Here Group Limited

Good morning and good evening, ladies and gentlemen. Thank you for standing by, and welcome to Here's Earnings Conference Call. At this time, all participants are in a listen-only mode. We will be hosting a question-and-answer session after management's prepared remarks. Please note that today's event is being recorded. I would now like to 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 fourth quarter and the full 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 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 quality financial results on our IR website at ir.heargroup.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 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 following with the SEC. I will now turn the call over to the CEO and founder of HERE, Mr. Li.

Yeah, okay. Good morning, everyone, and thank you for joining us today. We closed out our fiscal year 2026 with false quarter revenues of RMB 127.7 million, representing a robust year-over-year increase of 94.1% and bring out our full year revenue to RMB 596.8 million. Fiscal year 2026 marks our first full fiscal year dedicated to the pop toy business. Most importantly, this year has provided us with complete I want to share a little clarity about our cooperation identity, our long-term strategic positioning, and the path we must take to build lasting shareholder value. Before diving into our operational updates, I want to share the core strategic insights that are reshaping here. We firmly believe that Enduring high premium IP company must anchor itself on distinctive products and constant creativity, not third-party distribution channels alone. Distribution expands market reach, but it cannot answer the fundamental question of user loyalty. Why will customers remember you and consistently choose your brand? Historically, our product pipeline and release cadence were tightly coupled with wholesale channel demand to protect our brand from external We are shifting our business model into a strategic closed loop. This model integrates proprietary IPs, adaptive product design, and direct-to-customer channels. This closed loop grants us Autonomy over our go-to-market cadence, product presentation, and the customer experience. Our self-operated D2C channels serve as the premier theater to showcase these high-value portfolio extensions. An industry-leading IP house cannot narrowly train out what the mass market passively accepts today. This is why our D2C retail network is far more than a point of sale. It is an IP incubator and a hub to test new ideas. As a result, our capital allocation and operational priority Our priorities are focused on perfecting this D2C closed loop and optimizing our structural unit economics rather than maximizing short-term volume at the expense of brand health. This philosophy brings us to our core thesis on brand momentum. True brand momentum does not stem from chasing fleeting market trends or mindlessly copying customer performance. Real long-term brand momentum is forged through design conviction and artistic leadership. Furthermore, the long-term asset value of an IP is intrinsically linked into its perceived scarcity. Once market supply outpaces consumer interest, that scarcity dissolves and triggers and others. While we remain pragmatic about macro conditions, we maintain absolute control over our own operational cadence. We have made a deliberate strategic choice to prioritize long-term IP assets value or short-term wholesale sales volume. This choice is heavily driven by who we are. Within the global proprietary landscape, two independent pure-play IP companies are exceedingly rare. Hero Group stands as one of the very few enterprises that rigorously adhere to the path of proprietary IP incubation and self-operated execution. Over the past fiscal year, we have proven the scalability of this model. Navigating the current headwinds requires resilience, disciplined efforts, and refusal to compromise our core strategy for short-term communities. We will strictly adhere to the IP first principle. Our mission is not to generate fleeting retail transactions, but to deliver long-term emotional companionship and lasting narrative value to our users. To fully realize this vision, we focused our execution across four strategic pillars during the fourth quarter. First, IP portfolio diversification and ecosystem monetization. We continue to curate our IP metrics across the entire ISAT lifecycle, boosting product innovation and brand collaborations. Our ecosystem is structurally engineered to mitigate single IP dependency. As of June 30, 2026, Our total portfolio expanded to 22 IPs compromising 13 proprietary IPs and 9 exclusively licensed IPs. Our flagship IP, Wacoku, generated RMB 47.7 million in the fourth quarter and RMB $369.3 million for the full year. This accounted for 61.9% of our annual revenue. Meanwhile, our next generation powerhouse, Synono, has delivered a phenomenal trajectory launched only in the second half of 2025. Sentinel generated RMB 27.3 million in Q4, a fiscal year 26 long, rapidly growing to represent 21.4% of our total quarterly revenue. Fall is first full fiscal year, Senono generated RMB 92.7 million, contributing 15.5% to our annual top line. The meteoric rise of Senono from zero to a near RMB 100 million annualized scale in under 12 months confirms that we can systematically build and scale new proprietary IPs. We have also built out a diversified long-tail flywheel revenue from our others IP category, which includes emerging proprietary stars like Xiao, Manimo, Funini, Fila, Impopopix, and more. Third by an extraordinary 661% year-over-year to RMB 39.8 million in the fourth quarter. This is up from just RMB 5.2 million in the same period last year. Combined with the solid contribution of RMB 12.8 billion in the fourth quarter, this portfolio of IPs now collectively amounts from over 41% of our quarterly revenue. Our product expansion and lifestyle integration front We recently accelerated several high-impact initiatives. Recently, we aggressively expanded our IPs into premium daily consumer scenarios. Zenono launched a limited edition co-brand sparkling water with stinky forest. and partnered with the French fashion house, Hero Paris, on an exclusive plush pendant collection. Meanwhile, we evaluated our cultural positioning while an exclusive partnership with the Museum of Fine Arts, Boston, co-developing five premium artistic works from the across three core IPs. Furthermore, we have formalized our partnership with the 2026 China Open, establishing Synono as the headline IP for this year's Tourism. New IP pipelines were another part of our strategy. we officially introduced YUNA, a noble IP, alongside with seasonal collection for Impala Pigs and Falafelilie. Notably, Falafelilie captured strong youth engagement during the Qixi Festival, where collaboration with Kiss Bomb, and served as an official are event partners for the prestigious 38th Husband Flowers Awards. Finally, in Hong Kong, our landmark cruise project at Central Pier is undergoing final decoration. We have transformed the ship into a multi-layered vertical experiential space on Victoria Harbor. Ticket sales officially launched on Ctrip on September 21, ahead of the maiden voyage on October 1. This will allow us to capture the peak tourist flows of the upcoming National Day Golden Week Second, discipline D2C network expansion and scenario optimization Our offline direct-to-customer footprint remains the primary avenue for depending user intimacy and validating product market fit. At this stage, our network strategy prioritizes high ROI unit economics and qualitative location premium over share store count. We continue to manage our permanent food points with strict capital discipline to optimize our asset portfolio. As of today, we operated seven D2C stores across four core metropolitan areas. During the quarter, we successfully inaugurated our new store at Beijing Daxing International Airport. This marks our strategic entry into high-traffic premium transit hub retail scenarios. We leverage agile pop-up store fronts as a dual-purpose strategic vehicle. Beyond de-risking a permanent site selection, these pop-ups function as IP centers for IP activation and immersive user interaction. Prime example is our successful activated in September at Prisma Xinjia Center in Shanghai and Hangzhou Tower. In addition, our automated retail network expanded to 25 robot shops across six cities. Having completed our initial structural layout We shift our operational mandate from aggressive deployment to maximizing machine efficiency and data extraction. Third, operational refinement and digital integration. On the supply chain, We are optimizing our procurement warehousing and logistics frameworks by strengthening our packaging leverage with manufacturers and suppliers. We have shortened our supply chain response times. This enables faster, higher quality and others. We are also consolidating data streams across our physical stores, roboshops and online commerce to build OMI channel data infrastructure. Our upgraded membership ecosystem tracks customer behavior. Allocating predictive insights which help us optimize our inventory. On partner channels our operational metrics is evolving towards deeper integration.