CTW Cayman H2 2026 Earnings Results & Report

CTW Cayman EPS Results

• Actual EPS: -$0.0240
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

CTW Cayman Revenue Results

• Actual Revenue: $20.79 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

CTW Cayman (NASDAQ:CTW) Limited is a holding company associated with CTW Inc., a Japan-based developer and operator of online games. Through its G123 platform, the company provides browser-based games that can be played without downloading dedicated applications.

The company’s games are generally based on popular anime and other entertainment properties and are offered through a free-to-play model, with revenue generated from in-game purchases and related digital content. Its platform is designed to support the development, publication and operation of games for users across desktop and mobile devices.

CTW serves players primarily in Japan and also distributes its games internationally. The company is incorporated in the Cayman Islands, while its operating activities are centered in Japan. Publicly available information about its broader corporate structure and executive leadership is limited.

CTW Cayman H2 2026 Earnings Call Transcript

Key Takeaways

• Negative Sentiment: Revenue fell 8.7% to $82.5 million and gross in-game purchases declined 9.5% to $96.8 million, pressured by underperforming first-half launches, maturing titles, and a 16.1% drop in Japan revenue. Monthly active users fell 33% to 2.26 million, while paying-user spending and paying daily active users also weakened.
• Positive Sentiment: Management prioritized returns over top-line growth, cutting advertising expense 21.7% to $41 million while maintaining ROAS above its 100% threshold at 105.8%. Segment profit increased 3% to $32.3 million, and segment margin on in-game purchases improved to 33.4% from 29.3%.
• Neutral Sentiment: The company reported a $7.3 million operating loss and $4.1 million net loss, compared with net income of $3.8 million a year earlier, reflecting higher personnel, infrastructure, public-company, and international expansion costs. Adjusted EBITDA remained positive at $3.5 million, but declined from $8 million.
• Positive Sentiment: CTW ended the year with $14.4 million of cash and cash equivalents and no debt, while international revenue outside Japan grew 8.2% to $29.7 million. South Korea and Taiwan/Hong Kong/Macau were particularly strong, and management expects its New York office and browser-based model to support longer-term North American growth.
• Positive Sentiment: Management highlighted a pipeline of 16 titles awaiting release or in preregistration, including High School DxD ZERO, which generated approximately $6 million in its first three-plus months and became the platform’s highest-revenue title during that period. However, executives cautioned that preregistration and IP popularity do not guarantee retention, monetization, or profitability, and advances to developers remain exposed to impairment risk.

Presentation

[Pat Federle, Head of Investor Relations at CTW Cayman]

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 investor section of our website. With that, I will now turn the call over to Ryuichi.

[Ryuichi Sasaki, Founder, CEO, and Chairman at CTW Cayman]

[Non-English content]

[Patrick Liu, CFO at CTW Cayman]

Thank you, Ryuichi. Good morning and good evening, everyone. As Ryuichi mentioned, prioritizing returns over top-line growth is central to our strategy. From a financial standpoint, that ongoing discipline guided our full priorities in fiscal year 2026: moving quickly on new titles that 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 2026 was $82.5 million, compared with $90.4 million in fiscal year 2025, a decrease of 8.7%. Gross in-game purchases were $96.8 million, down 9.5% year-over-year.

[Patrick Liu, CFO at CTW Cayman]

We launched 15 new games during the year and ended fiscal year 2026 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 Day 0, which was released toward the end of April, meaning slightly over three months of contribution was recognized in fiscal year 2026. 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.

[Patrick Liu, CFO at CTW Cayman]

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 launches. ROAS was 105.8% in fiscal year 2026, compared with 116.4% in fiscal year 2025. While lower than last year, ROAS 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 ROAS-focused marketing strategy.

[Patrick Liu, CFO at CTW Cayman]

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. 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. Our results have reflected reduced user acquisition spending on underperforming titles.

[Patrick Liu, CFO at CTW Cayman]

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.

[Patrick Liu, CFO at CTW Cayman]

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 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.

[Patrick Liu, CFO at CTW Cayman]

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 purchases, compared with $31.3 million, or 29.3% of in-game purchases in fiscal year 2025, as lower advertising expense more than offset lower in-game purchases 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 2025. 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 2025 net income included a $4.7 million contingent gain on recovery of previously impaired assets, and fiscal year 2026 included an income tax benefit of $1.7 million.

[Patrick Liu, CFO at CTW Cayman]

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 2025, 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, 2025, we capitalized $4.1 million of internal-use software development cost 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 2025.

[Patrick Liu, CFO at CTW Cayman]

We remained Adjusted EBITDA positive while reducing advertising spend and continuing to invest 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 2025. 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 cost. We ended fiscal year 2026 with $14.4 million in cash and cash equivalents, up from $12.2 million at July 31st, 2025, and supported by $10.6 million of net proceeds received at the closing of our IPO.

[Patrick Liu, CFO at CTW Cayman]

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 2026 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 meet expectations, reduced advertising significantly while keeping ROAS above our 100% benchmark, grew segment profits, 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 our Q&A session.

[Pat Federle, Head of Investor Relations at CTW Cayman]

Thank you, Patrick. We're now going to open up the Q&A session. From Zoom, there are two ways that you can participate. The first is to use the Raise Your Hand icon, which is at the bottom of your screen. Clicking this will alert us that you want to be called on to ask a live question, and 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.

[Pat Federle, Head of Investor Relations at CTW Cayman]

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. With that, we'll now take a quick pause and allow the queue to build. Okay, looks like we have a few questions here. With that, we're going to begin with Vincent Fernando from Zero One Research. Vincent, you should now be on the line.

[Vincent Fernando, Analyst at Zero One Investment Research]

Hi. Thank you so much. I just have a few questions, actually. I'll try to ask them to save some time. 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?

[Patrick Liu, CFO at CTW Cayman]

Thank you very much, Vincent. I'm going to respond to this question. First of all, I do want to let you know, 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. I think each anime title, each anime IP has its unique characteristics, cost structures, and potential audiences. 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, which includes the prepaid royalties, the royalty rate, revenue share rate, and advance to the game developers.

[Patrick Liu, CFO at CTW Cayman]

As of the end of fiscal year 2026, 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. For example, High School of the Dead Day 0, which is based on a manga first serialized back in 2006 and adapted for television in 2010, generated approximately $6 million in its first three-plus months launch. The game itself actually became the highest revenue-generating game on our platform over that period. 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 and the TV adaptation of this anime was almost over 10 years old.

[Patrick Liu, CFO at CTW Cayman]

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. Beyond that, users also care a lot about overall quality of the gameplay, the overall user engagement, and monetization. That means sometimes even a very highly popular IP may not necessarily translate into a very successful game if the game experience does not meet the users' expectations. We also recognize that sometimes different genres and different gameplay mechanics may appeal to different audiences and geographic markets. 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 involving original games or different game genres.

[Patrick Liu, CFO at CTW Cayman]

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 on our experiences from prior launches and game operations to help us continue to grow the platform and grow the business. I think, from the business side, the objective is very clear. We don't just want to secure the most recognizable IPs, but we want to identify the content that can deliver attractive user engagement and sustainable monetization relative to the investments required.

[Vincent Fernando, Analyst at Zero One Investment Research]

Got it. Thank you for that. My next question is just in regards to how you look at games when they launch. 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. 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 you should put more ad spend on that title? Kind of [inaudible] corollary to that, how do you decide when to lean into the user acquisition on the platform in different titles? I guess just get some visibility on what you look for in the metrics right after a launch. Thank you.

[Patrick Liu, CFO at CTW Cayman]

Okay. Got it. Thank you for the question again. 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-day 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. We typically try to form an initial view of a new launch within the first few weeks.

[Patrick Liu, CFO at CTW Cayman]

But after the game launches and operates 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. From a company perspective, our approach to user acquisition is basically, as you said, and also we talked about this a lot during the earnings call, we approach user acquisition driven by the actual performance of individual games rather than a single platform-wide advertising decision. Basically, that means for each individual title that launched and operated on the platform, we actually evaluated actual and expected ROAS and other operating KPIs to determine whether we want to invest additional marketing investment and whether those additional investments are actually justified.

[Patrick Liu, CFO at CTW Cayman]

When a game demonstrates attractive returns, we generally seek to increase advertising investment to capture additional monetization opportunities. But sometimes, we do see, for whatever reason, some of the games are not performing as we expected, the performance falls below the expectation. At that moment, we will adjust the spending accordingly. I think this is actually exactly what we have experienced for fiscal year 2026, and also we do believe this discipline will continually carry us into fiscal year 2027.

[Vincent Fernando, Analyst at Zero One Investment Research]

Got it. Thanks for that. I noticed, for example, in the latest results, maybe some of that's playing out because obviously, maybe you've pulled back a bit because I saw the total MAUs come off a bit, but actually paying MAU is still very stable. Maybe there's some of that dynamic there. My last question is, 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 the app store's hold on app payments. 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 there any change now in how you're speaking to potential partners because of these new developments for app stores?

[Patrick Liu, CFO at CTW Cayman]

Thank you. This is actually a quite interesting question. We have actually talked with a lot of industry players, especially on the gaming studio and game development partner side. We believe over the past few years, we have observed some increasing interest from game developers and publishers in distribution channels outside of the traditional app store ecosystem. 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 has become increasingly competitive today, especially considering the large number of games right now available through app stores. As a result of that, we do see more and more developers are actually increasingly interested in exploring some alternative ways to reach users, improve some distribution efficiencies, and manage platform costs.

[Patrick Liu, CFO at CTW Cayman]

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. 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. Beyond just the global accessibility, we also offer some additional benefits to game developers and game studios. Beyond just the distribution, we also offer our game development partners user acquisition and marketing capabilities, and we also support game developers in designing their games, and we provide localization services, and we also give them access to established anime and manga IPs.

[Patrick Liu, CFO at CTW Cayman]

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

[Vincent Fernando, Analyst at Zero One Investment Research]

Just a super quick follow-on on that. You mentioned that other game developers now may be more open to this outside the app store. What about IP owners? Were there some Japanese IP holders, maybe they for some reason always wanted to be inside the app stores, and now maybe is there new opportunities for new IP owners to work with you?

[Patrick Liu, CFO at CTW Cayman]

From our side, 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. From our side, we don't necessarily think that there are direct connections or incentives for the IP holders to seek distribution channels outside of traditional app stores, just because of the recent regulatory updates. From our perspective, we have been seeing, and I think this is actually what will continue to be part of the truth, that from the IP holder side, they always want to have diversified monetization channels and approaches.

[Patrick Liu, CFO at CTW Cayman]

That means-- because the platform we have built is totally outside of the traditional app store ecosystems, that's always going to be something valuable for the IP holders to consider when they explore the different monetization opportunities beyond the traditional app store distribution channels. From that perspective, from our side, we will continually contact and connect with new IP holders whenever opportunities come, and beyond just the traditional Japanese manga IP holders and anime IP holders. We may, from time to time, depending on market conditions and opportunities, also explore other IP holders outside of Japan as well.

[Vincent Fernando, Analyst at Zero One Investment Research]

Got it. Okay. Those are my questions. Thank you so much.

[Patrick Liu, CFO at CTW Cayman]

Thank you, Vincent.

[Pat Federle, Head of Investor Relations at CTW Cayman]

Thank you, Vincent. Our next question here will come from Steve Silver at Argus Research. Steve, you should now be on the line.

[Steve Silver, Analyst at Argus Research]

Okay, great. Thanks so much for taking the questions. Anime NYC was more than a month ago now, and it took place after the end of fiscal 2026. 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, CFO at CTW Cayman]

Thank you, Steve. We actually attended Anime NYC in August of 2026, and I think from our perspective, this is actually the very first time we have been actively participating in a very large anime-focused convention in North America. The main purposes of this event, the participation of this event, is really to 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 received some event report. It said that over 170,000 attendees participated in the Anime NYC, and we definitely have a lot of very interesting connections with professionals that are working on licensing, working on gaming, and other parts that are relevant to our business.

[Patrick Liu, CFO at CTW Cayman]

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. I think from our side, these interactions actually provided very useful insight into the anime IPs and the gaming experiences that resonate with North American audiences that we are trying to expand into. 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 types of initiatives really together contribute to building a stronger foundation for our long-term growth in North America. Most importantly, this is really just brand awareness and build-up and also helps us to better understand the local demands and the needs for anime-themed gaming.

[Steve Silver, Analyst at Argus Research]

Great. Thanks for that. And one more, if I may. The company closely tracked the number of pre-registrations for titles, including, I guess, The Apothecary Diaries and Shakugan no Shana: Blaze Edge. 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 launches of new titles that had strong pre-registrations 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 pre-registration trend.

[Patrick Liu, CFO at CTW Cayman]

Thanks for the question, Steve. From the CTW side, when we see the pre-registration number, first of all, we do believe that these pre-registration numbers are definitely a valuable indicator of initial market interest in a particular anime or manga IP and the game associated with those IPs. I think for us, we do see based on previous experiences, if we do see a strong pre-registration interest, it actually helps us to build awareness ahead of the actual launch of the game and also is 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 purchases after the game is launched.

[Patrick Liu, CFO at CTW Cayman]

I think ultimately the game's success actually depends on a lot of other factors beyond just the simple popularity of the underlying IP. The other factors include things like the overall quality of the gameplay, whether the game actually aligns with the fans' expectations, overall user engagement, retention, and monetization. I think based on our prior experiences, sometimes a title with strong pre-registration 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. From the company side, we continue to closely track pre-registration numbers as part of our launch preparation.

[Patrick Liu, CFO at CTW Cayman]

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 — meaning user acquisition, retention, the paying user conversion, monetization, and most importantly, the ROAS. 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 maximize monetization and maximize profitability from the game.

[Steve Silver, Analyst at Argus Research]

Great. I appreciate the color, and best of luck in the new fiscal year.

[Patrick Liu, CFO at CTW Cayman]

Thank you so much.

[Pat Federle, Head of Investor Relations at CTW Cayman]

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

[Aaron Grey, Analyst at Alliance Global Partners]

Hi, good morning, and thank you very much for the questions here. To 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? Any commentary you might be able to provide maybe quarter to date now or that we're about two and a half months into the next half. Thanks.

[Patrick Liu, CFO at CTW Cayman]

Thank you so much, Aaron, for your question. From our side, 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. The monetization is basically primarily driven by the in-game microtransactions, the in-game purchases. 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. I think from that perspective, MAU and in-game purchase volume and the reported revenue are related but distinct measures of our business performance. 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.

[Patrick Liu, CFO at CTW Cayman]

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. 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 2026.

[Patrick Liu, CFO at CTW Cayman]

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 probably are going to see sometimes that the active users, the MAU, and the in-game purchases generally move together and driven mostly by the new launches of the new games. But in the near term, we believe as we continue to expand globally and trying to address demands from new markets to the company, we believe there you will continue to see there's going to be some divergence in MAU movements and the in-game purchases movements.

[Aaron Grey, Analyst at Alliance Global Partners]

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 US, 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?

[Aaron Grey, Analyst at Alliance Global Partners]

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 ROAS up, whereas reallocating it to different games or otherwise keep the ROAS up while still keeping revenues flat to growing? Thanks.

[Patrick Liu, CFO at CTW Cayman]

Thank you again for the question, Aaron. From the company's perspective, basically, we see these in two — basically, we think that this actually comes into two questions. The first question is how are we going to continue from a marketing strategy perspective, how are we going to continue to allocate our advertisement spending into different games, and what decides how much money we want to spend on marketing and overall advertisements. From that perspective, I think we have repeatedly talked about our core strategy, which is basically a ROAS-focused marketing strategy. 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.

[Patrick Liu, CFO at CTW Cayman]

Also, we are 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 advertisements or marketing efforts even more efficiently done than what we have through today. 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 U.S. by participating in more industry-focused conventions or events. I think the participation of the Anime NYC is actually one of the good examples of the company doing brand awareness build-up.

[Patrick Liu, CFO at CTW Cayman]

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 the U.S. and Japan. I believe our marketing team right now are evaluating some potential OEM-related distribution and marketing partnerships. Also, we are trying to build up some collaborations with local content creators and social media influencers, which we believe is actually going to help us to address a lot of the targeting audience of our platform and our games.

[Patrick Liu, CFO at CTW Cayman]

From our side, from the marketing activity side, our objective is really to 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. I think by doing both ways, meaning 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 are going to help us to continue to expand globally and get back to the growth phase of the company.

[Aaron Grey, Analyst at Alliance Global Partners]

Okay, great. Thanks. Appreciate the color. I'll jump back in the queue.

[Patrick Liu, CFO at CTW Cayman]

Thank you.

[Pat Federle, Head of Investor Relations at CTW Cayman]

Thank you, Aaron. Looks like we have time for one more set of questions. Our next question asker will be Michael Kupinski from NOBLE Capital Markets. Michael, you should now be on the line.

[Michael Kupinski, Analyst at NOBLE Capital Markets]

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 how do you think about underwriting these advances, and how should investors think about impairment risk?

[Patrick Liu, CFO at CTW Cayman]

Thank you so much for your question, Michael. From the company perspective, advances to game developers is actually a very important part of our business model. 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. The actual recovery of these advances will depend on the successful development, launch, and also the commercial performance of the underlying games. 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.

[Patrick Liu, CFO at CTW Cayman]

Our evaluation of these relationships and advances, including things like the overall popularity and the 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 launching games, maybe through another web platform or app store. 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 going to impact the overall game performance, the actual game performance after it's launched is inherently very, very difficult to predict. There are external factors that not in full control of the business. Even though we do a lot of evaluation of the risks, whatever factors we have considered may not be able to fully eliminate the risk of unsuccessful launches.

[Patrick Liu, CFO at CTW Cayman]

For fiscal year 2026, 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 the monetization. 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. 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 is launched. And when we make any additional decisions of advances to game developers, we definitely will continue making disciplined investments decision based on all the information available to us.

[Michael Kupinski, Analyst at NOBLE Capital Markets]

Thank you, and thanks for the color. 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, CFO at CTW Cayman]

I think, from our side, we have early adopted the ASU 2025-06 from the beginning of last fiscal year. 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. Of the $4.1 million we have capitalized in fiscal year 2026, roughly, we have a net remaining balance of about $3.5 million after considering the amortization that happened in the fiscal year. Of that $3.5 million net balance, around $2.5 million are software or services that already placed in service at the year-end. We do have roughly around another $1 million still under development as of the end of fiscal year 2026.

[Patrick Liu, CFO at CTW Cayman]

Of the capitalized portion, we believe for the next two fiscal years, we probably going to have roughly $1 million amortization, annual amortization for each of those two years. I think, from the company side, that investment in software development actually supports the overall platform and the features and functions. Also, a lot of those developments actually are used across game launches, marketing, localization, and ongoing game operations. I think, these developments actually help us to streamline a lot of our internal workflows and ultimately certain repetitive processes for the business.

[Patrick Liu, CFO at CTW Cayman]

I think, overall, these developments help us to be able to support a much larger scale of operation with roughly the 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, and workflow automation. The focus is still to trying to improve overall efficiency over game launches, helping us to improving user acquisition and performance monitoring capabilities. These ongoing investments over time will help us to continually improving overall operating efficiency and help us to compete more efficiently in this gaming sector.

[Michael Kupinski, Analyst at NOBLE Capital Markets]

Thank you. That's all I have. Thanks for taking my questions.

[Patrick Liu, CFO at CTW Cayman]

Thank you.

[Pat Federle, Head of Investor Relations at CTW Cayman]

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.

Participants

Executives

• Pat Federle, Head of Investor Relations
• Ryuichi Sasaki, Founder, CEO, and Chairman
• Patrick Liu, CFO

Analysts

• Vincent Fernando, Analyst at Zero One Investment Research
• Steve Silver, Analyst at Argus Research
• Aaron Grey, Analyst at Alliance Global Partners
• Michael Kupinski, Analyst at NOBLE Capital Markets