Good morning, and good evening, ladies and gentlemen. Thank you for standing by, and welcome to Here's Earnings Conference Call. [Operator Instructions] Please note that today's event is being recorded. I would now like to turn the conference over to Ms. Leah Guo, Investor Relations Associate Director of the company. Please go ahead, ma'am.

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 Xie, our CFO. Mr. Li will provide a business overview for the quarter, then Tim will discuss the financials in more detail. Following their prepared remarks, Mr. Li and team will be available for the Q&A session. I will translate for Mr. Li. You can refer to our quarterly financial results on our IR website at ir.heregroup.com. You can also access a replay of this call on our IR 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 earnings 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's prepared remarks are in RMB 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 filings with the SEC. I will now turn the call over to the CEO and Founder of Here, Mr. Li.

Good morning, everyone. Thank you for joining us today for our first quarter of FY '26 earnings call. This is a historic moment, our first earnings call, as Here Group following our business restructuring, which positions us a pure-play player in the global pop toy market. Today, I am proud to report that our first quarter as a fully focused organization has been one of the strong execution and accelerating momentum. We have completed the disposal of our non-pop toy businesses by September 30, 2025, allowing us to concentrate all our talent and resources on the immense global pop toy opportunity ahead. In Q1, we delivered total revenue of RMB 127.1 million, with our pop toy business growing 93.3% quarter-over-quarter from RMB 65.8 million, exceeding the higher end of our previous guidance RMB 110 million. Let me highlight our most impressive operational metric, which demonstrates the power of our focused strategy: Our total GMV across direct-to-customer online stores reached RMB 44.6 million this quarter. Fiscal year '26, Q1, has validated our capability to develop DTC operations, and our future DTC development strategy will align with our sales planning, new product launch schedules, and other operational activities. This operational momentum, along with contributions from our diversified sales channels, translates directly to strong financial performance. Our sharpened focus is also driving improved profitability, with gross margins expanding to 41.2%, up from 34.7% in the previous quarter. We ended the quarter with a solid balance sheet and strong asset base, reflecting our financial stability and operational strength. Now, let me walk you through how we're executing our two-pillar growth strategy and the tangible results we're seeing across our business. Our first pillar focuses on strengthening our IP ecosystem with a balanced portfolio. This strategy is delivering results across original proprietary IP creation, strategic…

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 GAAP measures, we will also be discussing non-GAAP measures to provide greater clarity on the trends in our actual operations. 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 toy company. Total revenue reached RMB 127.1 million with a gross margin of 41.2%, compared with total revenue of RMB 65.8 million with a gross margin of 34.7% in the previous quarter. Adjusted net loss from continuing operations narrowed to RMB 17.1 million, down from RMB 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 RMB 127.1 million, entirely generated from the sales of pop toys and the related activities, compared to RMB 65.8 million in the previous quarter. Gross profit for the quarter was RMB 52.4 million, compared to RMB 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 toy business model. On the operational front, total operating expenses were RMB 81.6 million for this quarter. To break this down, sales and marketing expenses were RMB 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-GAAP sales and marketing expenses, which exclude…

[Operator Instructions] And our first question today will come from Alice Cai with Citi. Please go ahead.

I have two questions. And the first one, based on the second quarter guidance imply that the first half revenue is around RMB 280 million, right? So, to hit the full year target of RMB 800 million, second half revenue is to reach at least RMB 500 million, which is nearly double first half. What is the specific breakdown of this confidence? And is this cost driven by capacity, secure orders from retailers? Or is it based on projected sell-through of new launches -- new IP launches, I mean? And do we expect to turn profitable in the second half given the strong revenue guidance? And my second question is about the implication on the Labubu momentum. Do we expect -- is there any impact on our Labubu revenue momentum?

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 the 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 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. And 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 and cost and expenses structure, including the fixed cost remained relatively high compared to our current revenue scale, of which many items are inappropriate with the legacy business, such as fixed expenses related to maintaining the listed company…

The next question will come from Liping Zhao with CICC.

Congrats on your strong quarter. As Xie Dong just said that you guys are going to launch the DTC stores offline. Could you please share the latest updates on these stores and your future opening pipeline in 2026? And how should we expect the sales value of these DTC stores?

Thank you. I will answer it. 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 interactive offline narrative spaces. This will serve as physical hubs for our brand culture and core 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 KA 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 sales 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 very -- every new store becomes a valuable brand asset that keeps generating value over time. That's my answer.

The next question will come from Yichen Zhang with CITIC.

And my question is regarding our overseas market. Because we know that Pop Mart's overseas business almost contributed half of its revenue. But for now, our current overseas revenue proportion is relatively low. So, will the overseas market be our focus for the next year? And what is our strategy on the overseas market?

Thank you for your question. Regarding the overseas market, I think that definitely is our -- one of our focuses, especially starting from recently in this quarter. I think because of the supply chain shortage in the first half year, we are -- our major resources are put into the domestic market, because we are still at early stage and also we are -- we should supply all of the demand -- order demand from the existing clients in the domestic market, especially the KAs first. But as -- 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 40x recently of the -- 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 a strategy that, first, we will cooperate closely with our KAs, with our distribution partners, especially with that who has very solid overseas chain stores and distribution network. And 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. So, I think combining both of these efforts, we will make progress in terms of the overseas sales in this -- 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 this -- overall, we are still at the early stage and our absolute sales volume is still growing very fast. I think to -- the majority of our sales will still come from the domestic market in the short term. Definitely, we will replicate the strength 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. Yes.

The next question will come from [ Dai Xu ] with Huatai Securities.

I'm Dai Xi from Huatai Securities. My question is about our IP structure. So, I wonder what is the revenue structure breakdown by IP this year? And how do we foresee the drivers from new IPs in the next year?

Based on this quarter data, our total 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 RMB 127 million. Our super hit 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, ZIYULI, as a stable pillar contributed 16% of the total revenue approximately. And the new IP, which we launched in July, and it is the third-party licensed exclusively licensed IP called SIINONO, made a solid debut, accounting for approximately 10% of our revenue this quarter, demonstrating a remarkable performance. And the remaining coming from -- came from other IPs because we currently have 70 IPs. So, 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 class IPs, that is WAKUKU, ZIYULI and SIINONO, currently. I think in the short term, maybe in the coming quarters and maybe 3 -- around 3 years, we will focus on the top IPs, because we think the IP should -- we 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 core engine, WAKUKU will transition from that explosive launch momentum to deeper operations and extending its product life cycle. We will consolidate our market-leading position through strategic product line expansion and enhanced user experience. And also, we will systematically replicate SIINONO'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. And we -- 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 potential. 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 a sum, we will focus on three to five key IPs such as WAKUKU, SIINONO, ZIYULI, 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.

As there are no further questions, I'd like to hand the conference back over to management for closing remarks. Please go ahead.

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.

The conference has now concluded. Thank you for your participation. You may now have a good day.