Thank you. Hello, everyone, and welcome to HERE's earnings call for the third 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 Ting will discuss the financials in more details. Following their prepared remarks, Mr.

Li and Ting will be available for the Q&A session. I will translate for Mr.

Li. You can refer to our quarterly financials 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 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 the filing with the SEC. I will now turn the call over to the CEO and Founder of HERE, Mr.

Li.

Thank you. Good morning, everyone, and thank you for joining us today.

I'm very pleased to announce that we achieved about RMB165 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 the 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 market 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 RMB102 million in revenue in Q3, or around 62.2% of total revenue.

Chinonon's revenue grew 73.1% quarter-over-quarter, accounting for 20.2% of total revenue. Chinonon 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 Chinonon 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 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 product capabilities and the strength of our IP portfolio. At the same time, we benefited from favorable market circles, channel tailwinds, and celebrity partnerships.

These collaborations gave 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 brand building and solid operational capabilities. That means building our own systems to reach users directly and engage with them deeply.

Therefore, long-term IP momentum will always be our top priority. Revenue should follow from strong IPs, not be 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 rich emotional experiences. We will stick to our strategy, focusing on our core 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 robo shops.

This extends our brand reach and user touchpoints. 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 lays the foundation for constant user engagement. Our robo shop rollout has also recently began.

To date, we have developed around 15 robo shops 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 US as initial market tests. Fifth, keep optimizing our business cooperation with channel partners.

We pursue mutual benefits and win-win 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 hits to a repeatable engine. As of March 31, 2026, our IP portfolio includes 20 total IPs.

That includes 12 proprietary IPs and eight exclusive licensed IPs. This quarter, we focused on diversifying our IP matrix.

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 co-branded IP, Xiao Ao. Its core spirit is defined by four words: cool, stubborn, brave, and free.

This message resonates well with young consumers. To drive the launch, we ran an integrated campaign across celebrity, social, and fan channels.

Leveraging our strengths in IP design, supply chain, and omni-channel sales, we completed pre-launch prep, including character development and mass production. Xiao Ao gained strong market attention and 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 Xiao Ao, 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 Doll, on March 28. As of March 31, the initial launch period, the series achieved strong results.

Total omni-channel sales exceeded RMB20 million. Peak concurrent online viewers reached 28,000, and total new product exposure topped 100 million.

The series focused on handcrafted feel, friendship, and warm, healing vibes. This deepens our emotional connection with users.

In May, we also released the 520 gift box, Wakuku Heartbeat Devil, as a hanging card set. Recently, we have also launched new products for other IPs.

This includes new plush toys, vinyl figures, hanging cards, and blind box collections for IPs like Zuly, Chinonon, Pido, Kitty Kitty, and Away. Each of these IPs speaks to a different audience with unique styles and labels.

That's how we build a richer IP matrix. For Chinonon, the new generation product, Moved On Series Vinyl Plush Doll, had its offline launch on May 30 and online launch on June 2.

Second, omni-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, robo shop network, and partner channels. First, our self-operated brand stores and robo shops.

As of today, we have opened seven D2C stores in four cities. We recently opened two new D2C stores, one at Shenzhen Uniwalk Qianhai on April 25 and another at Xi'an Saige on May 1st.

Both stores are in prime high-traffic business areas and that rank among the busiest 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 robo shops across key cities nationwide.

These unmanned vending machines are placed in high-traffic locations. They extend our offline reach without the higher cost of a full-scale store.

They serve as both sales channels and brand touchpoints. They make our IPs more accessible while collecting valuable data on product performance and purchasing habits.

Second, partner channels. We continue to work with our channel customers.

These partnerships helped us reach more consumers through established retail networks. They expand our IPs and brand elements at more offline touchpoints and help us interact with users.

On the online side, our social media presence continues to grow. As of June 4, our cumulative 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-branding in-vehicle exposure 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 Wakuku was showcased alongside traditional culture exhibits as the new Oriental aesthetics section. Going forward, we will accelerate the creation of more offline scenarios to give IPs and users more spaces to interact.

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 a boat at Central Pier using our IPs, building a unique brand scene.

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 support.

I will now turn it over to Ting 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 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 our third-quarter results, which exceeded expectations on both revenue and gross margin despite navigating a softened demand environment in the broader industry. Total revenue was RMB164.7 million with gross profit of RMB56.9 million, representing a gross margin of 34.5%.

While revenue decreased from the previous quarter's RMB177.3 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, while positioning the company for sustainable long-term growth through strategic cost management and continued focus on our core IP portfolio.

Revenues for the quarter were RMB164.7 million, primarily generated from sales of our three flagship IPs: Wakuku, Chinonon, and Zuly, compared to RMB177.3 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 deliveries capabilities.

Gross profit for the quarter was RMB56.9 million, compared to RMB55 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 RMB100.8 million for this quarter.

To break this down, sales and marketing expenses were RMB57.7 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 RMB9.5 million.

These expenses mainly consisted of IP design and product development expenses. As a percentage of total revenue, non-GAAP 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 RMB33.6 million. These expenses reflected our core 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 RMB34.1 million, compared to RMB25.4 million in the previous quarter.

Our adjusted net loss was RMB22.9 million, compared to RMB16.1 million in the previous quarter. Basic and diluted net loss per share were RMB0.21 during this quarter.

Basic and diluted adjusted net loss per share were RMB0.14 during this quarter. Looking ahead, we remain excited about the growth prospects for our pop toy business.

Based on current available information, including our pipeline for upcoming IP releases and seasonal demand, we expect revenues from our pop toy business to be in the range of RMB130 million to RMB140 million for the fourth quarter of fiscal year 2026. We are revising our fiscal year 2026 revenue guidance to a range of RMB600 million to RMB610 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. Thank you.

管理层晚上好，感谢接受我的提问。我想请教一下在过去一年中，公司观察到潮玩消费者的需求出现了哪些变化？以及竞争格局上我们观察到了哪些变化？Good evening, management. Thanks for taking my question.

Could management elaborate what change in the consumer demand within the pop toy market have we seen in the past year? How has the competition shifted?

Thanks.

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.

Only products with real character and solid operations can truly connect with consumers. For young buyers, they are buying for immediate emotional satisfaction.

Our The Handicraft World of Wakuku Series focuses on handcrafted feel, companionship, and warm healing. 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 still want to collect complete sets 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 fastest-growing category in the pop toy industry. However, starting in the first half of this year, we've 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 scarcity to buying what you like or the both. For us, the underlying logic of this category has not changed.

Consumers still want IP products that fit into their daily lives. We stick to our strategy, creating excellent IPs and products.

For example, our recently launched Chinonon Moved On Series, the new product has been very popular based on recent consumer response. 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 core of competition is moving from product capability to full-chain IP operation. Long-term IP value must be built from within.

Pop toys are not fast-moving consumer goods. You cannot drive growth simply by adding more SKUs.

You need IP design, supply chain, brand, and sales all working together as one system. Honestly, very few companies can actually pull it all together.

Thirdly, the industry is taking a fresh look at owned IPs. For most pop toy companies, licensed IPs account for a majority of their revenue, and these licenses typically last only one to three years and have a high cost.

If a license that doesn't get renewed, you're looking at a major hit to your revenue. We've taken a different approach.

We have built a systematic capability to create and sustain 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 partnership. For co-branded IPs like Xiao Ao, which is just recently launched, we use a deep cooperation, co-creation model rather than relying on a simple licensing deal.

That's all. Thank you.

Thanks, that's very helpful.

哎，李总、谢总好，非常感谢提问的机会啊。那我这边问题主要是关于这个IP的势能。就是我们知道这个潮玩这个行业，这个IP的势能，或者说整个IP的这个爆发性和持续性是非常重要的。那我们做了一年其实也做了非常多成功的IP。想问一下就未来在这个IP势能的提升上我们会有哪些策略？And I will translate myself. Good evening, management.

Thank you for taking my question. My question is about the momentum of IPs.

Far we have several very successful IPs such as Wakuku, Chinonon, Xiao Ao. My question is, in the future, how to keep or strengthen the momentum of these popular IPs?

Thank you.

Thank you very much for your question. I will answer in Chinese, and my colleague will translate for me.

对，这是一个很好的问题啊。就是IP的势能呢，首先是IP自身的特质，也就是说通俗地讲它有没有明星相。还有一个呢，就是IP的这个持续有效的运营，来去维持这个IP的势能。那么核心呢，就是围绕IP的本身特质，还有它的目标用户，来有策略并且持续地输出用户喜欢的这个事件、内容、产品，还有体验。Okay.

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, content, products, and experiences that align with the IP's characteristics and connect with our target audience.

具体来说呢，我们在持续地去做下面几件事。第一件呢，就是我们保持资源要聚焦，聚焦在我们这个核心IP上，然后去以此为基础吧，丰富我们的IP矩阵。还有呢，就是就是要由充分的这个资源投入，才能够保持住我们核心IP的这个运营动作是持续连贯的。并且呢，从各个维度吧，就是对于我们这种投入的效果来进行考核，然后加强我们在IP运营这个上面的投入效率。Okay.

Specifically, here is what we are doing and will continue to refine in our IP operations strategy. First, we remain focused on our core IPs.

We concentrate resources on our core IPs and build our IP portfolio around them. We need steady resources to keep our core IPs running smoothly.

At the same time, we closely monitor performance across multiple dimensions to improve resource efficiency.

第二点就是通过好的产品和体验来加深用户对我们IP的认知，从而呢能够保持跟提升IP的势能。有节奏地去做好我们的产品规划，然后围绕IP呢持续地去迭代创新。今年我们依托着核心的IP，然后不断地去布局、去换代新品，然后同时呢我们也开发了多材质、多种玩法的这个衍生品，然后选择合适的时机去拓充我们的产品品类。同时在有形的产品以外，我们还用轻资产的运营模式去打造IP体验场景。比如最近我们就签下了香港中环码头的这个游轮东方之珠号，然后以游轮为场景去打造我们的IP乐园。Okay.

Second, we strengthen the user awareness and engagement through the high 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. Beyond physical products, we're developing IP-driven experiences through a light asset model.

For example, we recently signed a ferry at Hong Kong Central Pier, and we turn it into IP theme park on the water.

第三点呢，是我们持续地进行IP品牌的运营，通过有合适的综艺栏目、明星合作、品牌活动、联名等等方式吧，来打造我们IP的影响力。然后第四点呢，是我们会通过自营门店、机器人商店，还有渠道商的这些品牌专区等形式，然后来持续强化我们在IP线下的触点。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 D2C stores, robo shops, and dedicated branded sections in partner retail locations.

Overall, we believe strong fundamentals helps us maintain and extend an IP's life cycle. This does not come from a single hit product.

It comes from consistent, stable, and systematic operations. That's all.

Thank you.

Thank you, Mr. Li.

It's very clear.

李总、谢总晚上好，感谢这个提问机会。我的问题呢主要是关于品类方面，因为过去我们也是受益于这个整个盲盒和搪胶毛绒这个品类的一个高景气度嘛，然后也实现了在这些品类上面的快速布局。那未来的话呢，我们是否有一些新的这个品类布局规划值得期待？Management, good evening. My question is about our company's plan for the category expansion in the future.

Thank you.

对，是的。我们一直都特别关注就是品类延伸的这种机会，但是我们的原则呢是要围绕着我们的IP来去开展，而不是说为了做新品类而做新的品类。那目前呢我们主要考虑我们IP势能的发展阶段吧，所以是围绕我们的核心IP适当地去拓展一些衍生产品。那我们的布局方向呢主要会体现在下面三个方面。Okay.

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 lifecycle, then we carefully expand into merchandise around our core IPs.

Our strategy focuses on three key areas.

一点呢就是周边衍生品是我们重点拓展的一个重点方向。我们会逐步地吧去拓展IP相关的这些周边的衍生品，主要包括生活方式类的产品，那么让IP从在柜子里的这个收藏品变成我们日常生活里的这个陪伴品。Okay.

First, merchandise is a key focus for us. We're 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.

第二点呢是我们会保持审慎的一个节奏来拓展品类。潮玩行业目前的一个普遍现象啊是多SKU广撒网，但是我们不打算这么干。我们的判断是IP的拓展必须跟IP本身的内容属性和用户需求匹配起来，而不是为了堆砌更多的SKU。所以我们倾向于围绕着核心IP做精做深，而不是铺开铺全。Okay.

Second, we expand in a disciplined pace. There is a common trend in industry right now: many SKUs, very broad coverage.

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.

第三点呢是我们也在关注智能陪伴和科技AI+IP的这个新形态的发展。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，但目前呢还处于研究观察的阶段，还没有具体的落地计划。Okay.

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're actively researching it, but we're still exploring and don't have any specific plans yet.

所以总结来说吧，就是我们的品类布局的策略呢是以IP为核心，现在核心的品类上做深，然后再逐步地去延伸到周边衍生品。我们不会追求大而全，但是我们会追求每一个新品类都能够去真正服务好我们的IP，以及和用户之间的情感连接。Okay.

To sum up, stay focused on IP. We go deep in our core categories, then gradually expand into merchandise.

We're not 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.

That's all. Thank you.

Thank you. That's very helpful.

Thank you.

[unclear] 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.