QuantaSing Group Limited (HERE) Q4 FY2025 Earnings Call Transcript & Summary

Good morning and good evening, ladies and gentlemen. Thank you for standing by, and welcome to the QuantaSing earnings conference call. [Operator Instructions] Note that today's event is being recorded. I will now turn the conference over to Ms. Leah Guo, Investor Relations Associate Director of the company. Please go ahead, ma'am.

Thank you. Hello, everyone, and welcome to QuantaSing'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. Dong Xie, our CFO, Mr. Li will provide a business overview for the quarter, then Xie will discuss the financials in more detail. Following their prepared remarks, Mr. Li and Xie will be available for the today's session. I will translate for Mr. Li. Begin 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, please become available a few hours after its conclusion. Before we continue, I would like to refer you to our safe harbor statement in our earnings press release, which also applies to this call. As we will be making forward-looking statements, please note that all numbers stated in the following management's prepared remarks, are in RMB, and we will discuss non-GAAP measures today, which are model 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 CEO and Founder of QuantaSing, Mr. Li.

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 significant strategic announcement that marks a new chapter for our company. As many of you know, we'll be transforming from a driven to a product-driven business. And furthermore, we have consolidated a controlling stake in Letsvan since March and have reached an agreement to acquire the remaining equity for a 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 restructure to divest all our non-Pop Toy business to focus exclusively on our high-growth Pop Toy business. This represents this decisive step forward in our transformation. We have been in negotiations with buyers who are interested in 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 Pop Toy market, while ensuring that our all established non-Pop Toy business from 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 of full period with less on 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 transition. 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 a strong foundation for our transition into Pop Toy business. Let me highlight what is driving this growth opportunity with our Pop Toy business. We are seeing rapid cultural transformation, driven by young [indiscernible] Savy consumers who want emotional connection and unique collectible experiences. This is one of the most dynamic segments globally. The brands that when are those that blend creative IP, emotional storytelling and real fine engagement. These trends have transformed pop toys from niche 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 distinctive personalities that resonate on the psychological level. For example, WAKUKU, our flagship IP is now one of the most recognized trend toys in China, a skilled hunter, full of courage and wisdom. ZIYULI, the Chinese princess that grows by yourself and [indiscernible] A new app launched in July 2025. An alien creature from the [indiscernible] Carefree planet Hassing. The strategy we outlined in Q3, we have been operating the Pop Toy business system systematically and have achieved significant results in -- 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 a diverse portfolio of unique IP that resonate deeply with consumers. Let me give you some new recent examples. Our WAKUKU, Fox and the Bunny series achieved over 1 million units sales since its launch on May 17. During the initial launch of our new IP [indiscernible] , wants to tell you a secret plan box, sold out 10,000 units in 10 minutes at our [indiscernible] Flagship store and achieved approach, you see may 300,000 units sales to date. Today, we are operating over 40 blend box product [indiscernible] . And over 30-plus pendent card products across our IP portfolio. This includes 11 self-owned IPs, including WAKUKU and ZIYULI, 2 exclusive licensed IPs and 2 nonexclusive licensed IPs. We are strengthening our IP metrics through 3 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 a collaborative team that enables us to continuously innovate blending artistic vision with cultural insights to create IP that truly resonates with our funds. Second, we are strategically pursuing IP listening partnerships with proactively exploring and securing exclusive collaborations across design, sales, 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 blend 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 Chinese our tournaments. Beijing Fashion Week, Universal Studios, Genki Forest, a leading health beverage brand and for Shanghai, hot TV services. These partnerships expand our reach across 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 a real emotional needs by [indiscernible] Reach growth stories into our classic as we transform them into emotional companies that resonate on the personnel level. The second pillar of our strategic focuses on marketing and channel expansion, which is driving growth, both thematically 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 2 largest local social platforms. While our content has achieved remarkable [indiscernible] Reach with over 550 million views on [indiscernible] And 140 million views on [indiscernible] . Regarding GMV, since officially launching online operations in April, our GMV had already exceeded RMB 18 million in August which is over 9x that of April. Offline. Our multichannel presence is equally robust. We will establish a widespread wholesale network of over 10,000 retail stores through our distributor partners and actively participate in Pop Toy [indiscernible] in top-tier cities such as Beijing, Shanghai and Shenzhen, significantly enhancing brand visibility. At our partnership retail stores, the launch of [indiscernible] Achieved more than 10,000 units sold in just 10 seconds. This underscores our strong capability to generate marketing impact and rapid sell through fiscal locations. Our self-operated retail strategy is a key driver of our offline expansion, with a focus on innovative pop-up stores and the high-impact launch events. As we mentioned before, we are actively developing our flagship retail stores. In the meanwhile, we have already demonstrated strong off-line capabilities through large pop-up installations and exclusive product launches. For example, on August 30, we launched a pop-up store at Beijing, [indiscernible] In addition to a selection of our best-selling products, this limited time active visions allow us to create each immersive IP-driven environments that generate significant social bus 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 3 to 5 locations expected to open by the end of December. These events boost brand visibility the act as community touch points, featuring an interactive content and limited edition releases. This depends emotional connections with [indiscernible] 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 a North American independent e-commerce sites launched the flagship stores on TikTok for both North America and Southeast Asia. As well as official online store on Shoppy in Southeast Asia, we have achieved significant breakthroughs in these markets. For off-line channels, we have established a whole sale networking over 20 countries through our distribution partners, such as Japan, major Southeast Asian countries, the United States, Canada, Australia, the United Kingdom, France, Germany, Italt and Saudi Arab. Self-operated stores are a key part of our long-term global strategy. So we are still in the planning pace for our fiscal store rollout. We intend to take a data-informed test and learn approach once we enter new markets using real-world insights, including sales performance, customer engagements and market feedback to strategically guide our expansion and deepend brand engagement in July. We opened a proxy [indiscernible] 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 Toy 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 persist from the sale, we will strengthen the company's own equity. More importantly, the transaction allow us to concentrate our [indiscernible] On operating our Pop Toy business with maximum focus, transforming the company into a global trend setter and creating [indiscernible] Long-term value for the shareholders. We are confident this move deliver clear value to our shareholders and sharpen our strategic focus. As we transition into Pop Toy business our strategy will be built around 3 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 both users' loyalty and the brand value. Second, we are driving agile execution by refining supply chain operations, optimizing inventory and logistics and building the flexible production partnerships speed and efficiency are key to our market reponsiveness 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 '24 since the beginning of the year in January, exceeding 1 million units. Third, we are dedicated to delivering sustainable returns to our shareholders. Our focus remaining on [indiscernible] High-valued IP, expanding global channels and maintaining disciplined profitability and the 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 Pop Toy, 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 results and a 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 will -- our performance to date gives us strong confidence in our future position. I will now turn it over to Tim 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 fourth quarter of fiscal year 2025 ended on June 30, 2025. 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 solid financial performance this quarter, making our first full reporting period since completing the Letsvan acquisition in March 2025. Total revenue reached RMb 617.8 million with net income of RMB 508 million, 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 69.2% in the previous quarter. Our Pop Toy business now accounts for 10.6% of total revenue as it's becoming a significant part of our revenue base. Breaking down our revenue composition, revenues from the Pop Toy business totaled RMB 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 RMB 456.9 million, compared to [ RMB 906.7 million ] in the fourth quarter of 2024. This change was primarily due to decreases in skills upgrading courses, financial [indiscernible] and recreation and layer courses. Revenues from enterprise services was RMB 35.7 million, compared to RMB 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 RMB 50.5 million, compared to RMB 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 RMB 8.9 million, compared to RMB 3.5 million a year ago. Gross profit for the quarter was RMB 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 continued to prioritize effective cost management while focusing on our resources on the Pop Toy business. Total operating expenses were RMB 344.2 million, a decrease of 44.7% from RMB 622.9 million in the same period last year. To break this down, sales and marketing expenses decreased by 49.3% to RMB 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 acquisition. As a percentage of total revenue, non-GAAP sales and marketing expenses which excludes share-based compensation, decreased to 47.6% from 57.4% a year ago. Research and development expenses slightly declined by 0.1% to RMB 21.2 billion, mainly due to lower staff costs, excluding share-based compensation expenses of the established business. This decline was partially offset by the new research and development expenses for the Pop Toy business following lifestyle acquisition and by an increase in share-based compensation expenses of the established business. As a percentage of total revenue, non-GAAP R&D expense mix, which excludes share-based compensation, was 3.4% compared to 3% a year ago. General and administrative expenses were RMB 29 million, compared to RMB 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 Letsvan and an increase in share-based compensation expenses to the established business. As a percentage of total revenue, non-GAAP G&A expenses, which exclude share-based composition is 4.3% compared to 2.5% a year ago. We achieved a net income of RMB 108 million, representing a net margin of 17.5%. Our adjusted net income, which excludes Share-based compensation was RMB 111.2 million, representing an adjusted net margin of 18%. Basic and diluted net income per share was RMB 0.67 and RMb 0.65 during the quarter. Adjusted basic and diluted net income per share were RMb 0.69 and RMB 0.67 during the quarter. Regarding our balance sheet position, as of June 30, 2025, we held [ RMB 1040.9 million ] in cash and cash equivalents, restricted cash and short-term investments, representing an increase of RMb 14.6 million from [ RMB 1026.3 million ] as of June 30, 2024. Both our established business and the Pop Toy business are cash sustaining and don't require significant additional capital. This allows us to focus our available cash results on strategically expanding the Pop Toy business to accelerate its growth and market presence. 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 100 million to RMB 110 million for the first 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.

[Operator Instructions] First question today comes from Alex Cai of Citi.

Several topics to cover. And let me begin with what I think multi-investor [indiscernible] which is the total revenue trajectory recently. Given that WAKUKU contribute RMB 43 million in Q4 and by normal, that's launched in July. And you now have 15 IPs in total. Could you please share the recent revenue run rate for July and to September? Management mention that the demand [indiscernible] outpatient supply with order book through Q1 next year. So could you please quantify the confirmed order backlog in dollar terms?

Thank you, I'll answer this question. Regarding the growth curve, WAKUKU 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 20x 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 FUNII launched in July, FUNII 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 exclusive. And recently, the sales of FUNII 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 2 engines, explosive new releases and sustained classic performance is accelerating our overall revenue growth 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 friend and sales team schedules production based on market feedback. For products already ordered by sales, the current delivery rate is less than 50%. That means a huge pipeline in process. production planning for future quarters is proceeding in an orderly manner. Yes, I think that we have answered your question.

It's helpful. And my last question is on the variation of Letsvan because some investors are calculating [indiscernible] at RMB 1.7 billion based on the [indiscernible] common shares divided by 20%. But this 18 million shares are granted in 3 chances with [indiscernible] baking period overseas? So could you please walk through the specific arrangements for these changes? And are they tied to performance markdown and the performance to cannot be met will later change be adjusted or canceled?

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. Chang, the Founder and CEO of Letsvan. He represents the product strength of our Pop Toy business. And he himself is a seasoned entrepreneur with years of experience in this sector is highly optimistic about the future of the Pop Toy market and believe in the long-term value of fully committing to this field together with us. For this transaction, Mr. Jack opted to receive shares as consideration for his remaining equity with no cash involved. The second point is that approximately 60% of the consideration consideration was paid in newly issued shares in exchange for Mr. Jan's remaining active. Will the remaining 40% was granted as long-term incentives, which will vest gradually over a period of about 8 years. So it's a very long time, and it means the commitment with us, and we can do that in a long time. I think the third one is this structure reflects is our shared commitment to long-term collaboration and value creation. And also for the remaining one, except Mr. Jan shares, the remaining equity held by other shareholders was acquired for cash for pure cash at a valuation not exceeding RMB 1 billion. This portion of the transaction has been completed as of today. Yes. I think that's the information I can give to the market. Maybe we can give details when we fully completed the transaction.

It's helpful. And I have another question. Looking at the time line going forward, because you are guiding for RMB 100 billion to RMB 110 million in Q1 and around and RMB 750 million for the full year guidance, right? So given the [indiscernible] hit some RMB 56 million with just 3 months of contribution, this part is conservative. When does the management back to expect the top revenue to power revenue to surpass the education business?

Okay. I think first, our guidance for FY '25 and FY '26 were made based on the prudent assessment of the market environment and the piece of product and 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 Pop Toy business. And this guidance is supported by the following factors: The first is better-than-expected performance of heat products and mature IP metrics. Our established IPs such as WAKUKU [indiscernible] has demonstrated strong longevity and new generations of these IPs are already in the pipeline. In addition, the successful launch of our new IP Sinon 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 2 additional new exclusive licensed IPs. We have initially established a healthy product reason 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 off-line 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 either under negotiation, all in the process of opening. We expect to open 3 to 5 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. This confirms our strategic direction is cracked and has positioned the company to capture future growth opportunities. I think based on these 3 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 Pop Toy business, that 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-Pop Toy nonpool businesses. The 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. We believe that upon completion of the restructuring will achieve greater strategic focus, utilize resources more efficiently see exceptional growth opportunities in the IP and Pop Toy 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 very -- our confidence to deliver that. So that I think we will 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.

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, was the pipeline looking lag?

Yes, the pipeline is very strong. So as I just mentioned in several situations to the market, we will consider the different development direction of our existing business based on the performance of the Pop Toy 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 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 the acquisition and controlling of the Pop Toy business.

Next question comes from Brenda Zhao with CICC.

I got 2 questions here. So first, relates to the pop toys business because we've recently seen that [indiscernible] launch of mini Labubu, 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 [indiscernible]. I'm wondering whether there will be new business model and innovations. If so, could you elaborate more on that side?

Okay. Thank you for your question. Answer in Chinese. [Interpreted] We have a clear structure. We have a clear and structured road map for IP launches. Our IP pipeline is already scheduled through the end of next year. Both our fundamental arc library and product design reserves ensure consistency as well placed the 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 [indiscernible] box series, some categories will increase smaller sized line figures and plus products, which will also include mini versions featuring more durable designs and accessible price. This will cater to virus user reverences for collecting and consumption, further expanding our market presence, products in these new categories are set to be in next fourth quarter, we can't wait to share them with you soon. Okay. That's the answer for the question one. And about the question 2, first, in terms of the cooperation with [indiscernible] Entertainment, as you can see that our partnership with them is strategic initiatives build on the complementary strengths. We have established a joint venture with [indiscernible] Entertainment. In terms of the business model, we primarily provide joint venture with IP design supply chain support and sales operation capabilities, while we acquire entertainment will leverage its extensive cross-industry resources in [indiscernible], television and celebrities full to drive promotion and strengthen IP breakouts and enlarge the user engagement. In the future, we are planning to develop more IPs exclusively for the joint venture. These IPs will also incorporate [indiscernible] entertainment strength and also their capabilities. We will also continue [indiscernible] -- also continues to utilize these IPs and to promote them and operate using both companies' resources, will focus on IP design and product development while jointly building a close-loop ecosystem, causing the app incubation promotion and comorization.

That is all the time we have for Q&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 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.