CTW (NASDAQ:CTW) Q4 2026 Earnings Call

0:00 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 20F 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.

0:46 Reconciliations to the most comparable GAAP measures can be found in our earnings release and our form 6K filed yesterday and on the investor section of our website. With that, I will now turn the call over to Ryuichi.

1:20 We prioritized the return on growth quality and investment capital rather than just increasing sales. This calculation shows both sides of the judgment. The sales volume was a result of lowering the previous quarter and lowering the performance factor. On the other hand, while reducing advertising expenses to a large extent, we maintained more than 100% of the rate of spending on advertising expenses in the game, which is based on ROAS. In addition, we increased segment profits and maintained a wealth of assets that were not more negligible. In addition, the efforts that the company has made in the month of July 2026 have been more powerful since July of 2026. I think that we are building a foundation to aim for growth with discipline.

2:05 For those of you who are interested in listening to our explanation for the first time, we will introduce the outline of the business. CTW is running the browser game platform G123, which provides free basic play games with a formal license of Japanese anime IP. This is a service that allows you to start a game in just a few seconds from various端末 that can be used by the browser without downloading the app, focusing on mobile users. We collaborate with anime IP holders and external game development companies to deliver games to anime fans all over the world. We also use the data system in the company to evaluate the achievements of each title and determine the share of investment in content and marketing. Now, I will explain the current business and the current business situation.

2:50 In July of 2026, we released 15 new games such as High School of the Dead Day Zero and High School of the Dead Day Zero, and High School of the Dead Day Zero, and High School of the Dead Day Zero, and High School of the Dead Day Zero, and High School of the Dead Day Zero, and High School of the Dead Day Zero, and High School of the Dead Day Zero, and High School of the Dead Day Zero, and High School of the Dead Day Zero, and High School of the Dead Day Zero, and High School of the Dead Day Zero, and High School of the Dead Day Zero, and High School of the Dead Day Zero, and High School of the Dead Day Zero, and High School of the Dead Day Zero, and High School of the Dead Day Zero, and High School of the Dead Day Zero, and High School of the Dead Day Zero, and High School of the Dead Day Zero, and High School of the Dead Day Zero, and High School of the Dead Day Zero, and There was also a pre-registration stage. However, several titles released by Kamiki were under the plan. In addition, some existing titles grew slowly as the operating period became longer. This affected both the user's use and sales. On the other hand, we did not continue to actively invest in advertising for titles that do not meet the company's performance standards.

3:36 Instead, we intentionally reduced the cost of obtaining users and turned our funds into opportunities to expect higher returns. In this way, the rate at which the investment is adjusted according to the achievement is an important element of our business model. At that time, the advertising cost was $11.4 million in total, reducing it by 22%. This reduction rate is more than twice the reduction rate of sales. We reduced the advertising cost to keep ROAS at more than 100% of the standard. ROAS at that time was 105.8%, and the amount of money earned by the user in the game exceeded the advertising cost used to get the user. We evaluated each title based on ROAS, The key to our marketing strategy is to increase user acquisition costs according to the results. In terms of the quality of the user board, we have seen some positive movements.

4:35 At this time, there are two issues that should be improved, which are the effect of advertising expenses and reduction. Although the overall use has decreased, The number of monthly paid users is almost stable, and the percentage of paid users who are close to monthly active users has risen. On the other hand, the average income of monthly paid users and monthly paid users per person has been in the south. This is due to the fact that the long-term achievements of the title released by Kamiki have affected some. Based on these events, I think it is important to enrich the future title line-up, encourage the user's continuous use, and lead to continuous growth. On the other hand, ARPMAU, which shows the average income per monthly active user per person, and ARPDO, which shows the average income per daily active user per person, have all improved from the previous period.

5:32 In July of 2026, it was a difficult year in terms of expanding the number of users, but we believe that the basis to support platform monetization is to continue to be healthy. The rate of investment has also led to improved profitability in the segment. Segment profits were $32.3 million, with a 3% increase in total expenses. In the game, the percentage of segment profits against interest rates improved from 29.3% to 33.4% in the previous year. At the same time, we continued to invest towards the next stage of growth of CTW. In the future, we will adjust the personnel system to a sustainable level that supports business operations for several years, and we will open our first North American base at the New York One World Trade Center.

6:24 In addition to continuing to invest in G123, we have also advanced the maintenance of the necessary management platform as a top-level company. In addition to these investments, we have improved the platform and implemented efforts for overseas expansion, increased the operating cost of the server and platform, and reduced the operating cost as a top-level company. However, after adjustment, EBITDA maintained a plus of $3.5 million. In addition, the cash balance of the end of the year is $14,400,000, and there is no advantage or disadvantage. The sales value of North America decreased in the same period. The main reason is that we have reduced the user acquisition cost of the title that does not meet the return standard of the company.

7:10 The long-term view of the North American market has not changed. North America continues to be a market with great opportunities for growth for CTW. The New York team, which was established in February, is engaged in partnership, localization, user acquisition, and corporate marketing. We will enhance the awareness and presence of CTW for users and partners in North America. The model provided through our browser is thought to be particularly attractive in the overseas market. We will reduce the time required to download and register traditional apps, so that you can enjoy the game immediately from various terminals. In addition to their efforts in the business field, this year has been an important milestone for CTW. In August 2025, they made a new leap to the Nasdaq Capital Market. In February 2026, they opened a New York base in New York, the center of North American activities, at the WAN World Trade Center.

8:11 In May, CTW Cayman approved the change of name to CTW at the Chamber of Commerce. And in August, I joined Anime NYC, the largest anime event in the U.S. East Coast. Looking forward to the future, I think that the most important thing for the month of July, 2027, is the quality of the new title lineup. It is a title that is well known all over the world and is based on anime IP with high popularity. 16 of them have been released or have been pre-registered. Among them, Shouyuan Mo Shouluo's High School of the Dead Day Zero was released in late April of 2026. Within three months, it became the title of the top game of the month. Since it was released at the end of July of 2026, the results reflected in the regular sales were still limited.

9:12 Since the release of G123, the U.S. market has seen strong interest and active use of the title. The data on the knowledge and user thinking obtained here will be useful for targeting when developing new titles in North America in the future. In addition to the achievements of this title, the entire future title line-up and the efforts to acquire stable users support our confidence in the return to sustainable growth. The focus policy for July 2027 is as follows. First, improve the quality of the new title line-up. We will continue to provide quality games. Secondly, we will expand our business in the overseas market, which has a strong demand for Japanese IP. Thirdly, we will expand our business efficiently and continue to invest in technology and data systems to quickly determine content and marketing. Fourthly, we will continue to invest in technology and data systems to quickly determine content and marketing. Thank you very much for your hard work and dedication to support the growth of CTW.

10:21 July 20, 2026, the title is It was a year that showed that we could respond quickly even if we could not achieve the expected results. Reducing losses, protecting investment returns, adjusting EBITDA pluses and maintaining a healthy financial foundation without interest-free debt. In July of 2026, we will promote the fulfillment of the title line-up and business expansion in the overseas market based on this standard. In the first year, we will make the most of what we have learned. We believe that CTW will be able to build a stronger foundation for sustainable growth. We would like to thank all of you for your continued support for the further development of CTW.

11:19 Thank you for your time today, and thank you very much for your interest in CTW. Now, I would like to hand over to Patrick Liu, who is in charge of the highest debt.

11:33 Thank you, Raishi, and good morning and good evening, everyone. As Raishi mentioned, prioritizing returns over top-line growth is central to our strategy from a financial standpoint. that ongoing discipline guided full priorities in FY26, moving quickly when new titles underperformed, keeping our advertising spend above our return threshold, investing selectively in our platform global expansion, and maintaining a strong debt-free balance sheet. The results reflect those choices. Revenue declined, but second profits grew. ROS 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 FY26 was 82.5 million compared with 19.4 million in FY25, a decrease of 8.7%. Gross in-game purchases were 96.8 million down 9.5% year-over-year.

12:38 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 the 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, Day Zero, which was released toward end of April, meaning slightly over three 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 activity was concentrated among non-paying users. Monthly active user declined 33% to approximately 2.26 million from approximately 3.38 million last year.

13:39 While paying monthly active users increased slightly to approximately 89.1 thousand compared with approximately 88.5 thousand last year As a result, the ratio of paying monthly active users to monthly active users improved 3.95% from 2.62% Paying daily active users declined 13% compared with a 7% decrease in overall daily active users Well, average revenue per paying monthly active users declined to $19.60 from $100.74. We believe these trends partially reflect the weaker performance of our first half launch.

14:25 RAS was 105.8% in FY26 compared with 116.4% in FY25. While lower than last year, ROS remained above our 100% benchmark, meaning the in-game purchases generated by newly acquired users continued to exceed the advertising spend used to acquire them. This supports our long-term, ROS-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.

15:28 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, a 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 2016, is focused on partnerships, user acquisition in that region, localization efforts, and corporate communications.

16:23 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 or sourcing 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.

17:16 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 build-up of our corporate and administrative functions as a public company. The opening of our New York City office and approximately half a 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.

18:10 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 and unattractive returns. As a result, Segment profits increased 3% to $32.3 million or 33.4% of in-game purchases, compared with $31.3 million or 29.3% of in-game purchases in FY25, as lower advertising expense more than offset lower in-game purchases and higher server costs.

19:13 We reported an operating loss of $7.3 million compared with an operating loss of $1.1 million in FY25. 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. FY25 net income included a $4.7 million contingent gain on recovery of previously impaired assets. and Fiscal Year 26 included an income tax benefits of 1.7 million. There are also two items worth noting for the year. First, we recorded 2 million of non-cash 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 1st of 2025, we capitalized the $4.1 million of internal use software development costs for our G103 platform.

20:27 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 remained 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.

21:21 Net cash used in investing activities was 4.7 million, including the 4.1 million of capitalized software development cost. 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.

22:06 We acted quickly when new title performance did not meet expectations, reduced advertising significantly while keeping ROS above our 100% benchmark, grew segment profits and maintained positive adjusted EBITDA and 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. Thank you, Patrick. So we're now going to open up the Q&A session. From Zoom, there's two ways that you can participate. The first is to use the raise your hand icon, which is at the bottom of your screen.

22:52 Clicking this will alert us that you want to be called on to ask a live question, and so you'll be placed into a queue and then called on from there. Just note that participants will remain on mute and called on in order that they file into the queue. The second way to participate in today's Q&A is to use the Q&A widget, which will allow you to type in and submit a question. We will take questions from there as well, but just note, if we run into a time constraint, we'll be sure to get back to you if your question is not asked on today's call. So with that, we'll now take a quick pause and allow the queue to build. OK, it looks like we have a few questions here.

23:38 So with that, we're going to begin with Vincent Fernando from Zero One Research. Vincent, you should now be on the line.

23:48 Hi, thank you so much. So I have a few questions, actually. I'll try to ask them to save some time. So the first question is, your launches 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?

24:16 All right. 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 others, which included the prepaid royalties, the royalty rate, the remuneration rate, and the advance to the game developers.

25:14 So as of the end of the 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 a manga first serialized back in 2006 and adapted for television in 2010, generated approximately six million in its first three plus, a little bit over three months, launch.

25:59 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 demonstrate that establish this catalog IPs with the dedicated fund communities can continue to offer meaningful opportunities even though the manga, the TV adaption 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, the users also care a lot about overall quality.

26:52 So that means sometimes even a very highly popular IP may not necessarily translate into a very successful game if the game experiences does not meet the user's expectations. So we also recognize that sometimes different genres and different gameplay 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 reselection, balancing well-known anime IPs and properties, establish the catalog IPs and opportunities involved of regional 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 to grow the platform and grow the business.

27:59 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.

28:20 Thank you for that. 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 do you look for in a title when it launches that shows you that, OK, I should put more ad spend on that title? And then so how do you, kind of as a corollary to that, how do you decide when to lean into the user acquisition on the platform in different titles? So I guess just get some visibility on what you look for in the metrics right after a launch.

29:15 Thank you.

29:16 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 the monetization data, something like user acquisition and character creation data, the first day retention. Paying User Conversion, and some other early monetization trends, and also most importantly, the expected loss 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 spendings, 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.

30:16 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 the company perspective, our approach to user acquisition is basically as you said, and also we talked about 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 ROS and other operating KPIs to determine whether we want to invest additional marketing investment and whether those additional investment is actually justified.

31:12 So when a game demonstrates attractive returns, we generally seek to increase advertising investment to capture additional monetization of the opportunities, but sometimes You know, we do see, for whatever reason, some of the games is not performed as we expected. The performance falls below the expectation. At that moment, we will adjust the disbanding accordingly. I think from, you know, 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. Got it.

31:52 Thanks for that. Yeah, I noticed like, for example, the latest results, maybe some of that's playing out because obviously maybe you've pulled back a bit because I saw like the total MAUs come off of it, but actually paying MAUs still, you know, very stable. So that's what I thought. Maybe that's some of that dynamic there. My last question is, So Japan has new smartphone rules, as I've understood. And then we've seen some US court rulings on App Store payments that's kind of starting to loosen App Store's hold on app payments. And so are you seeing... Increase 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 there any change now in how you're speaking to potential partners because of these new developments for app stores?

32:48 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 app stores have become increasingly competitive in today, especially considering the large number of games are 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.

33:52 So we believe that the recent regulatory developments, as you mentioned, I think this actually gives some unique advantages to our browser-based platform because G103 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.

34:56 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 the channels actually creates some additional opportunities for CTW to expand our developer and publisher relationships networks.

35:57 And in particular, I think this 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.

36:19 But just a quick, just a super quick follow on that. You mentioned that, you know, new other game developers now may be more open to this, you know, outside the app store. What about IP owners? Are there, were there some Japanese IP holders? Maybe they kind of, for some reason, they always want to be inside the, you know, the app stores and now maybe are there new, is there new opportunities for new IP owners to work with you?

36:42 Yeah, so from our side, I think, Based on our observation, we do see there are more and more IP holders that became more interested in 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 the fact of the recent regulatory updates. 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 multi-edition channels and approach. so that means from our 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 you know 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.

38:17 And beyond just the traditional Japanese manga and manga IP holders and anime IP holders, we may from time to time, depends on the market conditions, depends on the opportunities, we may also exploring other IP holders outside of Japan as well.

38:36 Got it. Okay, those are my questions. Thank you so much. Thank you Vincent. Thank you Vincent. So our next question here will come from Steve Silver at Argus Research. Steve, you should now be on the line.

38:56 Okay, great. Thank you so much for taking the questions. 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 Thank you so much for joining us.

39:33 Thank you, Steve. So we actually attended Anime YC 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 trying to put the G103 brand in front of fans and industry professionals in the markets that we are trying to build. I think the event itself, we have received some event report. It said that over 170,000 attendees participant in the anime MBC and there's we definitely have a lot of very interesting Thank you very much.

40:47 and preferences and expectations. So I think from our side, these interactions actually provided a very useful insight into the anime IPs, the gaming 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, you know, these type of initiatives really together contributes to building a stronger foundation for our long-term growth in North America. And most important, this is really just a brand awareness and build up and also help us to better understand the local, you know, demands and the needs for anime themed gaming.

41:56 Great, thanks for that. And one more, if I may. So the company closely tracked the number of pre-registrations for titles, including, I guess, 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.

42:43 Thanks for the question, Steven. So from CTW side, one, we see the pre-restriction numbers. So first of all, we do believe that these pre-restriction 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 penetration interest, it's 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 pre-registration 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's success 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 gameplay, whether the game actually aligns with the fans' expectations, overall user engagement, retention, and monetization,

44:14 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 rates. So from the company side, we continue to closely track preregistration numbers as part of our launch preparation. But when the game is actually launched, our focus is going to shift from just monitoring the pre-registration numbers to actually monitoring 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 ROS.

45:12 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 maximized monetization and maximize profitability from the game.

45:32 Great, I appreciate the caller and best of luck in the new fiscal year.

45:36 Thank you so much. Thank you, Steve. I really appreciate those questions. Looks like we have time for a couple more. Our next question will come from Aaron Gray at Alliance Global Partners. Aaron, you should now be on the line.

45:57 Hi, good morning and thank you very much for the questions here. Akihiro Ishiwata, Thank you.

46:37 Thank you so much, Aaron, for your question. So from our side, so first of all, I do want to just re-emphasize the games offered on G103 platform are all under free-to-play, pay-to-win mode. So the monetization basically primarily driven by the in-game microtransactions, the in-game purchases. So from an operating perspective, 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 matters of our business performance.

47:36 So I think one very important distinction is that for us, non-paying 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 the 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 investments, it's going to have a greater impact on overall active users than Our paying user base or in-game purses.

48:33 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 the in-game purses to generally move together. and driven mostly by the new launches of the new games. But in near term, we believe as we continue, you know, 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, you know, MAU movements and the in-game purchase movements.

49:40 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. How do you think about the juxtaposed 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 keep the ROA up while still keeping revenues flat to growing?

50:35 Thanks.

50:36 Okay, thank you again for the questions, Aaron. So I want to let you know from the company's perspective, we basically we see these into, you know, basically, we think that this is actually comes into two questions. The first question is how we're going to continue, you know, from a marketing strategy perspective, how we're going to continue to allocate our So from that perspective I think we have repeatedly talking about our core strategy, which is basically ROS-focused marketing strategy.

51:21 So from the company side, that means we're going to continually 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 of just that, I think from our side to continue to expand the company and to continue our growth, we definitely will try new things to make our advertisements or marketing efforts even more efficiently than what we have through today.

52:11 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 the US, and by participating in more industry-focused conventions or events, I think the participation of the NMAOIC is actually one of the good examples of the company doing brand awareness build-up. and beyond of 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 US 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 we believe that actually are going to help us to address A lot of the targeting audience of our platform and our games.

53:41 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 G103 and our games to the users globally. So I think by doing both ways means continue maintain the ROS focused marketing allocation and investment strategy, plus the exploration of additional user acquisition and promotional channels I think in combination, these things are going to help us to continue, you know, expand globally and, you know, get back to growth phase of this company.

54:37 Okay, great. Thanks. Appreciate the call. I'll jump back in the queue.

54:40 Thank you. Thank you, Aaron. Looks like we have time for one more set of questions. So our next question asker will be Michael Kopinski from Noble Capital Markets. Michael, you should now be on the line.

55:07 All right, thanks, Pat. Yeah, 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?

55:27 Thank you so much for your 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 development of new games for the distribution on our platform. All of these advances we made to the game developers are non-interest 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 potential appeal for the underlying anime or manga IP, the developer's own technical capabilities and experiences, whether the developer has historically some track record of successfully

56:59 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 it's launched is inherently very, very difficult to predict. And there are external factors that are 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.

57:56 So I think for fiscal year of 26, we recognized approximately 2.6 million in impairments. And in the prior fiscal year, we had 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 advances to the game developers as part of our broader portfolio strategy and recognizing that the performance of individual titles, individual games can vary significantly.

58:45 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 it's launched. And when we make any additional decisions of advances to game developers, we definitely will continue making disciplined investment decisions based on all the information available to us.

59:17 Thank you and thanks for the color. You capitalized 4.1 million of software development under ASU 2025 in 06. How will that affect the P&L going forward and what is the platform investment delivering at this point?

59:33 I think from our side, We have early adopted the ASU 2012-06 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 on the traditional sequential development stages. And so after 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.

1:00:46 So of the capitalized portion, we believe for the next two fiscal years, we probably gonna have roughly one million annual amortization for each of those two 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.

1:01:37 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.

1:02:26 So I think these ongoing investments over time will help us to continue improving overall operating efficiency and help us to compete more efficiently in this gaming sector.

1:02:45 Thank you. That's all I have. Thanks for taking my questions.

1:02:48 Thank you. 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 words. Have a great weekend. Bye.