CTW (CTW) Q4 2026 Earnings Call Transcript

DATE

Friday, October 16, 2026

CALL PARTICIPANTS

• Head of Investor Relations - Patrick Federle
• Founder, Chief Executive Officer, and Chairman - Ryuichi Sasaki
• Chief Financial Officer - Patrick Liu

TAKEAWAYS

• Revenue -- $82.5 million, representing an 8.7% decrease reflecting the underperformance of first half game launches and the movement of mature titles through their life cycles.
• Gross In-Game Purchases -- $96.8 million, declining 9.5% for the fiscal year driven by lower user activity among nonpaying players.
• Net Loss -- $4.1 million, compared to net income of $3.8 million last year, impacted by a $2 million noncash share-based compensation expense.
• Adjusted EBITDA -- $3.5 million, yielding a 4.2% margin as the company maintained profitability while investing in platform development and global expansion.
• Segment Profits -- $32.3 million, increasing 3% to 33.4% of in-game purchases because reduced advertising spend more than offset lower purchase volume.
• Cash and Equivalents -- $14.4 million, increasing from $12.2 million last year supported by $10.6 million in net proceeds from the initial public offering.
• Monthly Active Users (MAUs) -- 2.26 million, decreasing 33% as the company reduced user acquisition spending for underperforming titles.
• Paying Monthly Active Users (PMAUs) -- 89,053, increasing 0.6% despite the overall decline in active users, reflecting a resilient core player base.
• PMAU to MAU Ratio -- 3.95%, improving from 2.62% last year as lower-engagement nonpaying users exited the platform.
• Average Revenue Per Paying Monthly Active User (ARPPMAU) -- $90.60, declining from $100.74 in the prior fiscal year.
• Return on Advertisement Spend (ROAS) -- 105.8%, remaining above the 100% internal benchmark despite decreasing from 116.4% in the previous year.
• International Revenue -- $29.7 million, growing 8.2% to comprise 36% of total revenue, up from 30.4% in fiscal year 2025.
• South Korea Revenue -- $10.5 million, representing 12.4% growth and 12.7% of total company revenue.
• Taiwan, Hong Kong, and Macau Revenue -- $8 million, increasing 71.2% collectively as anime-themed content gained traction in these markets.
• North America Revenue -- $6.2 million, declining from $7.5 million due to reduced marketing allocation for titles that did not meet performance thresholds.
• Japan Revenue -- $52.8 million, decreasing 16.1% as the company prioritized geographic diversification.
• Advertising Expense -- $41 million, reduced by 21.7% to maintain return thresholds on marketing investments.
• Cost of Revenue -- $28.5 million, increasing 29.2% driven by higher personnel, outsourcing, and server and software costs.
• General and Administrative Expense -- $11.7 million, rising 37.9% due to the costs of operating as a public company and the opening of a New York office.
• Research and Development Expense -- $3.8 million, decreasing 31.2% primarily due to the capitalization of internal software development costs.
• Capitalized Software Costs -- $4.1 million, relating to the internal development of the G123 platform following the early adoption of new accounting standards.
• Advance to Game Developers -- $17.9 million net, including $6 million in new advances made during the year to fund future content.
• Share-Based Compensation -- $2 million, compared to zero in the prior year, primarily representing options granted to directors and officers.
• High School of the Dead Day 0 Revenue -- $6 million, generated in slightly over three months following its late April 2026 launch.
• Game Pipeline -- 15 new games launched during the year, ending the period with 42 active titles and 16 games in the backlog.

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RISKS

• Liu stated, "even though we do a lot of evaluation of the risks, those whatever factors we have considered may not be able to fully eliminate the risk of unsuccessful launches," noting that individual game performance is difficult to predict.
• Liu warned that the actual recovery of advances to game developers, which totaled $17.9 million net at year-end, depends on the successful development and commercial performance of the underlying titles.

SUMMARY

CTW (NASDAQ:CTW) reported fiscal year 2026 results that management described as a prioritization of returns over top-line growth. Revenue decreased 8.7% for the year as early game launches performed below internal expectations and mature titles progressed through their life cycles. The company reduced advertising expenses by 21.7% to maintain its return on advertisement spend above a 100% threshold. Management noted that international revenue grew to 36% of the total mix, driven by momentum in South Korea and Taiwan. The company ended the period with $14.4 million in cash and no debt following its initial public offering.

• Management reported that High School of the Dead Day 0 generated approximately $6 million in revenue during its first three months of operation, becoming the highest revenue-generating game on the platform for that period.
• CFO Patrick Liu stated that identifying content capable of delivering engagement and sustainable monetization relative to investment is a priority over solely securing recognizable intellectual property.
• The company established a New York office in February 2026 to focus on North American localization, partnerships, and user acquisition.
• Liu indicated that regulatory changes and court rulings regarding app store payment systems are increasing developer interest in alternative distribution channels such as browser-based platforms.
• Management capitalized $4.1 million in internal-use software development costs for the G123 platform following the early adoption of ASU 2025-06.

INDUSTRY GLOSSARY

• ARPPMAU: Average revenue per paying monthly active user.
• ASU 2025-06: An accounting standard update regarding the capitalization of internal-use software development costs.
• G123.jp: CTW's flagship HTML5-powered game portal.
• HTML5: A markup language used for structuring and presenting content on the World Wide Web, enabling browser-based gaming without downloads.
• IP: Intellectual property, such as anime or manga characters and storylines used under license for game development.
• MAU: Monthly active users, representing unique users who accessed the platform during a 30-day period.
• PMAU: Paying monthly active users, representing users who made at least one in-game purchase during a 30-day period.
• ROAS: Return on advertisement spend, a marketing metric that measures the revenue generated for every dollar spent on advertising.

Full Conference Call Transcript

Patrick Federle: [Audio Gap] CTW earnings conference call for fiscal year 2026, representing the 12-month period ended July 31, 2026. Please note that today's conference call may be recorded. My name is Patrick Federle, Head of Investor Relations at CTW. Hosting today's call is Ryuichi Sasaki, Founder, Chief Executive Officer and Chairman of CTW and Patrick Liu, Chief Financial Officer of CTW. Before we begin, please be aware that today's discussion may include forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995 and other federal securities laws. These statements reflect management's current expectations and involve risks and uncertainties that could cause actual results to differ materially.

CTW undertakes no obligation to update these statements, except as required by law. For a detailed discussion of risks and uncertainties, please refer to our Form 20-F filed yesterday and our other filings with the SEC. We will also discuss certain non-GAAP financial measures. These measures should not be viewed as a substitute for GAAP results and may differ from those used by other companies. Reconciliations to the most comparable GAAP measures can be found in our earnings release and our Form 6-K filed yesterday and on the Investors section of our website. With that, I will now turn the call over to Ryuichi.

Ryuichi Sasaki: [Foreign Language]

Patrick Liu: Thank you, Ryuichi, and good morning and good evening, everyone. As Ryuichi mentioned, prioritizing returns over top line growth is central to our strategy. From a financial standpoint, the ongoing discipline guided 4 priorities in fiscal year '26, moving quickly when new titles underperformed, keeping our advertising spend above our return threshold, investing selectively in our platform and global expansion and maintaining a strong debt-free balance sheet. The results reflect those choices. Revenue declined, but segment profits grew. ROAS stayed above our 100% benchmark. Adjusted EBITDA remained positive, and we ended the year with $14.4 million in cash and cash equivalents and no debt.

Revenue for fiscal year '26 was $82.5 million compared with $90.4 million in fiscal year '25, a decrease of 8.7%. Gross in-game purchases were $96.8 million, down 9.5% year-over-year. We launched 15 new games during the year and ended fiscal year '26 with 42 active titles. However, the titles we launched in the first half performed below our expectations and several mature titles continued moving through the later stages of their life cycle. We saw success in the launch of High School of the Dead, the Day 0, which was released towards the end of April, meaning slightly over 3-months of contribution was recognized in fiscal year '26.

So the strong user traction we have seen to-date in Asia and North America with this title is only partially realized in these results. Within our user base, the decline in activity was concentrated among non-paying users. Monthly active users declined 33% to approximately 2.26 million from approximately 3.38 million last year, while paying monthly active users increased slightly to approximately 89,100 compared with approximately 88,500 last year. As a result, the ratio of Paying Monthly Active Users to Monthly Active Users improved to 3.95% from 2.62%. Paying daily active users declined 13% compared with a 7% decrease in overall daily active users, while average revenue per paying monthly active users declined to $90.60 from $100.74.

We believe these trends partially reflect the weaker performance of our first half launch. ROAS was 105.8% in fiscal year '26 compared with 116.4% in fiscal year '25. While lower than last year, ROAS remained above our 100% benchmark, meaning the in-game purchase generated by newly acquired users continued to exceed the advertising spend used to acquire them. This supports our long-term ROAS-focused marketing strategy. We also continued to make progress on geographic diversification. Revenue from users outside of Japan increased 8.2% to $29.7 million or 36% of our total revenue, up from 30.4% last year.

Revenue from users in South Korea increased 12.4% to $10.5 million and revenue from users in Taiwan, Hong Kong and Macau collectively increased 71.2% to $8 million. It is encouraging to see this momentum in Asia outside of Japan. Combined revenue from users in these markets grew 31.9% to $18.5 million or 22.4% of total revenue, up from 15.5% last year, and we believe the appeal of anime across the region gives us room to build on this growth. Revenue from users in North America, which includes the United States and Canada, was $6.2 million compared with $7.5 million last year are result of reduced user acquisition spending on underperforming titles.

Building our presence in North America is a long-term effort, and our New York team established in February 2026 is focused on partnerships, user acquisition in that region, localization efforts and corporate communications. We expect to see a return to growth as we issue new titles and continue to implement our presence and growth initiatives in the region. Revenue from users in Japan decreased 16.1% to $52.8 million. Japan remains our largest market, but expanding our international mix remains a key strategic priority. Turning to expenses and profitability.

Cost of revenue increased 29.2% year-over-year to $28.5 million driven largely by higher personnel, outsourcing and server and software costs, along with higher revenue share to IP holders and amortization, partly offset by lower payment processing fees and the absence of the prior year prepaid royalty impairment. These increases reflect our continued investment in the team, infrastructure and external creative resources that support our platform and game operations. General and administrative expenses increased 37.9% to $11.7 million, primarily reflecting the buildup of our corporate and administrative functions as a public company. The opening of our New York City office and approximately $0.5 million of Taiwan business tax expense, a portion of which related to prior periods.

We believe the core infrastructure required of a public company is now largely in place, and we expect the general and administrative expenses to increase only modestly in absolute terms over time as the business scales. Research and development expenses decreased 31.2% to $3.8 million. Sales and marketing expenses decreased 17.2% to $45.9 million, driven by an $11.4 million or 21.7% reduction in advertising expense to $41 million. Advertising declined at more than twice the rate of revenue. This reduction was intentional. When titles did not meet our internal performance thresholds, we scaled back marketing rather than pursue top line growth at unattractive returns.

As a result, segment profits increased 3% to $32.3 million or 33.4% of in-game purchase compared with $31.3 million or 29.3% of in-game purchase in fiscal year '25 as lower advertising expense more than offset lower in-game purchase and higher server costs. We reported an operating loss of $7.3 million compared with an operating loss of $1.1 million in fiscal year '25. Net loss was $4.1 million or $0.07 per share compared with net income of $3.8 million or $0.06 per share last year. Fiscal year '25 net income included a $4.7 million contingent gain on recovery of previously impaired assets and fiscal year '26 included an income tax benefit of $1.7 million.

There are also two items worth noting for the year. First, we recorded $2 million of noncash share-based compensation expense compared to none in fiscal year '25, most of which related to share options granted to directors, executive officers and certain employees in December 2025 in recognition of their long-term commitment to the company and efforts in successfully launching our IPO. Second, following our early adoption of ASU 2025-06 effective August 1, 2025, we capitalized $4.1 million of internal-use software development costs for our G123 platform. Both items are relevant to understanding the year-over-year financial profile and the level of ongoing investment in the business.

On a non-GAAP basis, adjusted EBITDA was $3.5 million or 4.2% of revenue compared with $8 million or 8.8% of revenue in fiscal year '25. We remain adjusted EBITDA positive while reducing advertising spend and continuing investing in headcount, platform development and our global expansion initiative. Turning to cash flow and balance sheet. Net cash used in operating activities was $3.2 million compared with $0.1 million of cash provided in fiscal year '25. This change reflected our net loss and working capital movements, including $6 million of advances to our game developers as we invest in future content. Net cash used in investing activities was $4.7 million, including the $4.1 million of capitalized software development costs.

We ended fiscal year '26 with $14.4 million in cash and cash equivalents, up from $12.2 million at July 31, 2025, and supported by $10.6 million of net proceeds received at the closing of our IPO. We believe this positions us to continue investing selectively in content, systems and international growth, while maintaining strong liquidity and financial discipline. Overall, fiscal year '26 was a year of softer top line performance, but also one that demonstrated the responsiveness of our operating model.

We acted quickly when new title performance did not met expectations, reduced advertising significantly while keeping ROAS above our 100% benchmark, grew segment profit and maintained positive adjusted EBITDA and a debt-free balance sheet, with a vision to return to sustained growth in fiscal year 2027. Thank you for your time and interest in CTW. I will now turn the call back to Pat for Q&A session.

Patrick Federle: [Operator Instructions] Okay. It looks like we have a few questions here. So with that, we're going to begin with Vincent Fernando from ZER0 0NE Research.

Vincent Fernando: So I just have a few questions actually. I'll try to ask them to save some time. So the first question is your launch have drawn on current anime, older catalog titles and original games. From what you're seeing, what kind of property works? What kind of anime property works best relative to cost? How does that shape what you choose to license next?

Patrick Liu: Thank you very much, Vincent. So I'm going to respond to this question. So first of all, I do want to let you know, so from our perspective, we do not necessarily view newer anime IP or established catalog titles or original games as inherently more attractive than the other ones maybe. I think each anime title, each anime IP has its unique characteristics, cost structures and potential audiences.

So from the company perspective, when we evaluate content opportunities, we consider a range of factors including the popularity and engagement of the underlying fan base, expected monetization relative to the cost of licensing and launching the game and including -- which include the prepaid royalties, the royalty rate, revenue share rate and advance to the game developers. So as of the end of fiscal year '26, we had partnerships with 38 anime IP holders and have 48 IP licenses. I think from our prior experiences launching the IP-based games, we see that the age or the recency of an IP does not necessarily determine its commercial potential.

So for example, High School of the Dead Day Zero, which is based on Manga first serialized back in 2006 and adapted for television in 2010, generated approximately $6 million in its first 3 months plus -- a little bit over 3 months is launch. And the game itself actually became the highest revenue-generating games on our platform over that period. So I think this is actually a great example that demonstrates that established catalog IPs with dedicated fan communities can continue to offer meaningful opportunities, even though the Manga, the TV adoption of this anime was almost over 10 years old right from right now.

And also beyond the popularity of the original IP, we also learned that successful game performance also depends heavily on how well the game captures the characteristics that fans appreciate about original content. And beyond that is the users also care a lot about overall quality of the game play, the overall user engagement and monetization. So that means even -- sometimes even a very highly popular IP may not necessarily translate into a very successful game if the gaming experiences does not meet the users' expectations. So we also recognize that sometimes different genres and different game play mechanics may appeal to different audiences and geographic markets.

So from our perspective, I think looking ahead, we intend to maintain a diversified approach to content selection, balancing well-known anime IPs and properties, established catalog IPs and opportunities involve original games or different game genres. So from the company side, we will continue working closely with our IP and developer partners to evaluate the commercial potential of each opportunity and draw our experiences from prior launches and game operations to help us to continue grow the platform and grow the business. I think from the business side, the objective is very clear. So we don't just want to secure the most recognizable IPs.

But to us, we want to identify the content that can deliver an attractive user engagement and sustainable monetization relative to the investments required.

Vincent Fernando: Got it. My next question is just in regards to how you look at games when they launch. So what I understand is you have systems where you read a new game launch and within a couple of weeks, you're receiving data and you're steering advertising towards titles that seem to be performing better based on various metrics. So I just want to dig into that a little bit. What does a title -- what do you look for in a title when it launches? That shows you that, okay, I should put more ad spend on that title.

And then so how do you -- kind of on the corollary to that, how do you decide when to lean into the user acquisition on the platform and different titles? So I guess just get some visibility on what you look for in the metrics like right after a launch?

Patrick Liu: Okay. Got it. Thank you for the question again. So from our perspective, after a game is launched in the very first few weeks after launch, we look closely at engagement and monetization data, something like user acquisition and character creation data, the first retention, paying user conversion and some other early monetization trends and also most importantly, the expected ROAS of our advertisement spending on the new launches. We believe that these indicators help us assess how well a game is attracting and retaining users and also most importantly, how effectively it converts interest into actual spending and whether its performance supports additional marketing investments.

So we typically try to form an initial view of a new launch within the first few weeks. But after the game launches and operated on the platform, we definitely will continue to monitor the performance of the games and refine our assessment as more operating data became available to us. So from a company perspective, our approach to user acquisition is basically, as you said, and also we talked at this a lot during the earnings call. So we approach user acquisition driven by the actual performance of individual games rather than the single platform-wide advertising decision.

So basically, that means for each individual title that launched and operated on the platform, we actually evaluated the actual and expected ROAS and other operating KPIs to determine whether we want to invest additional marketing investment, and whether those additional investment is actually justified. So when a game demonstrate attractive returns, we generally seek to increase advertising investment to capture additional monetization of the opportunities. But sometimes we do see for whatever reason, some of the games has not performed as we expected, the performance falls below the expectation. At that moment, we will adjust the spending accordingly. I think from what we have -- this is actually exactly what we have experienced for fiscal year '26.

And also, we do believe this discipline will continually get us into fiscal year '27.

Vincent Fernando: Yes, I noticed like, for example, in the latest results, maybe some of that's playing out because obviously, maybe you pulled back a bit because I saw like the total MAUs come off a bit, but actually paying MAUs still very stable. So that's what I thought maybe that's that dynamic there. My last question is, so Japan has new smartphone rules, as I've understood. And then we've seen some U.S. court rulings on App Store payments that's kind of starting to loosen App Stores hold on app payments. And so are you seeing increased interest maybe from publishers who maybe previously felt they were locked into the app stores now looking for in-browser game distribution through you?

Is that -- is there any change now in how you're speaking to potential partners because of these new developments for App Stores?

Patrick Liu: Got it. Thank you. So this is actually a quite interesting question. So we have actually talked with a lot of industry players, especially on the gaming -- studio game development partner side. So we believe over the past few years, we have observed some increasing interest from game developers, publishers in distribution channels outside of the traditional app store ecosystem. I mean, through today, we still believe that app stores remain as one of the important distribution channels for a lot of the game distributors and the gaming studios. But the app store have become increasingly competitive in today, especially considering the large number of games right now available through app stores.

So I think as a result of that, we do see some of the -- more and more developers are actually increasingly interested in exploring some alternative ways to reach users, improve some distribution efficiencies and manage platform with the cost. So we believe that the recent regulatory developments, as you mentioned, actually further support this broader trend that we observed from our side. I think this actually gives some unique advantages to our browser-based platform, because G123 was designed from the beginning as a browser-based gaming platform and operating independently from the traditional app store ecosystem.

So our games can be accessible globally across devices, and we don't need app downloads, and we process in-game purchases through established third-party payment providers that are connected directly with our platform. And also beyond just the global accessibility, we also offer some additional benefits to game developers and game studios. So beyond just the distribution, we also offer our game development partners, user acquisition and marketing capabilities, and we also support game developers in designs in their games, and we provide localization services, and we also give them access to an established Anime and Manga IPs.

So from our perspective, we believe these in combination represent some very attractive value for all the game developers and publishers in the world. So I think this basically also means that from the company side, from CTW side, we believe the growing interest in the alternative distribution models and channels actually create some additional opportunities for CTW to expand our developer and publisher relationships networks. And in particular, I think it may allow us to engage with some larger and more established games developers that have traditionally focused more on just the native app distribution. So I think that's actually what we expect to see in the near future.

Vincent Fernando: But just a quick -- just a super quick follow-on that. You mentioned that new -- other game developers now may be more open to this outside the App Store. What about IP owners? Are -- were there some Japanese IP holders, maybe they kind of for some reason, they always want to be inside the app stores and now maybe are there -- is there new opportunities for new IP owners to work with you?

Patrick Liu: Yes. So from our side, I think based on our observation, we do see there are more and more IP holders that became more interesting of exploring other potential monetization channels and distribution channels. So -- but from our side, we don't necessarily think that there are direct connections or incentives for the IP holders to seek for distribution channels outside of traditional app stores just because of the fact of the recent regulatory updates. Right? From our perspective of views, we have been seeing, and I think this is actually what will continue to be part of the truth is from IP holder side, they always want to have a diversified monetization channels and approach.

So that means from -- because we are -- the platform we have built is totally outside of the traditional app store ecosystems. So that's always going to be something valuable for the IP holders to consider when they explore the different monetization opportunities beyond of the traditional app store distribution channels. So I think from that perspective of views from our side, we will continually contact and connect with new IP holders whenever opportunities comes. And beyond of just the traditional Japanese Manga and Manga IP holders and Anime IP holders, we may, from time to time, depends on market conditions, it depends on the opportunities. We may also exploring other IP holders outside of Japan as well.

Patrick Federle: So our next question here will come from Steve Silver at Argus Research.

Steven Silver: Okay. Great. So Anime NYC was more than a month ago now, and it took place after the end of fiscal 2026. So I was just curious if you could talk or provide any color around whether there was any meaningful change in website traffic noticed in the weeks following the conference? And just if you could talk a little bit about the types of professionals that attended that conference that you think may provide business development opportunities moving forward?

Patrick Liu: Thank you, Steve. So we actually attended Anime NYC in August of 2026. And I think from our perspective, so this is actually the very first time we have been actively participating in a very large anime-focused convention in North America. And the main purposes of this event, the participation of this event is really try to put the G123 brand in front of fans and industry professionals in the markets that we are trying to build. I think the event itself, we have been -- received some event report. It said that over 170,000 attendees participated in the anime NYC.

And there's -- we definitely have a lot of very interesting connections with professionals that are working on licensing, working on gaming and other parts that's relevant to our business. So I think from our side, one of the most valuable aspects of this event is really just the opportunity to interact directly with anime fans and to better understand their interest and preferences and expectations. So I think from our side, these interactions actually provided a very useful insight into the anime IPs, the game experiences that resonate with North American audiences that we are trying to expand into.

So from our side, we don't really disclose event-specific website traffic metrics or anything quantifying the immediate impact at the current stage. From our side, we believe these type of initiatives really together contribute to building a stronger foundation for our long-term growth in North America. And most importantly, this is really just the brand awareness and buildup and also help us to better understand the local demands and the needs for anime-themed gaming.

Steven Silver: Great. And one more, if I may. So the company closely tracked the number of preregistrations for titles, including, I guess, The Apothecary Diaries and Shakugan. So I'm curious as to whether there's anything you could say just in terms of how initial in-game purchases might have just tracked the number of pre-registrations that you saw? And maybe just more in general, how historically -- how launches of new titles that had strong preregistrations have gone. Obviously, market conditions are different and each title's launch might be different. But I'm just curious as to historically, whether the trend has followed through any strong preregistration trend?

Patrick Liu: Thanks for the question, Steven. So from CTW side, one, we see the preregistration numbers. So first of all, we do believe that these preregistration numbers is definitely a valuable indicator of initial market interest in a particular anime or Manga IP and the game associated with those IPs. So I think for us, we do see based on the previous experiences, if we do see a strong preregistration interest, it actually help us to build the awareness ahead of the actual launch of the game and also it's going to help us to improve overall efficiency of early-stage user acquisition.

However, I think based on our prior experiences, we do see that the preregistration numbers sometimes do not necessarily translate directly into actual game performance or in-game purchase after the game is launched. I think ultimately, the game success is actually depends on a lot of other factors beyond just the simple popularity of the underlying IP. So the other factors, including things like the overall quality of the game play, whether the game actually align with the fans expectations, overall user engagement, retention and monetization.

So I think based on our prior experiences, sometimes a title with strong preregistration numbers may attract users more efficiently at launch, but that does not necessarily mean that it will achieve higher retention or paying user conversion rate. So from the company side, we continue to closely track preregistration numbers as part of our launch preparation. And -- but when the game is actually launched, so our focus is going to shift from just monitoring the preregistration numbers to actually monitor the actual performance of the game, including the things that we have mentioned in the previous earnings call, means that user acquisition, retention, the paying user conversion, monetization and most importantly, the ROAS.

So we actually use these indicators to continually evaluate the game's performance and use these indicators to optimize the game content and the marketing strategy to try to get maximize monetization and maximize profitabilities from the game.

Patrick Federle: Our next question will come from Aaron Grey at Alliance Global Partners.

Aaron Grey: So maybe dive a bit deeper into some things that have already been covered a bit more forward-looking. Talking about some of the drivers between the MAU trends and in-game purchases during the period. As we look forward, do you expect those to trend more in a similar direction over the long term with some volatility near term? What are the things that might drive that divergence on a go-forward basis? And any commentary you might be able to provide maybe quarter-to-date now that we're about 2.5 months into the next half?

Patrick Liu: Thank you so much, Aaron, for your question. So from our side, so first of all, I do want to just reemphasize the games offered on G123 platform are all under free-to-play pay-to-win mode. So the monetization basically primarily driven by the in-game micro transactions, the in-game purchases. So from an operating perspective, we only focus on -- so we focus not only on attracting users to our platform, but also try to convert the free users into paying users and retain those paying users and encouraging continued engagement and spending within the games on our platform.

So I think from that perspective, MAU and in-game purchase volume and the reported revenue are related but distinct merits of our business performance. So I think one very important distinction is that for us, nonpaying users tend to be more sensitive to advertising and promotional activities. And because these activities are significant drivers of new user acquisitions most of the times. And on the other side, for paying users, generally, they demonstrate a stronger engagement and retention and most of the times are less directly affected by changes in advertising spending.

So I think basically, that means when we change our user acquisition investment, it's going to have a greater impact on overall active users than our paying user base or in-game purchases. I think this is actually something you see in the past fiscal year '26. I think from our side, we do believe that we want to continually introduce new games to the platform and maintain the high-quality games on our platform. I think over the long term, as our platform grows and our user base becomes more mature, we're probably going to see sometimes that the active users, the MAU and in-game purchase to generally move together and driven mostly by new launches of the new games.

But in near term, we believe as we continue expand globally and trying to address demands from new markets to the company, and we believe that you will continue to see there's going to be some divergence in MAU movements and the in-game purchase movements.

Aaron Grey: Okay. Great. Appreciate that, Patrick. Second one for me, just commenting a bit further on some of your marketing initiatives to increase awareness to the platform, maybe more particularly here in the U.S., but also Japan as well. And really through some of the commentary you had on reducing some of the marketing just because of some of the traction you were getting. Like how do you think about the juxtapose position of we need to spend more to get more attention, but then again, wanting to keep up the ROAs. Do you maybe just reallocate maybe where some of that spending could go to into the games that are getting the ROAs?

Or how can we better think about not having to reduce the marketing spend to keep the ROA up whereas reallocating it to different games or otherwise to keep the ROA up while still keeping revenues flat to growing?

Patrick Liu: Okay. Thank you again for the question, Aaron. So I want to let you know from the company's perspective, we -- basically, we see these in two -- basically, we think that this actually comes into two questions. The first question is how we're going to continue -- from a marketing strategy perspective, how we're going to continue to allocate our advertisement spending into different games and what decide how much money we want to spend on marketing and overall advertisement. So from that perspective, I think we have repeatedly talking about our core strategy, which is the ROAS-focused marketing strategy.

So from the company side, that means we're going to continue to evaluate the actual performance of each individual game on the platform and use the actual performance or expected performance of those games to guide us to see how much we want to actually spend on individual games, advertisements and marketing. And also, we're going to continue to use that approach to decide how we're going to allocate advertisement budget into different games. But beyond just that, I think from our side to continue to expand the company and continue our growth, we definitely will try new things to make our advertisement or marketing efforts even more efficiently than what we have through today.

So some of the things that we are trying to do since we have established our New York City office in downtown Manhattan, including things like we are trying to expand our brand awareness and user base in U.S. and by participating in more industry-focused conventions or events. I think the participation of the Anime NYC is actually one of the good example of the company doing brand awareness buildup. And beyond that, I think from the marketing team, we are also continually exploring additional user acquisition and promotional channels that may be more effective in reaching audiences globally, including U.S. and Japan. So I believe our marketing team right now are evaluating some potential OEM-related distribution and marketing partnerships.

And also, we are trying to build up some collaborations with local content creators and social media influencers, which I believe -- we believe that actually going to help us to address the -- a lot of the targeting audience of our platform and our games. So I think from our side, from the marketing activity side, our objective is really try to diversify our marketing channels. We're trying to reach new audiences and also identify more efficient ways to introduce G123 and our games to the users globally. So I think by doing both ways, means continue to maintain the ROAS-focused marketing allocation and investment strategy plus the exploration of additional user acquisition and promotional channels.

I think in combination, these things is going to help us to continue expand globally and get back to growth phase of the company.

Patrick Federle: It looks like we have time for one more set of questions. So our next question asker will be Michael Kupinski from NOBLE Capital Markets.

Michael Kupinski: Thanks, Pat. Yes, I was wondering in terms of the advances to game developers rose to like $17.9 million net. And I was wondering if -- how do you think about underwriting these advances? And how should investors think about impairment risk?

Patrick Liu: Thank you so much for the question, Michael. So from the company perspective, advances to game developers is actually a very important part of our business model. So these advances allow us to support the development of new games for the distribution on our platform. All of these advances we made to the game developers are noninterest-bearing and those will only recover through withholding of developers' revenue share after the game is launched. So the actual recovery of these advances will depend on the successful development launch and also the commercial performance of the underlying games.

So I think from the company's perspective, we have been taking a selective approach when entering into agreements with game developer partners and when we try to provide advances to the game development partners. So our evaluation of these relationships and advances, including things like the overall popularity and the potential appeal of the underlying Anime or Manga IP, the developer's own technical capabilities and experiences, whether the developer has historically some track record of successfully launching games maybe through another web platform or app stores. And also sometimes we do -- if it's an existing developer partner, we also evaluate our history with the game developer as well.

However, even though we do evaluate every single factor that we believe is going to impact the overall game performance, the actual game performance after its launch is inherently very, very difficult to predict. And there are external factors that's not in full control of the business. So even though we do a lot of evaluation of the risks, those whatever factors we have considered may not be able to fully eliminate the risk of unsuccessful launches. So I think for fiscal year '26, we recognized approximately $2.6 million in impairments. And in the prior fiscal year, we have roughly $3.1 million in impairment in advances to game developers.

I think these generally reflect the risks associated with overall game development and monetization. I think from the company side, we will definitely continue to manage our advance to the game developers as part of our broader portfolio strategy and recognizing that the performance of individual titles, individual games can vary significantly. I think from our side, the focus is the same that we will continue selecting capable development partners, evaluating the commercial potentials of new projects and monitor the performance of the games after its launch. And when we make any additional decisions of advances to game developers, we definitely will continue making disciplined investment decision based on all the information available to us.

Michael Kupinski: You capitalized $4.1 million of software development under ASU 2025-06. How will that affect the P&L going forward? And what is the platform investment delivering at this point?

Patrick Liu: I think from our side, we have early adopted the ASU 2025-06 from the beginning of last fiscal year. So from our side of view, we believe that this new framework actually provides a more appropriate basis for recognizing, qualifying software development investments as assets, rather than just relying the traditional sequential development stages. And so of the $4.1 million we have capitalized in fiscal year of 2026, roughly -- we have a net remaining balance of about $3.5 million after considering the amortization happened in the fiscal year. Of that $3.5 million net balances, around $2.5 million are software or services that already placed in service at the year-end.

And we do have roughly around another $1 million still under development as of the end of the fiscal year of '26. So of the capitalized portion, we believe for the next 2 fiscal years, we're probably going to have roughly $1 million amortization -- annual amortization for each of those 2 years. I think from the company side, these investments in software development actually supports the overall platform and features and functions and also a lot of those developments actually are used across game launches, marketing, localization and ongoing game operations. I think that these developments actually help us to streamline a lot of our internal workflows and ultimately -- certain repetitive process for the business.

I think overall, these developments help us to be able to support a much larger scale of operation with roughly same size of the team or resources we have today. I think from the company side, we do expect that we will continue to invest in platform and internal technology capabilities, including things like AI-enabled tools, data analytics tools, workflow automation. So the focus is still to trying to improve overall efficiency over game launches, helping us to improving user acquisition and performance monitoring capabilities. So I think these ongoing investments over the time will help us to continue improving overall operating efficiency and help us to compete more efficiently in this gaming sector.

Patrick Federle: Thank you, Michael, and thank you once again to everyone for joining us on today's fiscal year 2026 earnings webinar. We thank you for your continued support of CTW, and you may now disconnect your lines. Have a great weekend. Bye.

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