CTW Cayman Q4 FY2026 earnings call

• Strategic Focus on ROAS: Management prioritized return on ad spend (ROAS) over top-line growth. Advertising expenses were reduced by 21.7% ($11.4 million reduction) to $41.0 million, while maintaining a ROAS above 100% (actual: 105.8%).
• Title Performance Dynamics: The launch of 'High School of the Dead Day Zero' in late April 2026 drove significant user traction in Asia and North America, though full financial impact was limited due to short recognition period in FY26. Other new titles underperformed, leading to rapid scaling back of marketing.
• User Base Composition: Monthly Active Users (MAU) declined 33% to 2.26 million, driven by non-paying users. However, Paying MAUs remained stable at ~89.1 thousand, improving the paying user ratio to 3.95% from 2.62%.
• Geographic Diversification: International revenue grew to 36% of total sales. Japan revenue decreased 16.1% to $52.8 million. Revenue from outside Japan increased 8.2% to $29.7 million, with strong growth in South Korea (+12.4%) and Taiwan/HK/Macau (+71.2%). North America revenue dipped to $6.2 million due to reduced UA spend on underperformers.
• Platform & Infrastructure: Capitalized $4.1 million in software development costs for the G123/G103 platform. Opened New York office in February 2026 to support US expansion, localization, and partnerships.
• Financial Discipline: Maintained a debt-free balance sheet. Operating loss widened to $7.3 million (vs $1.1 million loss in FY25) due to higher personnel/server costs and share-based compensation ($2.0 million). Net loss was $4.1 million.

Revenue for FY26 was $82.5 million, a decrease of 8.7% year-over-year from $89.3 million in FY25. Gross in-game purchases declined 9.5% to $96.8 million. Segment profits increased 3% to $32.3 million (up from $31.3 million in FY25), representing an improvement in margin from 29.3% to 33.4% of in-game purchases. Adjusted EBITDA was positive at $3.5 million (4.2% of revenue), down from $8.0 million (8.8% of revenue) in FY25. The company ended the fiscal year with $14.4 million in cash and no debt.

• FY27 Outlook: Management expressed confidence in returning to sustainable growth in FY27, driven by a high-quality pipeline of 16 new anime IP-based titles.
• Content Strategy: Priority is placed on enriching the title lineup with well-known anime IPs that have global appeal and dedicated fan bases.
• International Expansion: Continued investment in overseas markets, particularly North America, leveraging browser-based distribution advantages.
• Operational Efficiency: Ongoing investment in technology and data systems to quickly assess content and marketing performance, aiming for efficient capital allocation.

• Game Development & Monetization Risk: Advances to game developers carry impairment risk; approximately $2.6 million was impaired in FY26. Success depends on unpredictable factors like gameplay quality and user retention, not just IP popularity.
• Advertising ROI Volatility: Heavy reliance on ROAS-driven marketing means that if new titles fail to meet performance thresholds, revenue can decline sharply as marketing spend is cut immediately.
• Regulatory Changes: While browser-based model offers resilience against App Store restrictions, changes in payment regulations or data privacy laws could impact operations.
• Competition: Intense competition in both app stores and browser gaming spaces requires continuous innovation and attractive IP licensing.

Q: Vincent Fernando asked what types of anime properties work best relative to cost and how this shapes licensing decisions. / A: CFO Patrick Liu stated that recency does not guarantee success; established catalog IPs like 'High School of the Dead' performed strongly due to dedicated fanbases. CTW evaluates opportunities based on expected monetization vs. licensing/development costs, royalty rates, and developer track records. They maintain a diversified approach, balancing new IPs, catalog titles, and originals, focusing on content that delivers sustainable engagement rather than just brand recognition.

Q: Vincent Fernando inquired about the specific metrics used to evaluate new game launches within weeks of release to determine advertising allocation. / A: Liu explained that CTW monitors early engagement, character creation, first-day retention, paying user conversion, and initial ROS trends. User acquisition is driven by individual title performance, not platform-wide decisions. If a game shows attractive returns, ad spend increases; if it underperforms, spending is scaled back immediately to protect margins.

Q: Aaron Gray asked how CTW balances the need for brand awareness marketing with the discipline of keeping ROAS above 100%, and if there are plans to reallocate spend or diversify channels. / A: Liu confirmed the core strategy remains ROAS-focused for direct response. However, to support long-term growth, they are exploring brand-building activities like Anime NYC attendance and evaluating OEM-related distribution partnerships and collaborations with local influencers. This dual approach aims to expand the user base efficiently while maintaining profitability on paid campaigns.

Q: Michael Kopinski asked about the rationale behind advances to game developers, the associated impairment risks, and the impact of capitalizing $4.1M in software development costs. / A: Liu noted advances are non-interest-bearing and recovered via revenue share withholding, carrying inherent risk as evidenced by $2.6M in impairments. Regarding software, the capitalized costs support platform efficiency, workflow automation, and AI tools. Amortization will be approx. $1M annually for the next two years, helping scale operations without proportional headcount increases.