Thank you. Hello, everyone, and welcome to Cheer'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.

Ting Xie, our CFO. Mr.

Li will provide a business overview for the quarter, then Ting will discuss the financials in more details. Following their prepared remarks, Mr.

Li and Ting will be available for the QA session. I will translate for Mr.

Li. You can refer to our quarterly financial results on our IR website at ir.cheers.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 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 Cheer, Mr.

Li.

Okay. Good morning, everyone, and thank you for joining us today for our first quarter of fiscal year 2026 earnings call.

This is a historic moment, our first earnings call as Cheer following our business restructuring, which positions us as a pure-play player in the global pop toy market. Today, I'm proud to report that our first quarter as a fully focused organization has been one of strong execution and accelerating momentum.

We have completed the this 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 100 and [unclear] RMB 127.1 million, with our pop toy business growing Wait a moment.

Leah, 我解决不了这个背景音的问题，好吧？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 pop toy strategy: our total GMV across direct-to-customer online stores reached RMB 44.6 million this quarter.

Fiscal fiscal year 2026 Q1 has validated our capabilities to direct 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 sharpest focus is also driving improved profitability, with gross margin 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 are 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 creations, strategic partnerships of artist IPs, and cross-industry co-branding. A key element of this approach is concentrating resources on our flagship IP properties to maximize their market impact and cultural resonance.

WAKUKU, we launched the WAKUKU on the road series on November 29th. This new series brings collectibles into real-life scenarios, building emotional connections with young consumers who view these pieces as daily companions and personal symbols rather than just toys.

By integrating lucky language into lifestyle scenes and offering versatile versatile styling, we transformed user interaction with collectibles into spontaneous social sharing moments. Every design element, from trending colors to premium accessories like interchangeable [silk-like?]

hats hats, makes luck a tangible daily experience. The launch was further enhanced by an original song and music and music video, creating a multi-media experience that extends the IP's cultural reach beyond physical products.

Our operational excellence demonstrates this strategy in action. WAKUKU 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 IP launches into cultural phenomenon phenomena that drive organic community engagement, proves our ability to create compelling characters that actually is embedded into young people's life, becoming authentic expressions of personality and catalysts of cultural moments that extend beyond traditional product boundaries. Our flagship IPs continue to be powerful growth engine, with recent launches achieving record-breaking volumes, particularly in international markets.

These launches show our systematic IP development capability and our ability to create emotionally resonant characters with compelling narratives. Looking ahead, we remain committed to adding value to our flagship IPs and newly launched IPs.

Let me share our strategic partnerships that are expanding our cultural influence. We formally established a strategic partnership with Beijing Radio and Television Station.

The partnership covers content and cultural project cooperation mechanisms, including program co-creation, IP integration, and co-brand content production. This deep integration with mainstream media enhances our brand brand visibility and lays the foundation for our nationwide media partnerships.

Our pop toy IP participated in the official Golden Rooster Awards activities, including the Starry Sea gift set, red carpet visual elements, and on-site interactive creativity, becoming one of the samples of new sculpture at this year's film festival. This collaboration achieved deep connections with China's mainstream entertainment industry.

Our cross-industry co-branding strategy is elevating our branding to new customer segments through diverse partnerships across entertainment, media, sports, and urban developments. In the sports sector, we achieved a landmark milestone as the first official pop toy brand partner in China Open history, creating value across three key areas: from a media perspective, we generated over 200 million exposures and become a hot tournament topic.

In terms of athlete engagement, we secure authentic integrations and organic endorsements from global top players, including the world's number one ranked athlete, who helped spontaneously celebrate his win on debut. On the commercial side, our on-site pop-up store generated immediate sales revenue, with multiple limited edition titles selling out immediately upon release.

This success demonstrates the effectiveness of our pop toy plus premium sports events model, creating a seamless connection from brand awareness to direct sales conversions. In the entertainment sector, we secured high-profile collaborations that expand our reach into mainstream pop culture.

WAKUKU collaborated with the reality show [Running?] by [unclear], integrating our brand into China's top-tier entertainment landscape.

This partnership demonstrates our ability to seamlessly seamlessly blend pop pop toy culture with mainstream television programming, reaching diverse demographic segments. We also partnered with local tourism government offices to create IP-themed street featuring installation, interactive scenarios, and immersive photo photo opportunities in the core Beijing landmark commercial district.

This project increased the foot traffic and helped revitalizing that area for younger audience, providing a success pattern for our renewal plus pop toy scenario operations strategy. These collaborations showcase our versatility in cross-industry partnerships, from premium sports tournaments to domestic reality shows and urban commercial districts, each designed to introduce our IP to new audience while deepening brand recognition across different consumer touchpoints.

This IP step creates the foundation for our second pillar: our omnichannel approach, which amplified by by this compelling branding across multiple touchpoints to driving efficient growth both domestically and internationally. In China, our social media matrix is delivering exceptional results.

Our combined followers base across key platforms reached 26.15 thousand. We have generated 600 and 19 million views on Douyin and 121 million views on RED, demonstrating massive organic reach.

This is converting directly to sales, with our Douyin flagship store GMV increasing 93.2% quarter over quarter. Offline, we are continuing to expand our DTC stores, which serve primarily and brand flagship experiences to showcase our products and strengthen brand presence in key markets.

Our pop-up stores have generated over RMB 3 million in cumulative sales, and we have secured prime locations, which are all high-traffic locations in top-tier shopping districts, including Shanghai, Beijing, and Shenzhen. For more direct-to-customer channels, our first Beijing DTC store and our first Shenzhen DTC store will open in December 2025.

Two additional DTC stores in Beijing are set to open in early 2026. In addition, we have also launched Christmas and New Year pop-up stores to capture the holiday shopping momentum in Shanghai and Shenzhen.

We participated in high-profile events, including the 2025 China International Fair of Trade in Services, significantly boosting brand visibility and generating quarter qualified leads for our wholesale channel. Internationally, our momentum is accelerating across key markets.

Our performance on TikTok in North America has positioned us as a top player in collectible category. A stand-out success was our WAKUKU Panda series.

While our overseas distribution network now covers round 20 countries, including North America, Europe, Southeast Asia, and the Middle East, with established infrastructure in place, we are now beginning to focus on enhancing sales performance in this market. Our supply chain capability continue to improve, and our partnerships with overseas distributors deepen.

This foundation allows us to rapidly scale our geographic footprint while minimizing fixed infrastructure infrastructure investment and leverage our partners' established retail relationships and local market expertise to achieve efficient market penetration. Underpinning our creative and commercial success is our integrated operation operational system, which represents a true competitive advantage.

We are no longer in transition; we are in acceleration mode, with a pure-play pop toy strategy powered by the two pillars, execution plan, agile supply chain capability, and a strengthened balance sheet. We are well-positioned to capture the massive global pop toy opportunity and deliver sustainable long-term value to our shareholders.

These results this quarter validate our strategic transition. Our brands resonating with consumers, our channels are scaling efficiently, and our operations are executing flawlessly.

We have the momentum, the capability, and the resources to become a defining global player in the pop toy industry. I will now turn it over to Ting 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 GAAP measures, we'll also be discussing non-GAAP measures to provide greater clarity on the trends in our actual operations.

We're 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 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.

Adjusted net loss from continuing 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 toy 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-GAAP sales and marketing expenses, which exclude share-based compensation, decreased to 21.7% this quarter from 29% in the previous quarter. Research and development expenses were 15.8 million.

These expenses were mainly focused on advancing our pop toy 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 services, and other operational expenditures. As a 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're excited about the growth prospects for our pop toy business.

Based on currently available information, we expect revenues from our pop toy business to be in the range of RMB 150 million to RMB 160 million for the second quarter of fiscal year 2026, and in the range of RMB 750 million to RMB 800 million for the full fiscal year 2026. This forecast reflects our confidence in the pop toy 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.

Thank you.

Good evening, management team, and thanks for taking my question. 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?

To hit the full-year target of 800 million, second half revenue needs to reach at least 500 million, which is nearly double first half. What is the specific breakdown of this confidence, and is this growth driven by capacity, secure orders from retailers, or is it based on projected sell-through of new IP launches?

Do we expect to turn profitable in second half given the strong revenue guidance? My second question is about the implication on the Labubu moment, and is there any impact on our WAKUKU revenue momentum?

Thanks.

Thank you for 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 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 the focus on 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 first 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 status, the audit fees, 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 long-standing business strategy, we will not pursue growth through excessive spending. In the early stages, we aim to strike a balance between profitability and growth, and we are confident that this profitable growth will be achieved in the coming quarters.

I think the other question is related to the product, especially for the IP. I think our peers, for example, the Labubu 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.

As a pop toy company, we believe there is plenty of room for the growth in our industry. According a recent research report, the data from a research firm, the market of this IP pop toys is still growing very fast at a CAGR of over 18% in the next 5 years.

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 end of last year, and second generation was launched in the first half of this year, in this May.

All of the previous version WAKUKU products, the accumulated sales up to now have now exceeded 6 million individual units. We launched our new generation mini version on November 29.

The offline debut received very positive feedback, and the online launch is scheduled for December the 4th. The pop toy market has moved beyond its niche origins and now reaches a much broader audience.

Going forward, we'll 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, yeah.

Thanks, Ting, very helpful. Yeah.

Good evening, Li Dong, Ting. Congrats on your strong quarter, and thanks for taking my questions.

As Li 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.

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 get ready. Our goal is to transform our DTC stores into immersive and interactive offline narrative spaces.

They will serve as physical hubs for our brand culture and core bases 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 all 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 phased 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.

Good evening, management. Thank you for taking my question.

My question is regarding our overseas markets, because we know that Pop Mart's overseas business almost contribute half of its revenue, but for now, our current overseas revenue proportion is relatively low. Will the overseas market be our focus for the next year, and what is our strategy on the overseas market?

Thank you.

Thank you for question. Regarding the overseas market, I think that's 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 early stage, and also we should supply all of the order demand from the existing clients in the domestic markets, especially the KAs first. 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.

We started to make our efforts in terms of the overseas channel and sales. 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 who has very 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 terms of the overseas sales in the coming quarters.

I think, 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 overall, we are still at 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.

Everything is at the beginning and on a trajectory trend, so that we can make big progress in the coming quarters, yeah. Thank you, Ting.

Yeah.

Thank you, management, for this opportunity to raise my question. I'm Daixi from Huatai Securities.

My question is about our IP structure. 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?

Thank you.

Thank you. Based on this quarter data, our pop toy 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, Yooli, as a stable pillar, contributed 16% of the total revenue, approximately.

The new IP, which we launched in July, and it is a third-party exclusively licensed IP called Shinono, made a solid debut, accounting for approximately 10% of our revenue this quarter, demonstrating a remarkable performance. The remaining came from other IPs, because we currently have 17 IPs.

For this result, I will give you some basic principles. First is that we will focus the majority of our efforts and resources on our S-class IPs, that is WAKUKU, Yooli, and Shinono currently.

I think in the short term, maybe in the coming quarters and maybe three, around 3 years, maybe we will focus on the top IPs because we think 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: deepening the core and systematic incubation.

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 positions through strategic product line expansion and enhance user experience.

Also, we will systematically replicate Shinono's proven incubation model to cultivate 1 to 2 additional flagship IPs, creating a more balanced and diversified growth portfolio. Overall, our company will drive future growth through an IP matrix operating model.

This break 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 potential.

Quarter by quarter, I think the IP revenue fluctuation will be based on the product launches and the pace of each IP. I think in a sum, we will focus on 3 to 5 key IPs, such as WAKUKU, Shinono, Yooli, 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.

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.