency. Looking ahead at the 15th Five Year Plan, the multi-tiered healthcare security system continues to improve. The artificial intelligence rapidly empowers industry across the board. The insurance sector is entering a new phase where technology innovation and rising protection needs converge. How to give more consumers access to health protection that is affordable, high quality, and compassionate is both a defining question for the industry and a direction Yuanbao has long pursued.

Going forward, we will continue to strengthen our AI technology foundation, bringing technologies such as AI agents and multimodal models into end-to-end use across our insurance business and upgrading core capabilities including user insights, product recommendations, user consulting, and client assistance service. We will also continue to refine our inclusive product matrix, including Super Medical Insurance and Complete Guardian, putting into practice our service philosophy of accessible, affordable insurance with high claim satisfaction backed by stable operations, our accumulated technology capabilities, and a deep understanding of user needs.

Yuanbao will seize the opportunities presented by the insurance industry's high-quality development, drive innovation in commercial health insurance, support the development of the multi-tiered healthcare security system, and create long-term value for consumers, partners, and shareholders. Now I'll turn the call over to our CFO, Ray Wan, to present our financial results for the second quarter of 2026. Thank you everyone.

Ray Wan, Chief Financial Officer

Thank you, Mr. Fong. And thank you everyone for joining today's earnings conference call. I'm pleased to share an overview of our second quarter 2026 financial results. All figures below are in RMB unless noted otherwise. We carried strong momentum into the second quarter, delivering robust growth across our core business line while continuing to deepen AI integration across our operations. Total revenues for the second quarter reached 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 457.4 million, a 30.4% year-over-year increase, driven by a continued increase in the number of policies purchased through our platform, supported in part by our enhanced targeting marketing efforts. System services revenue reached 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 $52.8 million 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 941.3 million.

Operations and support expenses were 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 $679.3 million, consistent with our ongoing focus on consumer growth and retention. General and administrative expenses were 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 99.5 million, driven by continued headcount growth in our R&D organization and ongoing investment in technical 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 59.9 million, compared with 11.1 million a year ago, primarily driven by a higher effective tax rate during the quarter.

Net income for the quarter was $413.2 million, a 35.6% year-over-year increase, with a net income margin of 29.7%. Non-GAAP adjusted net income reached $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 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 419.1 million. Before I close, let me provide an update on our shareholder return progress under our US15 million share repurchase program. As of August 31, 2026, we have repurchased approximately 114 ADS for a total consideration of approximately US$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

Thank you, management. We will now begin the question and answer session. To ask questions on the phone, please press star one and one and wait for your name to be announced. For the benefit of all participants on today's call, if you wish to ask your questions to management in Chinese, please immediately repeat your question in English. One moment for our first question. Our first question comes from the line of Amy Chen of Citi. Your line is open.

Please go ahead.

Amy Chen, Analyst at Citi

Hi, this is Amy Chen from Citi. Thank you for the opportunity for asking these questions. I have two questions. How do you think of licensed celebrities promoting insurance products via live streaming? Would you adopt similar approaches going forward, and would this lead to more intense market competition in terms of online distribution of insurance products going forward? Do you think gentic economy would reshape insurance distribution industries?

And how do you plan to capture the opportunities that's related to gentle payments? Thank you.

Mr. Fong, Chairman and CEO

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 customer education and traffic conversion. Within this compliance framework leveraging public influencers' reach, we believe that live streaming is merely a traffic entry point. The real barrier to insurance sales lies in back-end product interpretation and matching consumers with the right products.

Therefore, we focus on funneling traffic into Yuanbao's own service ecosystem rather than relying on external personal IP. As for industry competition, celebrity participation may temporarily raise the intensity of traffic exposure and intensify customer acquisition cost competition for standardized products. However, stringent regulatory restrictions have limited how far fan economy monetization can go. 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 industry expands and the public's awareness of insurance grows 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 mainstream Internet platforms, and for the foreseeable future these 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 inquiries. 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 so, our China Internet Insurance Consumer Insights report found that AI agents, through their convenience and the continuous advancement of 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 insurance inquiries.

There is no question that AI's capabilities now rival those of human agents. That said, we are also clear-eyed that for complex, in-depth coverage needs and personalized plan design, 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 agent with external high-traffic platform ecosystems, participating in the early-stage development of this 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 entry points and how users interact, and it is an emerging trend and market that deserves close attention. Thank you. Next question.

OPERATOR

One moment for our next question. The next questions will come from the line of Yue Xu from China Securities. Your line is open. Please go ahead.

Yue Xu, Analyst at China Securities

Okay, first, my first question is regards to digital ad demand softening on major Internet platforms lately. How is that impacting our customer execution? And also, are you seeing any shifts in demand for short-term insurance? Second, my second question regards to overseas business progress. Could the management team update on Hong Kong brokerage business since securing license last summer?

Ray Wan, Chief Financial Officer

If customer scale were held constant, continuous optimization of our models and products would keep driving ROI higher. However, we continue to grow ad spend and ad spend into new user segments, and external traffic competition dilutes ROI to some extent. Currently, our ROI is holding at a fairly stable level, and we have not seen any negative impact from softened advertising demand yet. 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 rules 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 updates. Thank you. Next question please.

OPERATOR

The next question. The next question comes from Thomas Wang of Goldman Sachs. Your line is open. Please go ahead.

Thomas Wang, Analyst at Goldman Sachs

Two questions. Thank you for the opportunity. So firstly, on the advertising business, you mentioned initial expense is quite high, but I want to see what's management's view on medium to long-term margin. And the second point is on the trend in terms of number of policies sold during the quarter and also the average ticket. Thank you.

Ray Wan, Chief Financial Officer

For the advertising new business, right now we don't disclose any details, but right now it's on a 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. Thank you. Next question please.

OPERATOR

One moment for our next question. Next up, we have the line from Lim Tan from Haitong International. Your line is open. Please ask your question.

Lim Tan, Analyst at Haitong International

I have two questions. Thank you, management, for taking my question. My first question is regarding the new advertising service revenue. What exactly is the new advertising service revenue, disclosing this quarter's revenue breakdown? And then my second question is regarding AI. In first half, the company continued to roll out its multi‑agent AI claim system and step up investment in AI across claims, underwriting, and user conversion. What quantifiable improvement has this AI capability actually delivered in customer acquisition cost, policy quality, and claim cost?

What's the capex plan for R&D investment going forward? Thank you.

Ray Wan, Chief Financial Officer

Advertising services are a new service offering that was introduced during this quarter, specifically referring to services provided to insurance carriers. Our newly launched advertising services are built on our proprietary intelligent marketing platform, which provides clients with integrated intelligent marketing and traffic optimization solutions. Advertising services represented a small share of total revenue in this quarter.

Mr. Fong, Chairman and CEO

This quarter, in our claims assistance scenarios, we used multimodal models to intelligently parse a variety of materials, including medical records, diagnosis certificates, medical invoices, and examination reports, enabling document classification, human recognition, information extraction, fact consolidation, and review assistance. These capabilities have now been deployed in medical insurance claims assistance scenarios, achieving a document classification accuracy of 95% and an average key field extraction accuracy of approximately 94%.

As of the end of the quarter, our AI team continues to account for over 10% of the total workforce. Moving forward, we will continue to prioritize deep, consistent investment in our core technology capabilities. Thank you. Next question, please.

OPERATOR

Our next question will come from the line of Sing Tao Chen of CICC. Your line is open. Please go ahead.

Sing Tao Chen, Analyst at CICC

I have two questions. The first question is, in the first‑quarter earnings release, Yuanbao announced a dividend and share buyback program. So could you provide some guidance on the dividend and buyback policies for 2026 and 2027? The second question is, besides focusing on improving new customer conversion efficiency, how does Yuanbao leverage AI to enhance the retention of existing customers? Thank you.

Ray Wan, Chief Financial Officer

Our future dividend payout ratio range will need to be assessed based on profitability and approved by the Board of Directors. While maintaining robust profit growth, we will remain committed to creating long‑term value for our shareholders. Subject to our healthy cash flow and strong profitability, going forward, we plan to maintain or grow shareholder dividends. And on the buyback side, we have announced a 15 million US dollar share repurchase program over a 12‑month period.

Moving ahead, we will evaluate whether to expand or adjust the program based on how it is actually executed. On one hand, we use our AI engine to optimize user conversion and retention directly, both before user exposure—for example, by reducing the number of impressions needed to convert a user—and, more importantly, after exposure. On the other hand, as mentioned, we use multimodal technology to help insurers enhance claims processing, defense efficiency, and the overall user experience.

We also continue to build out our proprietary insurance knowledge base, forming the professional knowledge foundation that supports our AI applications. By converting our technology advantages into superior operational efficiency, we can better deliver on our service commitment and enhance the consumer's experience, which in turn improves user retention and drives repeat repurchase. Next question, please. Thank you.

OPERATOR

Just one moment for our next question. Our next questions will come from the line of Jackie Sun from Shenwan Hongyuan. Please go ahead.

Jackie Sun, Analyst at Shenwan Hongyuan Securities

Thanks for the opportunity. This is Jackie Sun from Shenwan Hongyuan Securities. I have two questions. With the Administrative Measures of the Online Marketing of Financial Products scheduled to take effect in September, what does management see as the greatest challenge in the company's marketing compliance transition? How do you plan to ensure a smooth transition? The second question is, with the company's current ample cash reserves, how does management assess the sustainability of its future dividend policy?

Is management considering establishing a regular dividend mechanism tied to net income or free cash flow? Thank you.

Ray Wan, Chief Financial Officer

To date, the introduction of these regulations has not had a material impact on our customer acquisition model. This is mainly due to two factors. First, we have always prioritized compliance and have already built a comprehensive marketing management system paired with a mandatory compliance review process. Second, our core business model is deeply tied to licensed insurance carriers, and all of our product terms go through strict regulatory approval or filing procedures to ensure our operations remain compliant.

At the same time, we maintain ongoing, proactive communication with regulators, striving to keep our corporate strategy closely aligned with the latest policy direction. While maintaining robust profit growth, we will remain committed to creating long‑term value for our shareholders. Subject to our healthy cash flow and strong profitability, going forward, we plan to maintain or grow shareholder dividends. Thank you. Next question.

OPERATOR

Please hold for our last question. Our last question comes from the line of Liaoyuan of CITIC. Please go ahead.

Liaoyuan, Analyst at CITIC Securities

Thanks, management, for taking my questions. I have two questions. The first one is about your AI. Could you share the penetration and attach rate of your multi‑agent AI insurance advisor tool and the efficiency improvement gained from AI agents in B2B client support and quality monitoring scenarios? And second question is, given the strong cash position and last quarter's shareholder return program, could management share more detail about your future capital allocation plan?

Thank you.

Mr. Fong, Chairman and CEO

By combining our knowledge base with multimodal models and agent technology, we have further improved AI accuracy, interpretability, and business adaptability in complex insurance scenarios, driving the evolution of insurance services from traditional manual processing toward an AI‑assisted human‑machine collaborative model. From a long‑term value perspective, using AI to assist or replace manual customer service and loss support can improve the user service experience and raise user LTV.

Automating our modeling and development workflows also accelerates the pace of model iteration. According to our 2026 first‑half claims report we released in July, this was driven by our proprietary AI‑assisted claims assistance, which relies on three AI agents working together efficiently for case organization, preliminary liability review, and conclusion interpretation. It works alongside our Intelligent Claims Assistant feature to empower our insurance carrier partners, helping insurance carriers shorten claim settlement time for small claims under 10,000 RMB by 41%.

At the same time, by launching value‑added services such as claims follow‑ups and continuously upgrading others such as claim mediation, we brought more warmth to our service through technology, achieving improvement in both user experience and operating efficiency. We intend to maintain a disciplined capital allocation strategy, striking a balance among investments in our existing business, potential new growth opportunities, prudent liquidity management, and shareholder return.

Thank you.

OPERATOR

And that concludes the question and answer session. I would now like to turn the conference back over to management for any additional or closing comments.

Stella Liu, Investor Relations and Strategy Associate Director

Thank you once again for joining us today. If you have any further questions, please feel free to contact us directly or FTI Consulting. Our contact information for IR in both China and the US can be found in today's press release. Have a great day. Thank you.

OPERATOR

Thank you for your participation. You may now disconnect your lines.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.