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 will now turn the conference over to Ms. Tina Tang, the company's Manager of Investor Relations. Please go ahead, ma'am.

Thank you. Hello, everyone, and welcome to Here's earnings call for the second 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 Tim 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 solidly explained and reconciled to the most comparable measures reported in our earnings release and the filings with the SEC. I will now turn the call over to the CEO and the Founder of Here. Mr. Li.

Okay. Good morning, everyone, and thank you for joining us today. Just over [ 3 months ] ago, we held our first earnings call as a pure-play portfolio company. We shared our vision of focused acceleration. Today, I'm pleased to report that we have not only maintained that momentum but also began translating it into the durable long-term value we promised. This quarter marks a significant milestone with our first full quarter operating as a dedicated IP trained company. We have a clear and firm strategy and we are continuously optimizing in execution in a rapidly changing market environment. Building on our Q1 outperformance, Q2 delivered strong results. Total revenue reached RMB 177.3 million, representing 35.4% quarter-over-quarter growth. This performance exceeded the high end of our guidance and reflects a sustained and steady momentum following our strategy. We continue to focus our flagship IPs to create an ultimate product appeal. Our flagship IP, WAKUKU contributed on the RMB 129.4 million, accounting for 73% of Q2 revenue. SIINONO is another potential flagship IP. It has been gaining momentum since its initial launch in July 2025. It's generated over RMB 19.2 million in revenue this quarter. This is not just about product's success, it demonstrates that our IP-first strategy is successfully converting more consumers into a growing base of our users. This quarter, based on our observation on changing market conditions and our evolving operational insights, we improved our strategy implementation in a timely manner. We have gained a deep understanding. Product sales for a period of time are not the only metric to measure an IPs success. The ultimate goal of our operations is to build IPs that users love and that process lasting vitality. We expanded sales contribution from off-line distributor channels. This allows users to experience IP products more…

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 in the second quarter of fiscal year 2026, ending on December 31, 2025. And then in addition to GAAP measures, we'll also be discussing non-GAAP measures to provide greater clarity on the trends in our actual operations. We are pleased to report another quarter of solid financial performance, marked by continued revenue growth and further improvement in our profitability metrics. This demonstrates the sustained successful execution of our strategy as an IP-based product-driven pop toy company. Total revenue reached RMB 177.3 million, representing a 39.4% increase from the previous quarter. Gross profit reached RMB 55 million with a gross margin of 31% compared with total revenue of RMB 127.1 million and a gross margin of 41% in the previous quarter. Adjusted net loss from continuing operations continued to narrow to RMB 161.1 million, down from RMB 17.1 million in the previous quarter. These results reflect the growing traction of our pop toy products and operating leverage, we are beginning to realize in our focused business model. Revenues for the quarter were RMB 177.3 million entirely generated from the sales of pop toys and other related activities compared to RMB 127.1 million in the previous quarter. This sequential growth is primarily driven by our off-line channel sales. Gross profit for the quarter was RMB 55 million compared to RMB 52.4 million in the previous quarter. Our gross margin decreased to 31% this quarter from 41% in the previous quarter. The margin decline reflects our strategic expansion of off-line channels which generated lower per unit margins than direct online sales. This channel diversification strategy is designed to enhance IP engagement and strengthen customer loyalty through physical retail…

[Operator Instructions] The first question today comes from Alice Cai with Citibank.

Just one quick question. The revenue guidance for third quarter suggests a quarter-over-quarter decline of about 15% to 20%. Is it primarily due to seasonality? Or are there any specific adjustment due to your IP launch schedule for the upcoming quarter?

Thank you, Alice, for the question. Indeed, those factors have contributed. But the core message is that we are actively building momentum for subsequent growth. Firstly, regarding seasonality, given that our current business primarily operate through a distributor model. Distributors naturally slow down their operations and inventory stocking during the spring festival holiday. This is within our expectations and represents a common seasonal fluctuation in this industry. And secondly, regarding the recent and pace of our product launches. This is not an adjustment, but rather a proactive arrangement based on our annual planning. Our products are typically planned 3 to 6 months in advance with dynamic optimization made based on market feedback. Currently, we are fully prepared for our product pipeline in the coming quarter and beyond, with major new products expected to launch successively starting from this end of March. Therefore, what we are seeing in the short term is the normal seasonal dip from a medium- to long-term perspective, this is proactive management on our part to welcome a new product cycle and optimize inventory and channel pace.

The next question comes from Liping Zhao with CICC.

[Foreign Language] I'll transfer it myself. So my question is about the cooperation of other companies in the future. We noticed that the Shenzhen Yiqi has recently established a joint venture with Enlight Media that this partnership means we will be working closely with Enlight Media in areas such as content creation and IP development?

I think Mr. Li will answer this question. [Foreign Language]

I will answer the question in Chinese and Tina will translate for me. Okay. [Foreign Language]

Thank you for your interest. Regarding our cooperation with Enlight Media, it is a key part of our efforts to deepen our IP strategy.

[Foreign Language]

First, over the past year, we have successfully taxed and confirmed the commercial path from IP images to pop toys by focusing on our core IP to create key products. We have built a solid foundation centered on the product gens.

[Foreign Language]

Second, we have always trusted the talent of IP comes from continuous contact support. And both the [ third column ] is very important to this. We focus not only to sell in the physical products like the blend boxes and the plush toys, but also on the long term, develop our IP. So we are now enhancing our IPs through the suitable content forms. We're doing this by bringing in excellent contact tailwinds like the Enlight Media and cooperating with the top industry partners. Our goal is to add a cultural meaning to our IPs and strengthening emotional connection between users and IP.

[Foreign Language]

Finally, the joint venture within Enlight Media, you mentioned it's exactly one of the specific projects to carry out our product and content stewardship strategy. We hope to explore more possibilities for our IPs in areas like the film and the television contact and derivative development through such cooperation. As for specific future plans, we will disclose them to the market when there is a substantial progress.

The next question comes from Yichen Zhang with CITIC Securities.

My question is about our operations strategy. The company was very successful in IP operations last year. So are there any new strategies for IP operation and marketing in this year?

Okay. Thank you for questions. I'll take this. This year, the core keyword for our IP operations and marketing strategy is a comprehensive upgrade from -- maybe we can call that opportunistic creativity to a systematic IP factory. This is reflected in 3 key areas. The first one is on the product front. We have built a replicable assembly line for IPs. Extreme product excellence is the foundation of everything. Through our product committee mechanism, we rigorously select IPs based on 3 dimensions: the visual distinctiveness, story potential, storytelling potential and audience resonance, ensuring that every category launch has a generic makeup to become more classic. Concurrently, we have established a complete process from discovery and incubation to development and launch and then to fulfill the full-size life cycle management, making it possible to replicate and sustain at products. A great product in itself is the best nourishment for IP. We continuously strengthen our in-house teams and integrate outstanding external resources, injecting vitality into our IPs with product excellence. And secondly, on the operations front, we have developed an iterable omnichannel marketing methodology. Over the past year, we have continuously summarized and optimized our operational experience, forming a replicable playbook that we constantly refine and iterate. This year, we will flexibly deploy differentiated marketing strategies based on the unique characteristics of different IPs and products, whether it's celebrating collaborations, branding, crossovers with major sports events or integrated online to off-line user engagement activities. Our goal is to leverage precise operational support to ensure great products are sent and loved by more people. And third, on the content front, as just discussed by Mr. Li and the CICC analyst. We are opening a new chapter of light content empowerment for IPs. And this is a crucial step in our journey from purely physical space to narrative space, and from product moments to sustain store retiring. Through appropriate content, we infused our IP with culture substance and emotional depth, transforming them from mere trendy toys into cultural symbols, with stories and vitality. This multidimensional empowerment across products, content, operations and branding has one ultimate goal, to build truly enduring evergreen IPs. So that's our training strategy so far.

The next question comes from [indiscernible] with [indiscernible] Securities.

My question is about our channel expansion. I wonder how is the performance of the -- our recent offline stores have reached our expectation and what's the channel expansion plan in year 2026?

Okay. I've answered your question. I thank you for your interest in our store operations. Regarding our offline stores, I will address this from three dimensions: the short-term performance, strategic positioning and future plans. Firstly, regarding short-term performance, our newly opened stores have generally met or even slightly exceeded our internal expectations. Since late last December, in last year 2025, we have opened 5 D2C stores in Beijing, Shenzhen and Chongqing. Although they have been operating for just over one month, the overall performance has been solid, and we have broadly achieved nearly breakeven or commendable result for newly opened stores in their initial phase. Of course, due to differences in customer profiles across various shopping districts, we are continuously fine-tuning the operational strategies for individual stores. And second, regarding strategic positioning, we value these stores not only for their sales contribution, but also and more importantly, for their role as brand landmarks and user touch points. Our offline direct to sale stores are core scenarios for fostering deep interaction between our IPs and users. To this end, we recently established a user operation center the organization in our company aimed at integrating online and offline data and user and planning more cohesive interactive activities with our IP platform and the product launch pace as a crucial component of this strategy, the value of our stores for brand showcasing and user connection far exceeds near sales figures.

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

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 nice day.

Thank you for attending today's presentation. You may now disconnect.