Here Group (HERE) Q3 2026 earnings call transcript

Thank you. Hello, everyone, and welcome to Here's earnings call for the third quarter of fiscal year 2026. With us today are Mr. Pong Lee, our founder, chairman, and CEO, and Mr. Tim Hsieh, our CFO. Mr. Lee 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 Q&A session. I will translate for Mr. Li. You can refer to our quarterly financials results on our AYA website at aya. heregroup. com. You can also access a replay of this call on our AYA website when it becomes available a few hours after its conclusion. Before we continue, I would like to refer you to our safe harbor statement in our earnest press release, which also applies to this call, as we will be making forward-looking statements.

Please note that all numbers stated in the following management prepared remarks are in R&B terms, and we will discuss non-GAAP measures today, I will now turn the call over to the CEO and founder of Here, Mr. Li.

Okay, thank you. Good morning everyone, and thank you for joining us today. I'm very pleased We announced that we achieved about R&B $165 million in revenue this quarter. This exceeded the high end of our guidance. More importantly, we keep improving our IP and pop toy business. We are consistently optimizing our operations and cost structure to build a stronger foundation for long-term growth. As we all know, the first half of the year, especially the first three months, is typically a slow season for the pop toy industry. Beyond working with our channel partners and selling through our own direct channels, we stayed focused on our core strategy. That means building internal capabilities, developing IP-related products and content, and optimizing our channels.

The marketing environment remains challenging, but consumers' demand for emotional and experience-based spending persists. We build our IP products and services around what consumers actually need. Let me start with our IP performance. Wakuku remains our flagship IP. It contributed R&B $102 million in revenue in Q3, all around 62.2% of total revenue. Synodonol's revenue grew 73.1% quarter over quarter, accounting for 20.2% of total revenue. Synodonol launched in the second half of 2025. In less than a year, it has reached a meaningful scale. This is an early validation of our ability to incubate new IPs. More importantly, we are seeing growing cross-IP engagement. Wakuku users are connecting with Xenono and other IPs, while new users are always discovering our increasingly rich IP portfolio.

As we move forward, we keep coming back to one key insight. Short-term sales are not the real measure of success. The real question is whether an IP can win users and earn a lasting place in their hearts and lives. IP development and ongoing operations take time. They require long-term interaction between the IP and its users. Often in the physical spaces, offline D2C stores are a key part of making that happen. Based on our deeper knowledge of the IP industry, we have refined our strategy. In 2025, our growth was mainly driven by our strong productive capabilities and the strength of our IP portfolio. At the same time, we benefited from favorable market circles, channel pair wins, and celebrity partnerships.

These collaborations give us additional momentum and valuable experience. We will continue to benefit from our partnerships at the same time. We know that building lasting IPs requires strong building and solid operational capabilities. That means building our own systems to reach users directly and engage with them deeply. Therefore, long-time IT momentum will always be our top priority. Revenue should follow from strong IPs, not the target, not the target. To achieve this, we have set the following key priorities.

First, keep building IPs and brand operations, create ongoing interaction between IPs and users through different formats, deliver great emotional experiences. We will stick to our strategy, focusing on our call IPs while creating and growing new ones. Around our core IPs, we are speeding up the development of innovative products. This will take about three to six months. We expect to launch new products from our core IPs very soon.

Second, keep expanding our offline D2C stores and the robot shops. This extends our brand reach and user touch points. We treat our offline D2C stores as an extension of our IP products. The store itself is a product. It unifies the IP expression within our self-operated brand system. As of today, we have opened seven D2C brand stores. Each store serves as a space for brand user interaction. Our membership system has also been upgraded. We now have a full chain membership management system in place. This lists the foundation for constant user engagement. Our Roboshop, RoeArch, has also recently begun. To date, we have developed around 15 Roboshops in three cities.

Third, keep building strong online operations. We want to note that online sales are not our goal. Online activities will serve as one of the tools for IP and product operations. This helps us deliver a great consumer experience.

Fourth, keep a measured and steady pace on global expansion. In the near term, we plan to open a pop-up store in South Korea and participate in a trade show in the U. S. as initial market tests. Fifth, keep optimizing our business cooperation with channel partners. We pursue mutual benefits and winning outcomes. We work with them to promote our IPs and products and to deliver great experiences To users, building IP value and enhancing user experience is a long journey. But with efficient execution, we can move more steadily, better and faster. Our progress comes down to two things.

First, IP ecosystem. We are moving from one-off heat to a repeated engine. As of March 31, 2026, our IP portfolio includes 20 total IPs. That includes 12 prior-creatory IPs and 8 exclusive licensed IPs. This quarter, we focused on diversifying our IP metrics. We introduced new IPs with unique styles and different target audiences. We also accelerated our new product launch pace for both flagship and emerging IPs This quarter, we launched a new call-branded IP, Xiao. Its call spirit is defined by four words, cool, stubborn, brave, and free. This message resonates well with young consumers. To drive the launch, we run an integrated campaign across celebrity, social, and fun channels. Now we're using our strengthens in IT design, supply chain, and omnichannel sales.

We completed pre-launch prep, including character development and mass production. Xiaoao gained a strong market attention and a pre-launch buzz. The strong market response has validated and strengthened our portfolio. It proves that our IP incubation model is scalable and competitive. Beyond all, we have a strong product pipeline in preparation. We will launch them steadily according to our planned cadence. For Wakuku, we launched a new series. The Handicraft World of Wakuku series vinyl plush dough on March 28. As of March 31, the initial launch period, the series achieved strong results. Total omni-channel sales exceeded RMB 20 million. Peak concurrent online viewers reached 28,000. And the total new product explorer topped 100 million. The series focused on handcraft, feel, friendship, and warmth, healing, wealth.

This depends on our emotional connection with the users. In May, we also released the 520 gift box, Wakuku Heartbeat Devil, as a hunting card set. Recently, we have also launched new products for other IPs. This includes new plush toys, vinyl figures, hunting cards, and semi-age collections for IPs like Ziyuli, Zenono, Pidou, Kiddikibi, and Aoi. Each of these IPs speaks to a different audience with unique styles and labels. That's how we build a richer IP matrix. For Synodon, the new generation product Mood on series, Vinyl Plus Doe, had its offline launch on May 30, and online launch on June 2.

Second, on-me-channel reach, we are boosting IP user interaction with a clear focus. Offline first, online empowering. Offline, we operate through three channels, our D2C stores, Roboshop network, and partner channels.

First, our self-operated brand stores and the robot shop. As of today, we have opened seven D2C stores in four cities. We recently opened two new D2C stores, one at Shenzhen, Uniwok, Qianhai on April 25, and another at Hian Saige on May 1. Both stores are in prime high traffic business areas and that rank among the biggest in their respective cities.

We are closely tracking store performance and scouting locations for new stores. We are also expanding into automatic retail. As of June 4, we have rolled out about 15 robot shops across key cities nationwide. These unmanned vending machines and placed in high-traffic locations. They extend our offline reach without the higher cost of full-scale stores. They serve as both sales channels and brand touch points. They make our IP more accessible with collecting available data on product performance and purchasing habits.

Second, partner channels. We continue to work with our channel customers. These partnerships help us reach more consumers through established retail networks. They expand our IPs and brands elements at more offline touch points and help us interact with users. On the online As a result, our social media presence continues to grow. As a strength of our community followers across major platforms is approaching 800,000. We use online channels to build content and community. Doing so empowers our IP and brand operations. We have also run several brand marketing events to build brand awareness and drive user engagement. We partnered with Apollo Go, Baidu's autonomous driving platform to integrate our IPs with AI technology and smart mobility. This partnership spans co-grounding in vehicle exporter and youth-focused content campaigns.

In May, we participated in the first China New Culture and Creative Market and Trendy Toy Carnival in Beijing. This is a nationwide-level event co-hosted by three central ministries. Here Group was the only non-state-owned enterprise featured in media coverage, including BRTV. Our flagship IP, Akuku, was showcased alongside traditional culture activities as a new oriental aesthetics section. Going forward, we will accelerate the creation of more offline scenarios to give IPs and users small spaces In Beijing, at Beijing airport, we plan to set up a store to enhance brand visibility, and we are actively exploring more similar scenarios. In Hong Kong, we plan to create a dedicated ride experience on the boat at a central pier using our keys, building a unique brand stand.

Operational discipline is reflected in our capital allocation. We continue to align resource support and cost structure with our strategic adjustments. Whether investing in a new IP, opening a store, or launching a content initiative, we evaluate each potential investment against A clear ROI framework. We don't make guesses. We allocate capital based on information and data from IP momentum, our offline network, membership system, and sales channels. Thank you for your continuing spot. I will now turn it over to Tim for a detailed review of our financial results.

Thank you, everyone. 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 third quarter of fiscal year 2026, ending on March 31, 2026, 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 operations. We are pleased to report on our third quarter results, which exceeded expectations on both revenue and gross margin despite navigating a softer demand environment in the broader industry. Total revenue was $164.7 million with gross profit of $56.9 million, representing a gross margin of 34.5%. While revenue decreased from the previous quarter's 177.3 million, gross margin improved by 350 basis points from 31%.

These results reflect our ability to maintain operational resilience and financial discipline in a challenging market environment. We are positioning the company for sustainable long growth through strategic cost management and continued focus on our call IP portfolio Revenues for the quarter were million primarily generated from sales of our three flagship IPs Makuku Sinodo and Zuli compared to million in the previous quarter This change was driven by the cadence of our new product launches and the impact of the Chinese New Year holidays during the quarter, which materially reduced effective working days and temporarily constrained our supply chain and delivery capabilities.

Next, gross profit for the quarter was $66.9 million compared to $55 million in the previous quarter. Our gross margin increased to 34.5% this quarter from 31% in the previous quarter. This margin improvement reflects the early benefits of our strategic cost structure refinements implemented during this quarter, positioning us for enhanced margin performance going forward. On the operational front, total operating expenses were $100.8 million for this quarter. To break this down, sales and marketing expenses were $57.7 million. These expenses mainly included advertising and promotion expenses and staff compensation to support brand building and customer acquisition efforts across multiple platforms. As a percentage of total revenue, non-GAAP sales and marketing expenses, which exclude share-based compensation, changed to 35% this quarter from 29.6% in the previous quarter.

Research and development expenses were $9.5 million. These expenses mainly consisted of IT design and product development expenses. As a percentage of total revenue, non-cap research and development expenses, which exclude share-based compensation, changed to 5.7% this quarter, compared to 5.1% in the previous quarter. General and administrative expenses were $33.6 million. These expenses reflected our co-operational functions, including employee compensation, professional service fees, and other operational expenditures. As a percentage of total revenue, non-GAAP general and administrative expenses, which exclude share-based compensation, changed to 13.8% this quarter from 12.7% in the previous quarter. Our net loss was $34.1 million compared to $25.4 million in the previous quarter. Our adjusted net loss was $22.9 million compared to $16.1 million in the previous quarter.

Basic and diluted net loss per share was $0.21 during this quarter. Basic and diluted adjusted net loss per share was $0.14 during this quarter. Looking ahead, we remain excited about the growth prospects for our PopToy business. Based on current available information, including our pipeline for upcoming IP releases and seasonal demand, we expect revenues from our PopToy business to be in the range of RMB $130 million to RMB $140 million for the fourth quarter of fiscal year 2026. They are revising our fiscal year, 2026, revenue guidance to a range of R&B 600 million to R&B 610 million. This revision reflects near-term market realities and demonstrates our commitment to providing transparent guidance aligned with current industry conditions.

That concludes my prepared remarks. Operator, let's open up the call for questions.

Okay, thank you. I will take this question. First, we see that emotional consumption is really all about companionship. Consumer motivation is driven by a mix of emotional value and collectible value. And their expectations for IP products keep rising. So only products with real character and solid operations can truly connect with consumers. For young buyers, they are buying for immediate emotional satisfaction. Our handicraft world of Wakuku series focuses on handcrafted feel, companionship, and warm heating. This responds directly to what consumers are looking for. This is a recent example for our new product launch for the IP Wakuku. At the same time, good IP products have real artistic value. Some collectors do want to collect a complete set or even buy on the secondary market because they love the IP.

Companionship and portability have become very important product dimensions. The plush and bag charms saw strong growth in 2025 and became the farthest growing category in the pop toy industry. However, starting in the first half of this year, we have seen the market cool down. The main reason is that supply chain grew too quickly, which reduced the early scarcity. This is actually a normal market correction. The industry is moving back to the core of emotional consumption, from chasing security to buying what you like, or the both.

And for us, the underlying logic of this category has not changed. Consumers still want IT products that fit into their daily lives. We'll stick to our strategy, creating excellent IPs and products. For example, our recently launched Synono, Moved on Series, the new product, has been very popular based on recent consumer response. And for the competitive condition, the competitive landscape is shifting from grabbing territory to competing on ecosystem capabilities.

Firstly, more players have entered the market, but only a few can operate IPs, especially the self-owned IPs, consistently over time. It is still a large market with many small players. Secondly, the call of competition is moving from product capability to full-chain IP operation. Long-term IP value must be built from business. Pop toys are not fast-moving consumer goods. You cannot drive growth simply by adding more SQs. You should meet IP design, supply chain, brand, and sales all working together as one system. And honestly, very few companies can actually put it all together. Thirdly, the industry is taking a fresh look at own IPs. For most pop toy companies, licensed IPs account for the majority of their revenue, and these licenses typically last only one to three years and has a high cost.

So if a license doesn't get renewed, you are looking at a major We have taken a different approach. We have built a systematic capability to create and understand our own IPs. Our IP portfolio is much more balanced. More than half of our IPs are self-owned. And even with our licensed IPs, we focus on long-term. For co-branded IPs like Xiao, which is just recently launched, we use a deep cooperation, co-creation model rather than relying on a simple licensing deal. That's all.

The performance of IT is the first of all of the things that we have to talk about. It is also about how to talk about IT, and the main goal is to continue to use the performance of IT. The main goal is to build the IP and its target target, and its target target, and the target target. IP Momentum depends on two factors, the IP's characteristics and ongoing successful operations. To maintain this momentum, the key is to consistently deliver events, contests, products, and experiences that align with the IP's characteristics and connect with the target audience.

Let's continue to do some things. The first thing is to keep our information in the核心 IP. We need to keep our information in the core of the IP. We need to keep our information in the core of the IP. We need to keep our information in the core of the IP. And we will also turn the call over to the Here Grip Lt. And we will also turn the call over to the Here Grip Lt.

We will use the primary resources to keep our core IPs running smoothly. At the same time, we closely monitor performance across the multiple dimensions to improve resource efficiency. The second thing is to use a good product and experience to strengthen users' awareness of our IT. We can maintain and maintain our IT skills, and do our product development, and continue to create a new product. We are now using the main IP, and we are constantly working to use the new IP. We also developed many different types of design and different types of design.

Second, with changing the user's wellness and engagement through the high quality, We will be able to provide quality products and experiences. This helps maintain and build IP momentum. We arrange product plans at a steady pace and keep innovating around IP. This year, we are planning next generation products for our core IPs, along with offerings of new materials and new play styles. We will expand into new categories at the right time. And beyond physical products, we are developing IP-driven experiences through a live FM model. For example, we recently signed a ferry at Hong Kong Center Pier, and we turned it into IP-themed park on the water. Okay.

Third, we actively manage our IP brands through partnerships. This includes the placement in variety shows, celebrity partnerships, and brand collaborations to grow our IP influence over time. Fourth, we're strengthening offline touchpoints through our DTC stores, rubber shops, and dedicated branded sections in partner retail locations.

So overall, we believe strong fundamentals have to manage and extend an IP select circle. But it does not come from a single heat product. It comes from consistent, stable, and systematic operations. Okay, that's all.

Yes, we are always interested in this opportunity to expand the content of the product. But our goal is to build our IPs, not to do new products and new products. That's right. We are now looking at our IT's performance management process. We are trying to help our core IT's to best-to-date the product. Our design-to-date is the next three parts. Ok.

Yes, we do. We are continuously exploring the category expansion opportunities. Our principle is to extend from our IPs, not to launch the new categories for their own sake. At this stage, we mainly consider where each IP is in its life cycle. Then we carefully explain into merchandise around our core IPs. Our strategy focuses on three key areas. The first thing is that the周邊配料 is the one that is developing. We will be able to develop the周邊配料, including the lifestyle-wise products, so that the IP will be the collection of our daily life. Okay.

First, merchandise is a key focus for us. We gradually expanding into IP-related merchandise, particularly lifestyle products. The idea is to transform our IPs from collectibles on a shelf into everyday companions in people's lives. The second thing is that we will keep a quiet mood for the market. The current market is the current market. The current market is the current market. We don't do this. We don't do this. We must be able to do the market. The current market needs to be related to the market.

Second, we're expanding a disciplined pace. There is a common trend in industry right now. Many SKUs, very broad coverage, but that is not our approach. We believe category expansion must align with IP's context and user needs, not to just add more SKUs. We prefer to go deep with our core IPs, not broad.

第三点是我们也在关注智能陪伴和科技加RT的新形态的发展. AI的技术跟潮玩的结合肯定会成为将来一个新的方向,所以我们也在关注这个方向. But I'm still in a research conference. I don't have a specific way to do it. Third, we are watching for opportunities like smart companionship and tech plus IP development. The combination of AI and pop toys is becoming a new direction. We are actively researching it, but we are still exploring and don't have any specific friends yet.

So to sum up, stay focused on the IP. We go deep in our core categories, then gradually expand into merchandise. We are now trying to cover everything instead. Our goal is to make sure every new category truly supports the emotional connection between our IPs and our users.

Thank you.

Thank you.

Thank you.