CTW

Good morning and good evening. Thank you for standing by. Welcome to the CTW Earnings Conference call for the first half of fiscal 2026. Representing the six months ended January 31st, 2026. Please note that today's conference may be recorded. My name is Matt Schussler from FNKIR. Hosting today's call is Ryuichi Sasaki, CTW's founder, CEO, and chairman, and Patrick Liu, CTW's CFO. Before we begin, please be aware that today's discussion may include forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995 and other federal securities laws. These statements reflect management's current expectations and involve risks and uncertainties that could cause actual results to differ materially. CCW 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 and 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 form 6K, our earnings release, and on the investor section of our website. With that, I'd now like to turn the call over to Ryuichi for a video and prepared remarks.

Good morning, everyone, and good evening. Thank you very much for joining us today. Today's meeting will be the first meeting after the summit. As a top-level company, we will continue to improve corporate value through global development, focusing on stable business operations and high transparency. First, I would like to explain the business history. In 2016, we released seven new games, with 35 titles at the end of the year. This continuous global expansion reflects the wide range of anime and IP content and the high accessibility of horror-based models. In terms of finance, the total cost of the game was $48.6 million, and the sales value was $40.9 million. Both were reduced by about 1% in the same year. The main reason was that the release of the new game, the release of the title, was not as expected. As a result, the content of the game was not as expected. On the other hand, our company has made rapid adjustments to the cost of advertising investment and operation, even though sales are down. We have continuously analyzed user involvement, profitability, and marketing efficiency in the company. Based on these, we are flexible in adjusting advertising investment and cost distribution. As a result, sales and marketing costs decreased by 15% in the previous year, while advertising costs were reduced by 24%. We are not doing a simple sales growth, but an operation that focuses on the effect of the investment body. If the expected results are not seen, we are quickly reviewing the measures. In addition to sales decreases, The increase in the cost of operation of the new title A investment and the increase in the cost of operation as a senior company, as well as the influence of the river, led to a loss of $1.7 million and a loss of $1.2 million. As a company, we accept this result, but we think that we have been able to adjust the loss range to a certain extent by promoting control. At the end of the year, the balance sheet was $19,500,000. We have maintained a stable financial foundation based on the payment funds provided by the IPO. The sales cash flow has been reduced to $400,000, In addition to business factors, it is due to the continuous investment of the infrastructure and organization system. We believe that this is a turning point for the future growth of our company. Since the beginning of this year, we have released four new titles, including the school's wooden books and the hanging scrolls. We are still in the early stages, but as for the initial figures, there is a tendency for improvement compared to the paper machine titles. In addition, additional titles such as the one-man drug store and the shunner of the drug store are also on the way. In terms of regional development, about 70% of the paper machine sales will be in the Japanese market, but we believe that there is a great potential for growth in the overseas market, especially in the North American market. As part of this initiative, we established a base in New York in January, and we are currently building a real-time team for marketing, partnership, and user acquisition. Our browser-based model does not need to be installed and can be accessed immediately, and it also supports multi-device. We believe that this is one of the strengths of our company in the market environment where user acquisition costs rise. In the future, we will continue to invest in human resources and infrastructure, and we will continue to operate with an emphasis on financial stability. Our priority is clear. We will continue to improve the quality and stability of the content pipeline, expand the overseas market, continue to invest in technology systems, and continue to operate with an emphasis on short-term returns. I would like to express my sincere gratitude to the staff and staff of the company for their hard work. I would also like to express my deep gratitude to the shareholders for their support of the company, which has been running for the first year. In addition, I would like to make it clear that the goal of CTW Cayman is to clarify the unification of global brands and NASDAQ takers. Our company is still in the process of growth, but we are confident in our future progressive growth based on expanding our overseas expansion and data analysis pipeline. Thank you very much for your time today. Let's continue with Patrick Liu of CFO.

And good morning, everyone. As Raoji discussed, the first half of fiscal year 2026 was a softer period than we expected from a company performance standpoint. Financially, our priorities were clear. Respond quickly to underperforming game launches. Allocate capital with discipline. protect monetization efficiency, and preserve balance sheet flexibility as we continue investing for long-term growth. Revenue for the first half was $48.9 million compared with $41.2 million in the prior year period, a decrease of 0.7%. Growth in-game purchases were $48.6 million down 1.1% year-over-year. service, yet they reflect an important shift in the underlying driver's performance during the half. We launched seven new games during the period, but as Ryoichi noted, those launches performed below our expectations. At the same time, several mature titles continued moving through later stages of their lifecycle, and overall user activity declined. That said, one of the more important takeaways from the first half is that even in this softer revenue environment, the quality of monetization across the platform remained resilient. Monthly active users declined to approximately 2.0 million from approximately 3.3 million last year. However, paying monthly active users remained stable at approximately 75.7 thousand compared with approximately 76.7 thousand last year. As a result, the compensation rate improved to 3.82% from 2.35%. In addition, we also saw improvements across key monetization and efficiency metrics. ARP PDAU increased to $18.19 from $16.31, ARP MAU increased to $4 from $2.50, and RAS improved to 1.09% from 1.06%. In practical terms, traffic declined primarily among non-paying users, while the platform continued to attract and retain a higher-quality paying audience and generate more efficient returns on advertising spend. We also continued to make gradual progress on geographic diversification. Revenue from users outside Japan increased to 31.6% of total revenue, up from 28.8% last year. Japan remains our largest market, strategic priority, turning to expenses and profitability. Cost of revenue increased 39.6% year-over-year to $13.9 million. General and administrative expenses increased 13.6% to 5.1 million, and research and development expenses increased 25.3% to 1.7 million, reflecting ongoing investments in platform capabilities and organizational infrastructure and additional costs associated with operating as a public company. At the same time, sales and marketing expenses declined 15.2% to 22 million, driven primarily by a 5.9 million reduction in advertising spend. This reduction was intentional, reflecting the disciplined response Ryoichi described earlier. When new titles did not meet our internal performance thresholds, we quickly scaled back, making marketing rather than pursuing top-line growth at unattractive returns. This responsiveness is a core strength of our operating model. As a result, we reported an operating loss of $1.7 million compared with a half-million loss in the first half of 2025. Net loss was 1.2 million compared with net income of 0.6 million last year. While we are not satisfied with reporting the loss, it is important to view the debt result in the context of a period in which revenue underperformed expectations, combined with continued investment in infrastructure and long-term capabilities, while maintaining meaningful cost flexibility. There are also two period-specific items worth noting. First, we recorded approximately $1.9 million of share-based compensation expense related to stock options granted in December 2025. Second, following early adoption of ASU 2025-06, we capitalized of qualifying internal use software and cloud implementation costs. Both items are relevant to understanding the period-over-period financial profile and the level of ongoing investment in the business. On a non-gap basis, performance remained solid. Adjusted EBITDA increased to 4.3 million from 3.7 million, representing a 10.5% margin, and segment profit increased to 18 million from 11.6 million. These metrics highlight that the poor economics of the platform remain healthy and responsive to disciplined cost management, despite softer revenue and gap net loss. turning to cashflow and the batting sheets. Net cash used in operating activities was 0.4 million compared with 2.6 million of cash generated in the prior year. This change was driven primarily by working capital movements, including additional advances made to gain developers and higher prepaid royalties as we invest in future content and platform support. We ended the period with 19.5 million in cash and cash equivalents, up from 12.2 million at July 3, 2025, supported by the proceeds from our IPO. We believe this positions us well to invest selectively in content, systems, and international growth while maintaining strong liquidity and financial discipline. Overall, the first half of fiscal year 2026 was a period of softer, demonstrated the responsiveness of our operating model and the robustness of our financial monitoring systems. We acted quickly when new title performance did not meet expectations. and efficiency metrics. We maintained the positive adjusted EBITDA and we ended the half with a solid cash position and the flexibility to continue investing for the long term. Thank you and I will now turn the call back to the operator for the Q&A sessions.