CTW Cayman Q3 FY2026 earnings call

• Strategic Focus on Returns: Management prioritized returns over top-line growth, maintaining a debt-free balance sheet with $14.4 million in cash. The strategy involved quickly cutting advertising spend on underperforming titles to keep Return on Ad Spend (ROAS) above the 100% benchmark.
• User Base Dynamics: Monthly Active Users (MAU) declined 33% to 2.26 million, driven by a drop in non-paying users sensitive to ad cuts. However, paying MAUs remained stable at ~89,100, improving the pay-to-total user ratio to 3.95% from 2.62%. Average revenue per paying user declined to $90.60.
• Geographic Diversification: International revenue grew to 36% of the total, up from 30.4%. Strong momentum was seen in Asia outside Japan, while North American presence is being built via a New York office established in Feb 2026.
• Content Strategy: Launched 15 new games, ending with 42 active titles. Success varied, with 'High School of the Dead Day 0' performing well despite being based on older IP. Management emphasized evaluating IPs based on fan engagement and monetization potential rather than recency.
• Operational Efficiency: Advertising expenses decreased 21.7% to $41 million, outpacing the revenue decline. This discipline allowed segment profits to grow despite higher costs of revenue ($28.5 million) driven by personnel, server costs, and IP royalties.
• Platform Investment: Capitalized $4.1 million in internal-use software development for the G123 platform. This investment aims to streamline workflows, support localization, and improve operational efficiency without significantly increasing headcount.

The company reported a consolidated revenue of $82.5 million for fiscal year 2026, an 8.7% decrease from $90.4 million in fiscal year 2025. Gross in-game purchases declined 9.5% to $96.8 million. Segment profits increased by 3% to $32.3 million, representing 33.4% of in-game purchases (up from 29.3% in FY2025). Revenue breakdown by geography: Japan accounted for $52.8 million (64% of total revenue), down 16.1%; South Korea contributed $10.5 million (12.8% of total revenue), up 12.4%; North America generated $6.2 million (7.5% of total revenue), down from $7.5 million; and other Asia-Pacific markets (Taiwan, Hong Kong, Macau) contributed $8 million (9.7% of total revenue), up 71.2%. Combined non-Japan Asia revenue was $18.5 million, or 22.4% of total revenue.

• Management expressed a vision to return to sustained growth in fiscal year 2027 as new titles are issued and international initiatives gain traction.
• No specific quantitative financial guidance (revenue or earnings targets) was provided for the upcoming fiscal year.
• Guidance implies a continued focus on disciplined marketing allocation, where ad spend is tied strictly to individual title performance and ROAS thresholds.
• Expectation that General and Administrative expenses will increase only modestly in absolute terms as public company infrastructure is largely in place.

• Game Performance Uncertainty: Individual game launches carry inherent risks; management acknowledged that even strong pre-registrations do not guarantee commercial success, leading to potential impairments (recognized $2.6 million in FY2026).
• Regulatory Changes: New smartphone rules in Japan and U.S. court rulings on app store payments create uncertainty but also present opportunities for browser-based distribution models like G123.
• Market Competition: The app store ecosystem remains highly competitive, requiring continuous adaptation in user acquisition strategies and alternative distribution channels.
• IP Licensing Risks: Dependence on anime/manga IP holders requires careful evaluation of licensing costs, royalty rates, and advance payments to developers, which can impact profitability if titles underperform.

Q: Vincent Fernando asked how CTW evaluates anime properties for licensing, specifically whether newer IPs, catalog titles, or original games yield better returns relative to cost. / A: Patrick Liu explained that CTW does not prioritize one type over another, citing 'High School of the Dead Day 0' (based on a 2006 manga) as a successful example of older IP generating significant revenue. He emphasized that success depends on capturing the original content's characteristics, gameplay quality, and monetization potential, rather than just IP recency. The strategy is to maintain a diversified portfolio balancing well-known IPs, catalog titles, and originals, focusing on sustainable monetization relative to investment costs.

Q: Vincent Fernando inquired about the specific metrics CTW uses in the first few weeks post-launch to decide whether to increase or decrease advertising spend for a new title. / A: Liu stated that CTW closely monitors engagement, monetization data, first-day retention, paying user conversion, and expected ROAS within the initial weeks. The approach is title-specific rather than platform-wide; if a game demonstrates attractive returns and supports additional marketing investments, ad spend is increased. Conversely, if performance falls below expectations, spending is scaled back immediately to protect margins, a discipline that drove the reduction in marketing expenses during FY2026.

Q: Vincent Fernando asked if regulatory changes regarding app stores have increased interest from publishers and IP holders in CTW’s browser-based distribution model. / A: Liu confirmed that developers and publishers are increasingly interested in alternative distribution channels to improve efficiency and manage platform costs, a trend supported by recent regulatory developments. CTW’s browser-based G123 platform offers advantages such as global accessibility without downloads and direct third-party payment processing. This positions CTW to engage with larger developers traditionally focused on native apps and provides IP holders with diversified monetization channels beyond traditional app stores.

Q: Steve Silver asked if pre-registration numbers for titles like 'The Apothecary Diaries' correlate with subsequent in-game purchase performance and market traction. / A: Liu noted that while strong pre-registrations indicate initial market interest and help build awareness, they do not directly translate to long-term success. Historical experience shows that factors like gameplay quality, fan expectation alignment, retention, and monetization are more critical. CTW uses pre-registrations for early-stage user acquisition efficiency but shifts focus to actual performance metrics (ROAS, retention) post-launch to optimize marketing and content strategies.

Q: Aaron Grey asked about the divergence between MAU trends and in-game purchases, and how CTW balances the need for marketing spend to drive awareness against maintaining high ROAS. / A: Liu explained that MAU and in-game purchases are distinct; non-paying users are more sensitive to ad cuts, while paying users show stronger retention. In the near term, MAU and revenue may diverge as the company expands globally. To address the tension between growth and ROAS, CTW maintains its ROAS-focused allocation strategy while exploring new marketing channels, such as influencer collaborations and OEM partnerships, to diversify acquisition methods and reach audiences more efficiently without compromising return thresholds.