Here Group (HERE) Q1 2026 earnings call transcript

Thank you. Hello, everyone, and welcome to Here's earnings call for the first quarter of fiscal year 2026. With us today are Mr. Peng Li, our founder, chairman, and CEO, and Mr. Tim Hie, our CFO. Mr. Li will provide a business overview for the quarter, then Tim will discuss the financials in more details. Following their prepared remarks, Mr. Li and Tim will be available for the QA session. I will translate for Mr. Lee. You can refer to our quarterly financial results on our IR website at ir. qgroup. com. You can also access a replay of this call on our IR website. When it becomes available, you are worth it at its conclusion. Before we continue, I would like to refer you to our safe harbor statement in our earnings press release, which also applies to this call, as we will be making forward-looking statements.

Please note that all members stated in the following management prepared remarks are in IMD terms, and we will discuss non-GAAP measures today, which are more thoroughly explained and reconciled to the most comparable measures reported in our earnings release and followings with the SEC. I will now turn the call over to the CEO and founder of Kier, Mr. Lee.

Okay. Good morning, everyone. Thank you for joining us today for our first quarter of fiscal year 2016. This is a historic moment. Our first term is called Here Gould, which positions us The first is the pure play player in the global toy market. Today I am proud to report that our first quarter as a fully focused organization has been one of strong execution and celebrating momentum. We have completed this puzzle of our non-totoy businesses by Amazon 3025. Allow us to concentrate all our talent and results in the immense global opportunity ahead. In Q1, we delivered total revenue of Rd100 and We will have a 7.1 million. With our business growing...

Wait a moment. Hello, I will not be able to get this business in the way here. Bye.

With our portfolio businesses growing largely 3.3% quarter over quarter, R&B 65.8 million. Exceeding the higher end of our previous budget, R&B 110 million. Let me highlight our most impressive operational metric, which demonstrates the power of our focus strategy. Our total G-O-V across direct to customers, our last stop, reached on the 44.6 minutes. This is called fiscal year 26-01. I will validate our ability to develop the operations and our future development strategy will align with our new products and launch schedules and other operational activities. This operational momentum along with contributions from our diversified sales channel translates directly to strong financial focus. Our shipment focus is also driving improved profitability with growth margins expanding to 41.2% up from 34.7% in the previous call.

We ended the call with a solid balance sheet and strong asset space reflecting our financial stability and operational strength. Now let me walk you through how we are executing our two-killer roles to strategy and tangible results we are seeing across our business. Our first speaker focuses on strengthening our IP ecosystem with a balanced audit. This is delivering results of original, raw, variety, IP creation, strategic partnerships of electricity IP, and across industry co-frontings. A key element of this approach is concentrating with our flagship IP properties to maximize their market impacts and the cultural resonance. Our cuckoo, we launched our cuckoo on the low series on November of the last. This new series brings collectibles into real life scenarios, building emotional connections with young customers who will keep pieces as daily companies and personal symbols rather Just a point.

By integrating lucky numbers into lifestyle and offering versatile settings, we platform use interactions with flexibles into spontaneous social sharing moments. I will decide elements from changing colors to social rates like interchangeable, silky cut hats makes a lot of tangible daily experience. The launch was funded by original We are creating a multimedia experience that expands the IP culture, rich beyond physical products. Our operational excellence demonstrates this strategy in action. Coco's street become one of Shanghai's most popular photography destinations in November, attracting young people and social media creators who generate diverse content through street photography and collection showcases. This capability turning IT launches into culture phenomena that's . Both our ability to create compelling characters that actually is embedded into young people's lives.

We are now in authentic expressions of personality and of culture moments that depend beyond traditional products boundaries. Our flagship IP continues to be a powerful growth engine, which recently We are now looking ahead, we remain committed to adding value to our legacy and the newly launched Let me share our strategic partnerships that are extending our cultural influence. We will formally establish a strategic partnership between radio and television stations. The partnership covers content as a cultural project cooperation mechanism, including program This is our co-creation IP integration and co-brown production. This deep integration with mainstream media is a foundation of our national media partnerships. Our PopToy IP participating in the official Golden I will turn a walk activities, including the Stereo Sea gift set, and outside integrity, becoming one of the examples of youth culture at this year's field level.

This collaboration achieved connections with China's entertainment industry. Our industry co-branding strategy is elevating our branding to new customer segments through diverse partnerships across the entertainment, media, and corporate developments. In the sports sector, we achieved a long-range milestone and the first official part-time in China Open history, creating value across three key areas. From a media perspective we generated to prioritize authentic integrations and organic enforcement from global top players, including the most number one event, isolate. Who have celebrated sales sales about? On the commercial side, our summer talker saw generation immediately in sales with multiple limited edition titles selling out immediately of our units. This success demonstrates the effectiveness of our HotCoin Plus Premium Sports Event model, creating a seamless connection to mature sales conversions.

In the Thailand sector, we will secure the highest profile that they expand our reach into mainstream culture. We will continue to collaborate with various show, P&D and Google, by integrating our quality This partnership demonstrates our ability to seamlessly pop up with live stream television programs reaching diverse demographic segments. We also partnered with local service to create an IP zone street featuring installations. Integrative scenarios have immersive social opportunities in the core Beijing landmark commercial This project increased both the technical and the help of the area for the younger audience, providing the success of our management with the renewal plus the scenario of construction. This collaboration is showcased our society meeting in cross-industry partnerships from premiums, sports tournaments, to domestic reality shows and urban commercial districts, which decided I will now turn the call over to introduce our IP to new audience while strengthening across different consumer platforms.

This IP set creates the foundation of our second pillar, our only channel approach, which is I'm telling the question to show you the same group, both domestically and internationally. In China, our personal media industry has an exceptional result. Our commandment follows based across T platform have reached 26.5 from the system. We have generated 135 milliliters on OE and 141 milliliters on Reynolds. That was the end of the reach. This is Thank you very much. Our software has generated over every 3 million in cumulative sales, and we have secured green locations. We are all-site traffic locations in soft-tier shopping districts, including Shanghai, Thank you.

We participated in high profile events including the 2025 China International Bureau of Trade in Saracen, significantly boosting ground visibility and generating quarter qualified leads on wholesale channel internationally. Our momentum is reaching across key markets. Our performance of stock shop in North America has positioned us as a popular in collectible category. A standout success was our Waku Koo Pender series. Well, our overseas distribution network now covers around 20 countries, including North America, Europe, and the Middle East. With the established infrastructure in place, we are now beginning to focus on enhancing sales In this market, our supply chain capabilities continue to improve and our overseas distribution. This foundation allows us to rapidly develop our geographic footprint while minimizing fixed infrastructure.

The infrastructure investments that leverage our customers establish the retail, relationships, and local markets expertise to achieve efficient markets of all current changes. We are pinning our creative and commercial success with our integrated operational system, which represents a true competitive advantage. Well, we are no longer in the transition. In addition, we are in a celebration mode with a pure play of our strategy. Followed as two pillars like construction and plan. Agile supply chain capability and the balance sheet, we are now positioned to capture the massive global corporate efficiency and deliver sustainable long-term value to our shareholders. This is a quarter of the strategic process. Our problems are resonating with consumers. Our channels are scaling and our operations are executing flawlessly.

We have the momentum and the capability as a result to become a defending global player in the popular industry. I will now turn it over to you for a detailed review of our financial results.

Thank you everyone. That's all. Hello, thank you. Before I go into the details of our financial results, please note that all amounts are in RMB terms, that the reporting period is the first quarter of our fiscal year 2026, ending on September 30, 2025, and that in addition to gap measures, we will also be discussing non-gap measures to provide greater clarity on the trends in our actual We are pleased to report on solid financial performance this quarter, which demonstrates the successful execution of our strategic transformation into a product-driven pop-toid company. Total revenue reached $127.1 million with a gross margin of 41.2%, compared with total revenue of $65.8 million with a gross margin of 34.7% in the previous quarter.

Adjusting net loss from continued operations narrowed to $17.1 million, down from $19.3 million in the previous quarter. These results reflect the success of our strategic business restructuring and the disposal of our non-pop toy businesses, allowing us to focus entirely on our high-growth pop toy segment. Revenues for the quarter were $127.1 million, entirely generated from the sales of pop toys and related activities, compared to $65.8 million in the previous quarter.

Gross profit for the quarter was $52.4 million, compared to $22.8 million in the previous quarter. Our gross margin increased to 41.2% this quarter from 34.7% in the previous quarter, reflecting the strength of our pop-to-y business model. On the operational front, total operating expenses were $81.6 million for this quarter. To break this down, sales and marketing expenses were $27.6 million. These expenses mainly included advertising and promotion costs aimed at enhancing product and brand visibility to accelerate growth and expand market share As a percentage of total revenue non sales and marketing expenses which exclude share compensation decreased to 21 this quarter from 29 in the previous quarter Research and development expenses were million These expenses were mainly focused on advancing our pop-to-i portfolio through new product design innovation and establishing our integrated sales platform and data center infrastructure.

These investments create a solid operational foundation to support future business expansion. As a percentage of total revenue, non-GAAP research and development expenses, which exclude share-based compensation, decreased to 12.5% this quarter, from 13.5% in the previous quarter. General and administrative expenses were $38.1 million. These costs reflected our operational functions including employee compensation, professional service fees, and other operational expenditures. At the percentage of total revenue, non-GAAP general and administrative expenses which exclude share-based compensation decreased to 23.2% this quarter from 26.3% in the previous quarter.

Our net loss from continuing operations was $25.8 million, compared with $21.8 million in the previous quarter. Our adjusted net loss from continuing operations was 17.1 million, compared with 19.3 million in this previous quarter. Basic and diluted net loss from continuing operations per share was 0.16 during this quarter. Basic and diluted adjusted net loss from continuing operations per share was 0.11 during this quarter.

Regarding our balance sheet position, as of September 30, 2025, we held $789.4 million in cash and cash equivalents, restricted cash, and short-term investments. Looking ahead, we excited about the growth prospects for our pop-to-it business. Based on currently available information, we expect revenues from our POPTOY business to be in the range of R&B $150 million to R&B $160 million for the second quarter of fiscal year 2026, and in the range of R&B $750 million to R&B $800 million for the full fiscal year 2026. These forecasts reflect our confidence in the pop-up market opportunity and our ability to scale our IP portfolio and expand internationally. That concludes my prepared remarks. Operator, let's open up the call for questions.

Okay, thank you for your question, Alice. For the first one, regarding the guidance, the revenue forecast is primarily based on the following points. The timeline and pace of the product launches for different IPs, and corresponding production capacity arrangements, as well as the current production capacity and inventory situation. It also takes into account the order from our customers' allocation and arrangements for the channel partners and self-operated online platform and DTC channels. Currently, our production capacity is expected to reach approximately 400,000 sets per month, equivalent to 2.4 million units in the near future, I think maybe by end of this year, which will help avoid severe supply chain shortages such as the first half year from recurring.

At the same time, based on the order situation for new products in the latest months, the subsequent product launch plans, and the order placements from various channel partners, our projections can generally support the overall revenue guidance range for the fiscal year ending June 2026. I think the core of our business lies in balancing IP operations and sales scale, with a focus and priority on continuously extending and enriching the emotional value that the IP products bring to our users, while achieving sales growth.

We are striving to continuously realize and optimize this objective. Regarding the bottom line, I think the losses, especially the adjusted losses, excluding the share-based payment expenses, is narrowing. Also, the losses incurred in the fourth quarter were primarily due to the short-term business adjustment for the business restructuring. Because the existing fixed cost structure, cost and expenses structure, including the fixed cost, remained relatively high compared to our current revenue scale, of which many items are appropriate with the legacy business, such as fixed expenses related to maintaining The listing company status, the ODCs, and the list of office spaces based on the previous business model, all of which are currently being optimized. We are actively refining our cost and expense structure in accordance with the needs of the new business development.

In the upcoming quarters, the proportion of similar fixed costs and expenses are expected to continue decreasing. Regarding sales expenses, I think one of the major expenses, we anticipate that the adjusted ratio will fluctuate around 20% of the revenue. The specific amount and proportion will depend on market conditions and the schedule of new product launches. During this rapid growth phase, we plan to allocate slightly more resources to branding and marketing to enhance the IP operation activities. However, consistent with our longstanding business strategy, we will not pursue growth through excessive spending. In the early stages, we aim to strike a balance between the profitability and growth, and we are confident that this profitable growth will be achieved in the coming quarters.

I think the other question related to the product, especially for the IP, I think our peers, For example, the Labubo IP operations have achieved outstanding business performance and rapid growth. And we believe the market is closely following the latest developments of the pioneer companies and other IPs. But as a popular company, we believe there is plenty of room for the growth in our industry. And according to a recent research report, the data from a research firm, the market of these IP pop toys is still growing very fast at a Kega of over 18% in the next five years.

So moving forward, we will continue to prioritize our IP operations, new product launches, and Brand building. The market has validated Wakuku's unique appeal to the users. Let me share some sales numbers. The first generation of Wakuku was launched at the end of last year, and the second generation was launched in the fourth half of this year, in this May. All of the previous version of Wakuku products, the cumulative sales up to now have now exceeded 6 million individual units. And we launched our new generation mini version just now on November 29. The offline debut received very positive feedback, and the online launch is scheduled for December the 4th. So, the pop-to-me market has moved beyond its niche origins and now reaches a much broader audience.

Going forward, we will continue to build our IP portfolio, creating distinctive and resonant IPs for different consumer segments. In product development, we will continue exploring the unique characteristics of each IP to develop new products that align with market demand. For marketing and promotions, we will integrate our operations with strategic marketing campaigns to continuously strengthen our IPs and maintain their long-term vitality.

Thank you. Our key progress with offline DTC stores centers on building strategic of brand experience centers. The first batch of the stores are expected to open between late December this year and early 2026, in very early of January. Current preparations focus on decoration and operational systems, and I think we are getting ready. Our goal is to transform our DTC stores into immersive and and interactive offline narrative spaces. They will serve as physical hubs for our brand culture and call basis for offline community engagement. In terms of channel synergy, our DTC stores represent a strategic investment in brand building and deepening user relationships. The goal is not only direct sales competition. Instead, we enhance overall brand momentum by providing unique immersive experiences.

The approach reinforces and empowers the online DTC and TA channels. We are creating a positive cycle of offline experience, online engagement, and omnichannel conversion. This ultimately strengthens our brand's omnichannel competitiveness. I think future expansion will strictly follow a prudent, safe strategy. We begin by validating the profitability of a single store and brand impact model using operational data from our initial stores. Once we successfully validate the business model, we will consider to speed the process of replication. This way ensures every new store becomes a valuable brand asset that keeps generating value over time. That's my answer.

Thank you for your question. Regarding the overseas market, I think that definitely is one of our focuses, especially starting from recently, in this quarter. I think because of the supply chain shortage in the first half year, our major resources are put into the domestic market, Because we are still at the early stage, and also we should supply all of the demand, all the demand from the existing clients in the domestic markets, especially the KAs first. But at the same time, we are increasing our capacity, the production capacity, especially recently, as I just mentioned, we have increased the monthly capacity almost 40 times recently compared to that early this year. So we started to make our efforts in terms of the overseas channel and sales.

So starting from this quarter, we will adopt such strategy that first we will cooperate closely with our KAs, with our distribution partners, especially with that who has very We are building a solid overseas chain stores and distribution network. Then at the same time, we are building our overseas online platforms such as TikTok in North America and Southeast Asia at the same time. I think combining both of these efforts, we will make progress in In terms of the overseas sales in the coming quarters. But I think as we, even though we definitely think that the overseas market is growing very fast compared in terms of the speed, the growth rate with the domestic market, but as we, orally, we are still at an early stage and our absolute sales volume is still growing very fast.

I think the majority of our sales will still come from the domestic market in the short term. Definitely, we will replicate the strengths and experiences built in the domestic market to the overseas market. So everything is at the beginning and on a trajectory trend so that we can make big progress in the coming quarters.

Thank you, Tim.

Thank you. Based on this quarter data, our portal business shows a healthy and well-structured IP portfolio. We ranked our IPs according to the popularity and also the IP strength.

First, in this quarter, the total revenue for the quarter was R&B 127 million. Our superheat product and IP, Wakuku, alone accounted for 71% of our total revenue. And this makes it the key driver for our growth. Our classic IP, Yuli, as a stable pillar, contributed 16% of the total revenue, approximately. And the new IP, which we launched in July, and it is a third-party licensed, exclusively licensed IP called Synodal, made a solid debut, accounting for approximately 10% of our revenue this quarter. Demonstrating a remarkable performance. The remaining came from other IEPs because we currently have 70 IEPs. For this result, I will give you some basic principles. First is that we will focus our efforts, all of our efforts, the majority of our efforts and resources on our S-class IPs, that is Wakuku, Zuly, and Sinono.

Currently, I think in the short term, maybe in the coming quarter and maybe around three years, we will focus on the top IPs because we think the IPs should put efforts to make the top IP to last their popularity.

Looking ahead to the next year, our new IP strategy will be driven by a dual approach, deep in the core, and systematic incubation. So our call engine, Wakuku, will transition from that explosive launch momentum to deeper operations and extending its product lifecycle. We will consolidate our market leading positions through strategic product line expansion and enhance user experience. And also we will systematically replicate Synodon's proven incubation model to cultivate one to two additional flagship IPs, creating a more balanced and diversified growth portfolio. So overall, our company will drive future growth through an IP matrix operating model. This breaks down into two main areas.

First, we will refresh our established IPs to keep them fresh and engaging for our audiences. Second, we will set up a flexible incubation mechanism that allows us to continually test new concepts and strategically allocate resources to the most promising emerging IPs. Over time, this approach will help us create a healthy IP ecosystem, one that appeals to diverse audiences, protect us from single product risk, and also deliver long-term growth But quarter by quarter, I think the IP revenue fluctuation will be based on the product launches and the pace of the product, each IP. So I think in some, we will focus on three to five key IPs such as Vakuku, Sinono, Zulie, and other IPs maybe in the future.

And also we will incubate some new IPs so that we can not only diversify the revenue concentration risks, but also to grow the whole IP portfolio.

Thank you again for joining our call today. If you have any further questions, please feel free to contact us or submit a request through our IR website. We look forward to speaking with everyone in our next call. Have a good day.