QuantaSing Group reports Q4 revenue of RMB 617.8 million, highlights strategic shift towards pop toy business with strong growth potential.

Lia Guo - Investor Relations Associate Director - (00:01:57)

Good morning and good evening, ladies and gentlemen. Thank you for standing by and welcome to the QuantaSing Group'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 will now turn the conference over to Ms. Lia Guo, investor Relations Associate Director of the company. Please go ahead, Ma'am. Thank you. Hello everyone and welcome to QuantaSing Group's earnings call for the fourth quarter and fiscal year 2025. With us today are Mr. Peng Li, our founder, Chairman and CEO, and Mr. Ting Tie, our CFO. Mr. Li will provide a business overview for the quarter. Then Tim will discuss the financials in more details. Following their prepared remarks, Mr. Li and Ting will be available for the today's session. I will translate for Mr. Li. You can refer to our quarterly financial results on our IR website at ir.quantasing.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 and we will discuss non Generally Accepted Accounting Principles (GAAP) measures today which are more directly explained and reconciled to the most comparable measures reported in our earnings release and filings with the U.S. Securities and Exchange Commission (SEC). I will now turn the call over to CEO and founder of QuantaSing Group, Mr. Li.

Peng Li - Founder, Chairman, and CEO - (00:03:48)

Okay, good morning everyone. Thank you for joining us today for our Q4 and full fiscal year 2025 earnings call. I'm excited to share some really encouraging results with you today along with a significant strategic announcement that marks a new chapter for our company. As many of you know, we've been transforming from a traffic driven to a product driven business. And furthermore, we have consolidated controlling stake in Last One since March March 31 and have reached an agreement to acquire the remaining equity for full 100% merger. Before diving into our quarterly results, I want to share important news about our strategic direction. We are announcing our potential business restructuring to divest all our non pop toy business to focus exclusively on our high growth pop toy business. This represents decisive step forward in our transformation. We have been in negotiation with buyers who are interested and acquiring this established business. The restructuring will allow us to concentrate all our resources, talent and capital on the tremendous opportunities we see in the Pup toy market while ensuring that our all established non pop toy business found the right home with a buyer who can continue maintaining the operation of this business and achieve potential further development. We will share further details on timing and transaction terms once they are finalized, subject to final negotiations and customary closing conditions. This quarter marks our first full period with last month consolidation from April through June. The quarter was defined by both challenge and accomplishment, yet I'm incredibly proud of what we have achieved with our strategic transitions. Let's look at the numbers. Our revenue reached RMB 617.8 million. Most importantly, our pop toy business contributed RMB 65.8 million, representing our core growth engine moving forward. Beyond that, as of June 30, 2025 we held over RMB 1 billion in cash and cash equivalents, restricted cash and short term investments for the company. This cash reserve established strong foundation for our transition into pop toy business. Let me highlight what is driving this growth opportunity with our property business. We are seeing rapid cultural transformation driven by young digitally savvy consumers who want emotional connection and unique collectible experiences. This is one of the most dynamic segments globally. The brands that win are those that brand creative, IP emotional storytelling and real fun engagement. These trends have transformed pop toys from niche applied items into lifestyle essentials for adults and millennials. As a pop toy company, we will be uniquely positioned to capitalize on this massive market opportunity. Each of our pop toy series features unique designs and distinct personalities that resonate on psychological level. For example, Wakuku, our flagship IP is now one of the most recognized trained toys in China. A skilled hunter full of courage and wisdom. Ziuli, the Chinese princess that grows by your set and Senodo, a new IP launched in July 2025, an alien creature from the warm and carefree planet Hasi. Following the strategy we outlined in Q3, we have been operating the pop toy business systematically and have achieved significant results. To date. We are seeing strong market validation across our IP portfolio. Next, I will provide further details on our core strategy using the Q3 framework. First, IP brand development and product we have built diverse portfolio of unique IP designs that resonate deeply with consumers. Let me give you some new recent examples. Our Wakuku Fox and Bunny series achieved over 1 million units cells since its launch on May 17th. During the initial launch of our new. IP. Wants to Tell You a Secret. Blind Box sold out 10,000 units in 10 minutes at our Douyin flagship store and achieved approximately 300,000 units sales to date. Today we are operating over 40 blind box product lines and over 30 plus pendant card products across our IP portfolio. This includes 11 self owned IPs including Wakuku and Ziyuli, 2 exclusive licensed IPs and 2 non exclusive licensed IPs we are strengthening our IP metrics through three key approaches. First, we are investing in our own original IP development. We will continue to gather artistic and designer resources in various locations, establishing design centers in different cities such as Beijing, Hangzhou and Shenzhen. We have a diverse and collaborative team that enables us to continuously innovate, blending artistic vision with cultural insights to create IPs that truly resonates with our fans. Second, we are strategically pursuing IP licensing partnerships with proactively exploring and securing exclusive collaborations across design styles, product categories, audiences and international markets. We began to collaborating with artists and illustrators through in depth product co creation and development to help launch their first generation blank box collectibles and limited edition products, fostering mutually rewarding opportunities. Third, we are building strategic partnerships beyond traditional toy collaborations, linking our product with healthy, optimistic lifestyle brands. For example, we are partnered with China Open Tennis Tournament Tournament, Beijing Fashion Week, Universal Studios, Junkie Forest, a leading health beverage brand and Fu Changhai Hot TV series. These partnerships expand our ritual cross in entertainment, wellness and lifestyle markets. What truly sets us apart is how we leverage everything from our strategic partnerships to our product design around emotional connection. We are not just making toys, we are creating meaningful products that foster companionship and speak to real emotional needs. By weaving rich growth stories into our classic IPs, we transform them into emotional companions that resonate on a personal level. The second pillar of our strategic focus is on marketing and channel expansion which is driving growth both domestically and internationally in our home market, our momentum is impressive on the online front. We built a community of over 250,000 followers on the two largest local social platforms. While our content has achieved remarkable value reach with over 550 million views on Douyin and 140 million views on Xiaohongshu. Regarding GMV, since officially launching online operations in April, our GMV had already exceeded RMB 18 million in August which is over nine times that of April. Offline, our multichannel presence is equally robust. We established a widespread wholesale network of over 10,000 retail stores through our distributor partners and actively participate in PopToy exhibitions in top tier cities such as Beijing, Shanghai and Shenzhen, significantly enhancing brand visibility at our partnership retail stores. The launch of Senodo achieved more than 10,000 units sold in just 10 seconds. This underscores our strong capability to generate marketing impact and rapid sale through physical locations. Our self operated retail strategy is a key driver of our Offline expansion with a focus on innovative pop up stores and high impact launch events. As we mentioned before, we are actively developing our flagship and retail stores. In the meanwhile, we have already demonstrated strong offline capabilities through large scale pop up installations and exclusive product launches. For example, on August 30th we launched a pop up store at Beijing Chaoyang Hobson 1 in addition to a selection of our best selling products. This limited time activations allow us to create eight immersive IP driven environments that generate significant social buzz and translate excitement into direct sales. We are currently in negotiations with top tier shopping malls in several first tier cities to open flagship stores with at least three to five locations expected to open by the end of December. These events boost brand visibility. They act as community touchpoints featuring in interactive content and limited edition releases. This depends emotional connections with fans and builds lasting brand loyalty. While still in the early stages of our international expansion, we are encouraged by the strong growth momentum we are seeing overseas. On the online front, we have established North American independent e commerce site launched flagship stores on TikTok for both North America and Southeast Asia as well as an official online store on Shopee in Southeast Asia. We have achieved significant breakthroughs in these markets. For offline channels, we have established a wholesale network in over 20 countries through our distribution partners such as Japan, major Southeast Asian countries, the United States, Canada, Australia, the United Kingdom, France, Germany, Italy and Saudi Arabia. Self operated stores are a key part of our long term global strategy. Though we are still in the planning phase for our fiscal store rollout, we intend to take data informed, test and learn approach once we enter new markets using real world insights including sales performance, customer engagement and market feedback to strategically guide our expansion and depend brand engagement. In July we open approximately 30 square meter pop up store at Central Park Mall in Jakarta, Indonesia to test the local market which successfully validated both market demand and our team's operational capabilities. Regarding our non pop tie business restructuring, we are making strong progress. This move will ensure the established business continues to operate smoothly and provides better development opportunities for the team, while the proceeds from the sale will strengthen the company's own equity. More importantly, the transaction allow us to concentrate all resources on operating our property business with maximum focus, transforming the company into a global trendsetter and creating substantial long term value for the shareholders. We are confident this move delivers clear value to our shareholders and sharpen our strategic focus as we transition into portoid business. Our strategy will be built around three core priorities. First, we are strengthening IP creation and incubation by refreshing content, expanding product lines and collaborating across sectors. We are building emotion driven ecosystem that boosts users loyalty and the brand value. Second, we are driving agile choose execution by refining supply chain operations, optimizing inventory and logistics and building the flexible production partnerships. Speed and efficiency are key to our market responsiveness and cost control. We have made significant progress in the product capability in August. The output of our mainstream plush products had already increased more than 20 fold since the beginning of the year in January, exceedingly 1 million units. Third, we are dedicated to delivering sustainable returns to our shareholders. Our focus remaining on calculating high valued ip, expanding global channels and maintaining disciplined profit business and cash flow management. In summary, Q4 fiscal year 2025 represents a defining moment in our transformation journey. Our potential business restructuring reflects our confidence in the exceptional growth potential of this market. This sharper focus means we can really build on our early wins in poptoys, speed up our growth in sustainable way and deliver even more value to our shareholders. We have shown we know how to execute in this business and now with total focus dedicated to resources and stronger financial position, we are ready to become a true leader in this dynamic high growth industry. Thank you for your continued trust and support. Our performance to date gives us strong confidence in our future transition. I will now turn it over to Tim for a detailed review of our financial results. Thank you everyone.

Tim - (00:26:13)

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 fourth quarter of fiscal year 2025 ended on June 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 are pleased to report solid financial performance this quarter, making our first full reporting period since completing the Last One acquisition in March 2025. Total revenue reached $617.8 million with net income of 108, meaning achieving a strong net profit margin of 17.5%. These results reflect our intentional strategic transformation from traffic driven growth to a more sustainable product focused business model. This transition is already showing clear results with sales and marketing expenses improving significantly to 47.6% of revenue from 16 69.2% in the previous quarter. Our pop toy business now accounts for 10.6% of total revenue and it's becoming a significant part of our revenue base. Breaking down our revenue composition, revenues from the pop toy business totaled 65.8 million. With the continued momentum in this business, we expect it to drive meaningful growth in future quarters. Individual online learning services generated revenues of 456.9 million compared to 900 of 6.7 million in the fourth quarter of 2024. This change was primarily due to decreases in skills upgrading courses, financial literacy courses and recreation and labor courses. Revenues from enterprise services was 35.7 million compared to 56.6 million a year ago. The change was primarily due to a deliberate reduction in the marketing services provided to a customer. Revenues from our consumer business was 50.5 million compared to 33.3 million a year ago. The change was primarily driven by the increase in revenue from wellness product sales and finally, revenues from others were 8.9 million compared to 3.5 million a year ago. Gross profit for the quarter was 467.6 million with a gross margin of 75.7% compared to 85.9% in the same period last year. This margin change reflects our strategic shift towards more product focused offerings which naturally carry a different cost structure. On the operational front, we continue to prioritize effective cost management while focusing on our resources. On the top tone business, total operating expenses were 344.2 million, a decrease of 44.7% from 622 in the same period last year. To break this down, sales and marketing expenses decreased by 49.3% to 294.1 million mainly due to lower marketing and promotion costs, reduced labor outsourcing and lower staff expenses. This decrease was partially offset by new sales and marketing costs for the pop toy business following the Last One acquisition as a percentage of total revenue, Non GAAP sales and marketing expenses which exclude share based compensation decreased to 47.6% from 57.4% a year ago. Research and development expenses Slightly declined by 0.1% to $21.2 billion mainly due to lower staff costs excluding share based composition expenses of the established business. This decline was partially offset by the new research and development expenses for the pop toy business following lifespan acquisition and by an increase in share based compensation expenses of the established business as a percentage of total revenue. Non GAAP R and D expenses which excludes share based compensation is 3.4% compared to 3% a year ago. General and administrative expenses were 29 million compared to 11.6 million a year ago. The change was mainly due to the newly added general and administrative expenses for the pop toy business resulting from the acquisition of Light1 and increase in share based compensation expenses for the established business as a percentage of total revenue. Non GAAP G and A expenses which exclude share based composition is 4.3% compared to 2.5% a year ago. We achieved a net income of 108 million representing a net margin of 17.5%. Our adjusted net income, which excludes share based compensation was 111.2 million representing an adjusted net margin of 18%. Basic and diluted net income per share was 0.67 and 0.65 during the quarter. Adjusted basic and diluted net income per share were 0.69 and 0.67 during the quarter. Regarding our balance sheet position, as of June 30, 2025 we held 1,040.9 million in cash and cash equivalents, restricted cash and short term investments representing an increase of 14.6 million from 1026.3 million as of June 30, 2024. Both our established business and poptor business are cash self sustaining and don't require significant additional capital. This allows us to focus our available cash results on strategically expanding the pop top business to accelerate its growth and market presence. Looking ahead, we are 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 100 million to 110 million for the first quarter of fiscal year 2026 and in the range of 750 million to 800 million for the full fiscal year 2026. These forecasts reflect our confidence in the poptoy 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.

OPERATOR - (00:33:59)

Thank you. We will now begin the question and answer session. To ask a question, you may press Star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press Star then two. When asking a question in Chinese, please translate your question in English. For the convenience of everyone on the call, please ask one question at a time. At this time we will pause momentarily to assemble our roster. The first question today comes from Alice Kai of Citi. Please go ahead. Good evening management. Thanks for taking my questions and congratulations on the strong results. The several topics to cover and let me begin with what I think most investors care most about, which is the total revenue trajectory recently. Given that Waco contribute 43 million RMB in Q4 and Dynamic launched in July and you now have 15 IPAs in total, could you please share the recent revenue run rate for July and to September and Manchu mentioned that the demanding silver outpacing supply would order book through Q1 next year. So could you please quantify the confirmed order backlog in dollar terms? Thanks so much.

Alice Kai - Analyst - (00:35:47)

Thank you, Alice. I will answer this question regarding the growth curve. Makuku began operations last December and we saw sustained volume expansion starting in March, right after the Spring Festival of China. Its growth rate can be described as explosive out of the gate, gaining momentum very rapidly. By August, its monthly production capacity had reached approximately 20 times the level at the beginning of the year. Strong demand from channels, our distributor partners and also the online and high user repurchase behavior provide strong visibility for our performance over the next several quarters. Also, regarding the new IP Sanono launched in July, Seanono demonstrated our accelerating growth momentum as a completely new IP that has been on the market for only a few months. Its initial sales were explosive. As recently, the sales of sonono have exceeded 300,000 boxes. This reflects our continuous evolution in product design, marketing and channel execution. Then, viewed together, the combined effect of these two engines, explosive new releases and sustained classic performance, it's accelerating. Our overall revenue grows rapidly. This powerful momentum is the core reason for our confidence in future performance and we look forward to sharing more detailed figures in the next earnings report regarding confirmed order value. Our front end sales team schedules production based on market feedback. For products already ordered by sales, the current delivery rate is less than 50%. That means the huge pipeline in process production planning for future quarters is proceeding in an orderly manner. Yeah, I think that will help to answer your question.

Ting - (00:38:22)

Thanks, it's helpful. My next question is on the variation of less than because some investors are calculating expense variation at 1.7 billion R&D based on the $8 times 18 million common shares divided by 20%. But these 18 million shares are granted in three chances with vetting period over several years, right? So could you please walk us through the specific arrangements for these three countries? Are they tied to performance milestones and the performance targets cannot be met? Will later changes be adjusted or cancelled? Thanks so much.

Alice Kai - Analyst - (00:39:08)

Okay. The acquisition of the remaining equity is currently still in the settlement process and further details will be disclosed in due course. I think I can give you some key points to help everyone to understand the transaction. First, Mr. The founder and CEO of Last One. He represents the product strength of our pop toy business and he himself is a seasoned entrepreneur with years of experience in this sector. He's highly optimistic about the future future of the pop toy market and believes in the long term value of fully committing to this field together with us for this transaction, Mr. Jiang opted to receive shares as consideration for his remaining equity with no cash involved. The second point is that approximately 60%, 60% of the consideration was paid in newly issued shares in exchange for Mr. Jiang's remaining equity, while the remaining 40% was granted as long term incentives which will last gradually over a period of about eight years. So it's a very long time and means the commitment with us and we can do that in a long time. I think the third one is this structure reflects our shared commitment to long term collaboration and value creation. And also for the remaining one, except Mr. Jiang's shares, the remaining equity held by other shareholders was acquired for cash, for pure cash at a valuation not exceeding RMB1 billion. This portion of the transaction has been completed as of today. Yeah, I think that's information I can give to the market. Maybe we can give details when we fully completed the transaction. Thank you.

Ting - (00:41:34)

Thank you. It's helpful. And I have another question. Looking at the timeline going forward because you are guiding for 100, 110 million being Q1 and around 750 million for the full year guidance, right? So given the people already hit some 56 million with just three months of contribution this conservative, when does the management expect the top revenue to revenue to surpass the education business? Thanks.

Alice Kai - Analyst - (00:42:17)

Okay, I think first our guidance for FY25 and FY26 were made based on a prudent assessment of the market environment and the piece of product and the channel development when we formulated our strategy earlier this year. As you can see from the performance figures just released, growth across several key metrics has already outpaced our earlier expectations. Based on the recent business process and our updated market outlook, we are issuing our first formal earnings guidance for the portal business. And this guidance is supported by the following factors. The first is better than expected performance of Heat products and a mature IP matrix. Our established IPs such as Wakuku and Zuri has demonstrated strong longevity and new generations of these IPs are already in the pipeline. In addition, the successful launch of our new IP Signono in July has been very well received. With robust ongoing sales momentum, the next generation of products is already scheduled. This success validates our exclusive artist IP partnership model and sets a solid foundation for continuously introducing new artist IPs. In addition to the 15 IPs we had as of June 30, we recently signed two additional new exclusive licensed IPs. We have initially established a healthy product receive and pace, combining new explosive releases and sustained classic performance driven jointly and by product strength and brand power. This indicates our IP operation capabilities and user loyalty are reaching a new level. The second is continuous expansion of online and offline sales channels. Our online GMV reached over RMB 18 million in August. We continue to deepen partnerships with offline distributors and self operated pop up stores as well as permanent flagship stores are either under negotiation or in the process of opening. We expect to open three to five flagship stores by end of year, laying a solid foundation for the expansion of self operated stores next year and also accelerated global expansion. We have established initial channel and marketing presence in Southeast Asia and North America. Although still in the early stages of expansion, the growth rate in these regions has exceeded our initial expectations and the market potential appears more promising than originally anticipated anticipated. This confirms our strategic direction is correct and has positioned the company to capture future growth opportunities. I think based on these three areas of our outperformance and current business momentum strongly supports a more optimistic outlook for future growth as disclosed in our earnings release. Given the rapid growth and market potential of the poptor business, we are concentrating all of our resources on this segment. We are currently in discussions with potential buyers regarding a group restructuring plan which may include divesting non public business businesses. Details will be announced promptly upon the completion of any relevant transactions. So all of the actions and plans will be conducted in accordance with the principles of business focus, enhancement of shareholder value and sustainable development of each business unit with we believe that upon completion of the restructuring we will achieve greater strategic focus, utilize resources more efficiently, seize exceptional growth opportunities in the IP and pop toys sectors and create greater long term value for shareholders. So in summary, I think the forecast all reflect our focus on this business sector and also our methodology to do the business and also our principle to do everything very seriously. So that figure reflects our confidence to deliver that so that I think we may adjust the annual forecast based on new information. Maybe in the next quarter we will adjust and based on the ongoing development of the business so that we can give the market very serious and confident figures. Yeah.

Ting - (00:48:07)

Thanks Tim and I have a follow up question on the restructuring. It seems that you are considering a sale on the education segment, right? And if so, what's the pipeline looking like? Thanks.

Alice Kai - Analyst - (00:48:26)

Yes, the pipeline is very very strong. So as I just mentioned in several situations to the to the market we will consider the different development direction of our existing business based on the performance of the poptoy business and other performances of the existing business as we announced. Since we have started the process of this restructuring. That means we are very confident that of course the existing pop toy businesses performance and also the development of this performance so that we can deliver a long term value based on the solid foundation we have set up during the past months since acquisition and controlling of the pop top business.

Ting - (00:49:28)

Thank you, that's very helpful. That's all of my questions.

Alice Kai - Analyst - (00:49:34)

Okay, thank you.

Ting - (00:49:38)

The next question comes from Brenda Zhao with cicc. Please go ahead. Good evening Lizong and Xie Zhong. Thanks for taking my questions. I got two questions here. The first relates to the pop toys business. We've recently seen that pubmat's launch of minilabubu. So could management introduce your product strategy and whether we will introduce more product categories in the future and what's our pipeline for new categories? And my second question is related to the collaboration with. I'm wondering whether there will be new business model and innovations. If so, could you elaborate more on that side? Thank you.

Brenda Zhao - Analyst - (00:50:36)

Okay, thank you for your question. I will answer in Chinese.

Ting - (00:50:56)

We have a clear and structured. We have a clear and structured roadmap for IP launches. Our IP pipeline is already scheduled through the end of next year. Both our fundamental art library and product design reserves ensure a consistent and well placed rollout of our new products. In terms of the category innovation, we're also actively exploring and developing new directions. In addition to our core blind box series coming up, categories will include smaller sized vinyl figures and plush products which will also include mini versions featuring more durable designs and accessible price. This will cater to virus user preferences for collecting and consumption, further expanding our market presence. Products in these new categories are set to debut in next fourth quarter. We can't wait to share them with you soon. Okay, that's the answer for the question 1. And about the question 2. Okay. First in terms of the cooperation with entertainment, as you can see that our partnership with them is strategic initiatives built on the complementary strengths. We have established a joint venture with Realva Entertainment. In terms of the business model, we primarily provide joint venture with IP design, supply chain support and sales operation capabilities. Huayi Brothers Entertainment will leverage its extensive cross industry resources in the film, television and celebrities field to drive promotion and strengthen IP breakout and enlarge the user engagement. Yeah. Okay. In the future we are planning to develop more IPs exclusively for the joint venture. These IPs will also incorporate entertainment strength and also their capabilities. We will also continue smooth. We will also continue to utilize these APIs and to promote them and operate using both companies resources. We will focus on IP design and product development while jointly building a closed loop EcoSystem covering the IP incubation, promotion and commercialization. Okay, thank you.

OPERATOR - (00:56:18)

That is all the time we have for Q and A. I'd like to hand the conference back over to management for any closing remarks. Thank you. We will now thank you everyone for joining our call today. If you have any further questions, please feel free to contact us. Also, make 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 attending today's presentation. You may now disconnect.