GMHS

Good day, ladies and gentlemen. Thank you for standing by, and welcome to Gamehaus' fourth quarter and full year of fiscal 2026 earnings conference call. Currently, all participants are in listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time. As a reminder, we are recording today's call. If you have any objections, you may disconnect at this time. I will now turn the call over to today's speaker host, Ms. Ally Wang. Ally, please proceed.

Thank you, operator. Hello, everyone. Thank you all for joining us on today's conference call to discuss the financial results of Gamehaus for the fourth quarter and full year of fiscal 2026. We released our earnings results earlier today. The press release is available on the company's website as well as from Newswire services. On the call with me today are Mr. Brian Xie Feng, Chairman of the Board, Mr. Carl Cai Yimin, Chief Executive Officer, and Mr. Shawn Zhang, Head of Capital Markets and Investor Relations. Brian will review business operations and company highlights, followed by Shawn, who will discuss detailed financial results. They will all be available to answer your questions during the Q&A session.

Before we proceed, I would like to remind you that this call may contain forward-looking statements, which are inherently subject to risks and uncertainties that may cause actual results to differ from our current expectations. For detailed discussions of the risks and uncertainties, please refer to our filings with the SEC. Also, please note that unless otherwise stated, all figures mentioned during the conference call are in U.S. dollars. With that, I would like to introduce our chairman, Brian. Brian will deliver his remarks in Chinese, and I will follow up with corresponding English translations. Please go ahead, Brian.

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Good day everyone, and thank you for joining Gamehaus conference call for the fourth quarter and full year of fiscal 2026. Fiscal year 2026 was Gamehaus' last full fiscal year under its previous business model. Earlier in August, we announced a strategic transformation for the company.

This quarter marks the beginning of the execution phase of that transformation. As a result, today's discussion covers both our operating performance before the decision was made and the initial financial implications of the transformation. For the full fiscal year 2026, total revenue was $104.7 million, and net income was $3.9 million. In the fourth quarter, total revenue was $24.3 million, within our previously announced outlook range of $23 million-$26 million, and net income was $0.9 million. Against the current industry backdrop, we have seen a structural shift in the economics of user acquisition for casual games. The player base in mature markets has remained stagnant for an extended period, while platform attribution and targeting capabilities have continued to weaken. At the same time, competition for user acquisition has increasingly become a zero-sum game within a largely fixed pool of users.

Together, these factors have continued to compress margins in game publishing. We do not view this as an issue with any single title or any particular quarter. Rather, we believe it reflects a longer-term change in the environment surrounding this business model. Based on this assessment, we decided to proactively adjust our resource allocation and redirect more resources toward new opportunities opened up by generative AI.

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In terms of execution, beginning this quarter, we have changed the way we manage our existing portfolio of casual and social casino mobile games, with a greater focus on cash flow and profitability. User acquisition spending will also be reallocated across titles based on expected returns. We began implementing these changes in July, so their impact is not yet reflected in the period we are reporting today. We expect revenue from our existing portfolio to gradually decline, and this is reflected in the outlook we will provide later for the next quarter.

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Our operating metrics this quarter already reflect this shift in focus. While both DAUs and MAUs declined year-over-year in the fourth quarter, ARPDAU increased 11.6% to $0.577 from $0.517. Average daily payer conversion improved to 2.5% from 2.3%. As we execute this strategic transformation, we will remain focused on improving the quality of our operations, maximizing the value of our existing player base, and maintaining a strong player experience.

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At the same time, our financial position and cash reserves remain solid. As of June 30, 2026, we had $17.6 million in cash and cash equivalents, up from $15.2 million at the end of the prior fiscal year. During the fiscal year, we remained profitable, increased our cash reserves, and continued executing our share repurchase program. We believe our current financial position provides a solid foundation for executing this strategic transformation.

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As we manage our existing business under this new approach, we are also continuing to increase our DTC penetration. By the end of the fiscal quarter, our company-wide DTC revenue mix had reached 16.2%, up further from the previous quarter. DTC reduces platform commissions and directly improves gross margin for our gains, driving the year-over-year improvement in gross margin this quarter. Importantly, this improvement does not depend on the level of our user acquisition spending. It is structural in nature and should become more meaningful as DTC penetration continues to increase. DTC remains one of the few areas where we continue to invest across our existing portfolio. Our goal is to increase overall DTC penetration to more than 20% by December 31, 2026.

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Let me also briefly update you on the new direction I mentioned earlier. During the fiscal year, we made a minority investment in an early-stage AI game generation studio. Since June, we have worked with the team to validate the end-to-end production process and identified areas that current generative capabilities cannot yet handle. Our current focus is on determining the right product format to bring to market. This work is still at an early stage, and we are not providing specific product targets or timelines at this point. We will share an update when we have meaningful progress. At the same time, we are closely evaluating opportunities for AI-generated content in other areas of our business, with the goal of developing new growth drivers as quickly as possible and over time becoming an AI-driven global content production and distribution platform.

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In parallel, we are building the internal AI capabilities needed to support this transformation. At the end of June 2026, we officially launched the Gamehaus AI agent system. This is a company-wide AI access and governance platform deployed on our own servers. It provides employees with centralized access to high-quality AI models, tiered usage limits, and end-to-end monitoring, and currently integrates more than 10 domestic and international models. As of July 16, adoption of the new system had reached 70% of employees across the company. G&A expenses declined 6.6% year-over-year this quarter, partly reflecting efficiency gains from the use of AI tools across our administrative functions. For our self-developed tools, throughout the fiscal year, we continued to build out our internal data and shared technology infrastructure, including real-time advertising data systems, internal data interface services, and data warehouse capabilities.

We also continued to enhance our AI-powered ad video generation tool and added video evaluation and validation capabilities to improve both the efficiency and quality of creative production. Looking ahead, in line with our strategic transformation, our focus will be on moving from broad AI adoption to deeper usage, turning AI from a collection of individual productivity tools into reusable organizational infrastructure, and extending these capabilities into more specific areas of our operations.

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Turning to shareholder return. As of June 30, 2026, we had repurchased approximately 518,000 Class A ordinary shares for approximately $600,000. On August 27, our Board approved a one-year extension of the existing $5 million share repurchase program through August 28, 2027, with all other terms remaining unchanged. Our decision to continue the program as we enter the execution phase of our strategic transformation reflects our confidence in the company's financial foundation and long-term value.

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Taking into account our new approach to managing the existing business as part of our strategic transformation, we expect total revenue for the first quarter of fiscal year 2027 to be in the range of approximately $20 million-$23 million.

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Now, I will turn the call over to Shawn to walk you through our financial performance.

Thank you, Brian, and hello everyone. I will now walk through our financial results in more detail for the fourth quarter and full fiscal year 2026, which ended June 30, 2026. Please know that all figures are in U.S. dollars, and all comparisons are made on a year-over-year basis unless otherwise stated. Let me start with our fourth quarter revenue performance. Total revenue for the quarter was $24.3 million, a decrease of 20.8% from $30.7 million in the same period last year. As Brian mentioned, during the quarter, we continued to take a disciplined approach to user acquisition spending and adjusted our marketing strategy in response to changes in the market environment. At the same time, we continued to improve monetization efficiency through ongoing content optimization and targeted live ops initiatives. Revenue remained broadly in line with our expectations.

Looking at the revenue breakdown, in-app purchases revenue was $21.7 million, down 22.2% from $27.9 million a year ago. Advertising revenue was $2.6 million, compared with $2.8 million in the prior year period. Improvements in ARPDAU and payer conversion reflected our continued progress in monetization efficiency and helped partially mitigate the impact of lower user volumes. For the full fiscal year 2026, revenue totaled $104.7 million, a decrease of 11.4% from $118 million in the prior fiscal year. The full-year decline was mainly driven by the same factors we discussed for the quarter as we became more selective in user acquisition spending and continued to refine our marketing approach across our portfolio. In-app purchase revenue was $94.5 million, down 11.2% from $106.3 million in the prior fiscal year, while advertising revenue was $10.2 million, compared with $11.7 million last year. Moving on, expenses.

Total operating costs and expenses were $25.1 million, a decrease of 14.4% from $29.3 million in the same period last year, reflecting our continued focus on operating efficiency and disciplined resource allocation. Cost of revenue decreased 17.4% to $12.0 million, mainly due to lower platform commission expenses and reduced profit-sharing payments to game developers as certain mature titles moved further along in their life cycle. R&D expenses were $1.5 million, compared with $1.4 million a year ago. The modest increase reflected our continuing investment in game development projects already underway and related R&D initiatives. Selling and marketing expenses were $10.2 million, compared with $11.8 million in the prior year period. The decrease was mainly driven by lower advertising spend, reflecting our continued efforts to improve marketing efficiency. G&A expenses were $1.4 million, a decrease of 6.6% from $1.5 million a year ago.

The improvement reflected lower personnel costs and efficiency gains from the increasing adoption of AI-enabled tools across our administrative functions. For the full fiscal year 2026, total operating costs and expenses were $103.3 million, a decrease of 9.9% from $114.7 million in the prior fiscal year. This reflects our disciplined cost management in the challenging environment. Cost of revenue declined 11.4% to $49.5 million, reflecting lower platform commission expenses and reduced profit-sharing payments to game developers as certain mature titles moved further along in their life cycle. R&D expenses were $6.3 million, up 11.4% from $5.7 million, reflecting our continued investment in game development and related R&D initiatives. Selling and marketing expenses were $41.0 million, down 15.2% from $48.4 million, mainly due to a $7.3 million reduction in advertising spend on player acquisition and retention as we maintained a disciplined approach to marketing investment.

G&A expenses were $6.4 million, up 36.5% from $4.7 million in the prior fiscal year. The increase primarily reflected higher personnel costs and continued investment in our public company infrastructure and our organizational capabilities. This increase was partially offset by headcount reductions and efficiency improvements during the fourth quarter. Moving down the income statement, operating loss for the quarter was $0.8 million, compared with operating income of $1.4 million in the same period last year. Operating margin was -3.1% compared with positive 4.6% a year ago. For the full fiscal year 2026, operating income was $1.4 million, compared with $3.4 million in the prior fiscal year. Operating margin was 1.3% compared with 2.9% last year. Other income net was $1.6 million, compared with $0.1 million in the prior year period.

For the full fiscal year 2026, other income net was $2.5 million, compared with $0.6 million in the prior fiscal year. Net income was $0.9 million, compared with $1.5 million a year ago. Net income attributed to Gamehaus shareholder per ordinary share was 0.02, compared with 0.03 in the prior year period. For the full fiscal year 2026, net income was $3.9 million, compared with $3.8 million in the prior fiscal year. Net income attributed to Gamehaus shareholders per ordinary shares was 0.08 in both fiscal years. We ended fiscal year 2026 with $17.6 million in cash and cash equivalents, compared with $15.2 million as of June 30, 2025. Including short-term and long-term investments, our combined cash and investment balance was approximately $25 million. We believe this provides a solid foundation to support our operation and future initiatives. Turning to capital allocation.

As a reminder, our Board approved a one-year extension of the existing $5 million share repurchase program, extending it through August 28, 2027. As of June 30, 2026, we have repurchased approximately 518,000 Class A ordinary shares for approximately $600,000. Going forward, we will continue to evaluate repurchase activity based on market conditions, share price performance, and our broader capital allocation priorities. Looking ahead, as Brian mentioned earlier, for the first quarter of fiscal year 2027 ending September 30, 2026, we expect total revenue to be in the range of approximately $20 million-$23 million. To wrap up, fiscal year 2026 was a year of disciplined execution and continued investment in our long-term capabilities. While we made deliberate adjustments to our investment approach, we continue to improve monetization efficiency, maintain cost discipline, and strengthen our financial foundation.

As we enter fiscal year 2027, we remain focused on executing our strategic transformation, managing our existing portfolio with greater emphasis on cash flow and profitability, advancing our AI-related initiatives, and maintaining a balanced approach to profitability, capital allocation, and long-term growth. With that, we are happy to take your questions. Operator, proceed.

We will now begin the question-and-answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. Additionally, when asking a question, please state your questions in Chinese first, then immediately translate them into English for the convenience of everyone on the call. Again, it is star then one to ask a question. At this time, we will pause momentarily to assemble our roster. The first question comes from [Rong Hua] with Jinyu Asset. Please go ahead.

Hello, management. I have two questions.

Management just noted that the company has completed validation of its end-to-end AI game generation process. What are the key steps that still need to be completed before these products can move into commercialization? My next question is, we note that full-year operating income was $1.4 million, while the net income was $3.9 million, with the difference coming largely from other income. At the same time, the company is directing resources toward a new area that does not yet generate revenue. How long does the company believe its current cash reserves can support this transition? Will the company need to raise external financing? That's my question. Thank you.

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Thank you for your question. Let me take your first question. We have now fully validated the end-to-end production pipeline for AI-generated games. For casual titles with relatively simple mechanics, a complete game can essentially be produced within one week, which fully demonstrates the efficiency of the pipeline. In the next phase, our focus will shift primarily to refining the player experience, including level design, difficulty curve calibration, and other key elements to ensure that our products are not only produced quickly but produced well. At the same time, identifying gameplay prototypes that the market genuinely embraces is critical. Games ultimately have to win over players, and being fun is the prerequisite for any commercialization. Discovering gameplay that is truly engaging is therefore one of our most important priorities at this stage.

In the second half of the year, the company will continue to test and validate across a range of game genres. On one hand, for established traditional gameplay, we will use AI to bring products to market with greater efficiency and to operate them at lower cost. On the other hand, we will also actively explore AI-native gameplay with the ambition of creating an entirely new game experience for the AI era.

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Thank you. This is Shawn. Let me take your second question. Starting with the absolute level of cash. As of June 30, 2026, the company held cash and cash equivalents of $17.6 million, up from $15.2 million at the end of the prior fiscal year. As you can see, in a year in which revenue declined 11.4%, our cash position increased rather than decreased, and remains at a fairly ample level overall. This reflects the fact that over the past year, while we continued to monitor the changing market conditions facing our legacy business, we maintained a relatively prudent approach to running the company. Second, our legacy casual and social casino games are a set of mature products with a stable user base and predictable revenue.

Managing this portfolio for cash flow and return, which we began this quarter, is precisely intended to make it generate cash on a consistent and stable basis. Much of the investment required during this transition will be funded from that cash, and the company plans to direct its cash reserves primarily toward developing this new direction in AI-generated content. That is also the reason we changed how we manage the legacy portfolio. Operating these mature products as a stable source of cash is what enables that cash to support the build-out of the new direction. In terms of pacing, we will deploy capital in stages as the direction is validated, rather than committing everything at once. As validation progresses, the scale of investment will increase accordingly, and we will update the market as substantive progress is made.

As for financing, the company will continue to evaluate the range of capital market tools available to it and make financing decisions based on the interests of shareholders and the company's broader development needs. We have no financing arrangements to report at this time. This is my answer.

Thank you. The next question comes from [Jie Li] with Zheshang Securities. Please go ahead.

[Non-English content] Now I'm translating myself.

I have two questions. The first one is the management mentioned that the company began managing its existing product profile under a new approach starting July. How is this change expected to affect revenue and profitability over the next several quarters? The second one is the company's first quarter fiscal 2027 revenue guidance is $20 million-$23 million, which implies a further decline at the midpoint from $24.3 million this quarter. With the legacy business continuing to contract and the new direction not yet generating revenue, how should investors think about the company's further revenue level? Thank you.

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Thank you for your questions. On the revenue side, with a more prudent and disciplined control over marketing spend that we have applied to the existing portfolio since July, we expect revenue from this portfolio to see some degree of moderation over the next one to two quarters. To improve our revenue performance, we are working on two fronts. First, continuing to increase the share of revenue coming from our direct-to-consumer channels in order to optimize our channel cost structure. Second, carrying out more refined operations tailored to the needs of our existing user base, so as to improve retention and monetization depth. On the cost side, we will continue to exercise strict discipline over the scale of our marketing spend, concentrating on campaigns with shorter payback periods and higher efficiency while steadily advancing the optimization of operating costs.

We expect these measures to effectively offset the impact of the revenue moderation, and to drive an overall improvement in profitability.

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This is Shawn. I will take your second question. I take the essence of the question to be where this declining curve bottoms out and where the upward momentum comes from. Let me address it in three parts. First, this guidance is fully consistent with the strategic adjustment we are making to legacy business. Carl covered this fairly clearly in his answer to an earlier question. I will not go into further detail here. What we would ask is that the market read the legacy portfolio as an actively managed curve, rather than a passively declining one when assessing our future revenue. Second, I would like to provide some context. Looking back over the past several quarters, management had already observed mounting pressure on future growth even before any change in business strategy. The player base in mature markets has been contracting.

Platform side attribution and targeting capabilities have continued to weaken, and user acquisition has become a zero-sum contest. In other words, it is not that a change in strategy caused the legacy business to contract. Rather, given the objective conditions, it would be quite difficult to deliver sustainable growth by continuing to invest along the prior path. Based on that assessment and out of a sense of responsibility to our investors, the company's priority must be to find the route back to growth. Third, on where that growth will come from. We can say with confidence that the company's future growth will come from the new momentum of the AI-generated content business. We are currently at the transition point between old and new sources of momentum. We do not shy away from the fact that the legacy business will continue to contract.

At present, our primary focus is on laying the groundwork to establish our second growth curve as quickly as possible. That work is underway, and we look forward to reporting related progress to the market in the near future. That's my answer to your second question. Thank you.

There are no additional questions at this time. I will now hand back to the management team for any closing remarks.

Thank you, operator, and thank you all for participating on today's call, and thank you for your support. We appreciate your interest and look forward to reporting to you again next quarter on our progress.

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good day, ladies and gentlemen. Thank you for standing by, and welcome to Gamehaus' third quarter of fiscal year 2026 earnings conference call. Currently, all participants are in listen only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. As a reminder, we are recording today's call. If you have any objection, you may disconnect at this time. I will now turn the call over to today's speaker host, Miss Ally Wang. Ally, please proceed.

Thank you, operator. Hello, everyone. Thank you all for joining us on today's conference call to discuss the financial results of Gamehaus for the third quarter of fiscal year 2026. We released our earnings results earlier today. The press release is available on the company's website as well as from Newswire services. On the call with me today are Mr. Brian Xie Feng, Chairman of the Board, Mr. Carl Cai Yimin, Chief Executive Officer, and Mr. Shawn Zhang, Head of Capital Markets and Investor Relations. Brian will review business operations and company highlights, followed by Sean, who will discuss detailed financial results. They will all be available to answer your questions during the Q&A session. Before we proceed, I would like to remind you that this call may contain forward-looking statements which are inherently subject to risks and uncertainties that may cause actual results to differ from our current expectations.

For detailed discussions of the risks and uncertainties, please refer to our filings with the SEC. Also, please note that unless otherwise stated, all figures mentioned during the conference call are in US dollars. With that, I would like to introduce our Chairman, Brian. Brian will deliver his remarks in Chinese, and I will follow up with corresponding English translation. Please go ahead, Brian.

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Hello, everyone. Thank you for joining us for Gamehaus third quarter fiscal year 2026 earnings call.

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This quarter, we continue to deliver on the efficiency-first profitability focus strategy we laid out over the past year. Despite a seasonally softer quarter across our key markets, revenue came in at approximately $26.2 million, above the upper end of the guidance range we set last quarter, underscoring the resilience of our core business. More importantly, the profitability improvement we have been building toward is now clearly visible on a trailing basis. Over the first nine months of fiscal 2026, we generated approximately $3.2 million in cumulative net income, up roughly 40% year-over-year. This is not the result of any single quarter. It reflects the compounding effect of the work we have done across our product mix, marketing discipline, cost structure, and payment channels over the past several quarters.

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On the user and monetization side, our investment and more targeted live ops continues to pay off. ARPDAU reached $0.55, up approximately 13% year-over-year, and the daily payer conversion improved from 2.2%-2.4%. These gains are driven by the player segmentation system we have built out over recent quarters. We use behavioral data to tailor in-game events and content for different player segments, and we are constantly iterating on the format and presentation of that content to drive stronger engagement and higher willingness to spend.

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We recognize that MAU and DAU declined year-over-year this quarter. That is a direct result of our decision to pull back some low return user acquisition and focus on higher value players. We see this as a deliberate and acceptable trade-off as we shift toward a higher quality revenue mix. As multiple new titles launch through fiscal 2027, we expect our user base to return to growth, and the operational infrastructure and segmentation capabilities we have built will allow us to monetize those new users more effectively from day one.

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On cost, total operating expenses declined approximately 10.1% year-over-year. Selling and marketing expenses were down roughly 15.5%, including a $2 million reduction in advertising spend. Cost of revenue also decreased approximately 12.7%, with DTC-driven savings on platform commissions now contributing meaningfully to profitability.

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Notably, DTC hit another milestone this quarter. As of the end of March, company-wide DTC revenue mix reached approximately 13.9%, up from roughly 10% last quarter. Our flagship title GCS advanced to approximately 36.7%. We also completed the DTC rollout across our entire Social Casino portfolio during the quarter, opening up additional margin opportunity in that category. By fiscal year-end, we expect company-wide DTC penetration to reach 15%-20%.

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We continue to view DTC as much more than a payment optimization. It is a way to build direct player relationships that create lasting value. As DTC adoption accelerates across the industry, we intend to remain a fast mover and invest aggressively behind it.

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On our product pipeline, we made clear progress across both RPG and Puzzle this quarter. In RPG, the title we signed last quarter is now in commercial testing. Based on current pace, we expect it to go live around the end of Q2 calendar 2026, launching first in Hong Kong, Macau, and Taiwan, then extending into Japan and Korea, and ultimately into North America, Europe, and other regions. A second custom-developed RPG is on track to launch around September. This quarter, we signed an additional RPG title for global distribution, currently targeting an August to September launch window.

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In Puzzle, we tested 7-8 prototypes this quarter. Two of those showed strong enough results to move into extended development. A moderately scaled Puzzle title that is already live, continues to serve as a valuable source of real world operational and monetization data, helping us refine our approach across the category. With their longer life cycles and hybrid monetization model, Puzzle titles remain an important part of our portfolio strategy.

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On technology, AI at Gamehaus has moved past the standalone tool phase, and is now being integrated directly into our core business workflows, our R&D systems, and our GBS platform. We see this playing out across three areas.

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First, AI is moving from individual adoption to company-wide standard practice. Vibe coding is now embedded in the day-to-day workflows of our product and engineering teams, shifting the way our R&D organization works from a traditional, fully manual model towards one where AI copilots work alongside human engineers as a matter of course.

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Second, AI is expanding from a productivity tool into a decision support capability. This quarter, we rolled out AI-driven budget optimization tools and AI agent-powered market intelligence, bringing AI into higher stakes functions like ad spend allocation, competitive monitoring, and market analysis.

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Third, we are building enterprise-grade AI infrastructure. This quarter, we advanced work in parallel on our internal Code Service, system-level MCP integration, and OpenCloud process automation, laying the groundwork for a reusable, scalable, and well-governed AI platform across the company.

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These efforts are producing tangible, measurable results. Our HaoHan AI creative platform processed nearly 70,000 requests this quarter, exceeding the 60,000 target we set last quarter. Beyond creative production, our centralized AI gateway handled approximately 240,000 large language model calls during the quarter, with use cases extending well beyond the original asset generation to include customer service automation, market scanning, operational Q&A, and several early-stage AI agent workflows. AI is no longer a side project. It is now part of how we run the business across functions, and it is having a real impact on our speed, our productivity, and how our teams make decisions. The near-term financial impact remains modest, but the competitive advantage these capabilities are creating over the medium to long term is becoming increasingly clear.

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Stepping back, the pace at which our AI capabilities are compounding is also shaping how we think about Gamehaus's long-term identity. Since the beginning, we have been focused on connecting global players with great game developers. As AI matures across development, content creation, marketing, and user intelligence, we see ourselves evolving from a pure-play mobile game publisher into an AI-native platform that integrates content creation and global distribution. This quarter, we made real progress on AI-generated in-game content, and over time we intend to build out the full chain from AI content creation through to worldwide publishing. We believe the next era of competitive advantage in content publishing will not be determined by operational scale or data volume alone, but by how deeply a company integrates AI into its publishing stack.

This is one of the most important strategic directions for Gamehaus going forward, and it is the most significant long-term investment we're making on behalf of our shareholders.

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Regarding capital return, as of March 31st, 2026, we have repurchased approximately 392,000 Class A ordinary shares for a total of approximately $482,000. We will continue to execute the buyback program opportunistically based on the market condition, share price, and our overall capital allocation framework. Management remains confident in the company's medium- and long-term prospects, and we are committed to balancing reinvestment in the business, profitability, and returns to shareholders with long-term value creation as our guiding priority.

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For the fourth quarter of fiscal 2026, ending June 30th, 2026, we expect total revenues to be in the range of $23 million-$26 million. This reflects the current pace of product launches, pre-launch marketing investment for upcoming titles, and the reallocation of operating resources from certain later lifecycle titles for new products.

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Looking ahead to fiscal 2027, as our next generation of titles reaches the market, backed by a healthier margin structure, a stronger balance sheet, and the durable advantages we have established in AI and DTC, we believe the company is well positioned to enter its next chapter of profitable growth.

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With that, let me turn the call over to Shawn for a closer look at our financials.

Thank you, Brian. Hello everyone. I will now walk through our financial results in more detail for the third quarter of fiscal year 2026, which ended March 31st, 2026. Please note that all figures are in US dollars, and all comparisons are made on a year-over-year basis unless otherwise stated. Starting from the top line. Top revenue for the quarter was $26.2 million, a decrease of 9.1% from $28.8 million in the year-ago period. Advertising costs declined 17.2% year-over-year, which dropped the lower traffic and user acquisition Brian discussed earlier. That said, revenue exceeded the upper end of our forecast for the third quarter. The trajectory remained in line with our long-term growth strategies, underscoring the resilience of our operating model. Breaking down our revenue.

In-app purchase revenue was $23.4 million, a 9.9% decline from $26 million a year ago. Advertising revenue was $2.8 million, slightly down from $2.9 million in the same period last year. As we highlighted before, the monetization improvements we are seeing in ARPDAU and payer conversion helped partially offset the impact of lower user acquisition volumes. Turning to expenses, total operating costs and expenses were $25.7 million, down 10.1% from $28.5 million a year ago, reflecting continued progress in our cost discipline efforts and efficiency optimization. More specifically, cost of revenue decreased 12.7% to $12 million, mainly due to lower platform commission expenses as DTC adoption continued to increase and reduce profit-sharing payments to game developers as some mature titles moved further along in their life cycle.

Research and development expenses increased 24.1% to $1.6 million, reflecting our ongoing collaborations with multiple developers across the development and testing phases as we expand our future game pipeline. Selling and marketing expenses decreased 15.5% to $10.3 million. The $2 million reduction in advertising spend was the primary driver, consistent with the efficiency-focused approach Brian discussed earlier. General and administrative expenses were $1.8 million, up 33.1% from $1.4 million a year ago. This is primarily due to higher salary expenses associated with our efforts to improve corporate governance, financial reporting, and investor relation capabilities, as well as strategic hiring to support business expansion. Turning to profitability, operating income improved significantly to $0.5 million from $0.3 million in the year-ago period. Operating margin expanded to 2.1% from 1%, which we believe further validates the operational adjustment we have been making.

Other income net was approximately $0.02 million, compared with the $0.13 million in the year-ago period. Net income for the quarter was $0.5 million, up from $0.4 million a year ago. Looking at the first nine months of fiscal year 2026, cumulative net income increased approximately 40% year-over-year, reflecting the continued improvement in our profitability profile. We ended the quarter with eight-

Pardon me, please stand by while we reconnect the speaker line.

Thank you.

Hello, this is the operator. We have reconnected the speaker line and we can proceed.

Thank you, David. We ended the quarter with $18.3 million in cash and cash equivalents, compared with $15.3 million as of June 30th, 2025. We believe this provides sufficient liquidity to meet our working capital needs for the next 12 months. On capital allocation, as a reminder, our board authorized a $5 million share repurchase program in August 2025, with a one-year authorization period through August 18th, 2026. As of March 31st, 2026, we have repurchased approximately 392,000 Class A ordinary shares for approximately $482,000. Going forward, we will continue evaluating repurchase activity based on market conditions, share price performance, and our broader capital allocation priorities. Looking ahead, as Brian mentioned earlier, for the fourth quarter of fiscal year 2026, ending June 30th, 2026, we expect total revenue to be in the range of approximately $23 million to $26 million.

Overall, we are encouraged by the progress we continue to make this quarter, revenue at the upper end of our guidance range, margin continue to improve, and both our DTC initiatives and AI-driven operational capabilities continue to gain traction. Looking ahead, we remain focused on disciplined execution, strengthening our publishing and platform infrastructure, enhancing our product, and delivering sustainable long-term value for shareholders. With that, we are now happy to take your questions. Operator, please proceed.

We will now begin the question and answer session. To ask a question, you may press star then one on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star and then two. When asking a question in Chinese, please repeat your question in English as well for everyone's convenience. Our first question comes from Zhenhui with Sanhye Capital. Please go ahead.

[Non-English content] You have three RPG titles targeting an August to September launch window. That's a lot of titles in a narrow timeframe. Is there a risk of cannibalization of resource strain? How are you struggling the marketing spend across them? In Brian's earlier remarks, he mentioned that Gamehaus' longer-term goal is to evolve into an AI-driven, integrated platform, both content generated and distribution. Could you give us some more specific color on this? Beyond the games you are currently working on, what does this actually mean, and where are you today along this path? That's all. Thank you.

Please pause momentarily while we reconnect the speaker lines. I have reconnected the speaker line. Can you please repeat your question?

I think we know the question. I will just let Carl, our CEO, to answer the first question.

[Non-English content]

Okay. This is Carl. I will answer the first question. Regarding the three RPG titles planned for launch during the August to September window, we are paying close attention to launch pacing to avoid resource conflicts or potential cannibalization.

[Non-English content]

First, in terms of launch schedule, we plan to stagger the releases as much as possible with roughly three to four weeks between each title. This should help reduce internal resource pressure and give our marketing operations and data teams enough time to shift focus, analyze early performance, and optimize each launch properly.

[Non-English content]

Second, we have already started preparing the required launch materials in event, including creative assets, localized content and operational resources for testing and launch. Our goal is to have the key launch materials largely ready before the products complete their final testing stages, so that we can avoid last-minute resource constraints.

[Non-English content]

From a marketing spend perspective, we will allocate budgets dynamically based on each title's testing results, payback period, and ROI performance, rather than launching all three titles with heavy spending at the same time. RPG titles typically provide relatively fast early monetization feedback, and the payback period is generally more manageable. Therefore, we will manage user acquisition with a disciplined payback target and keep marketing investment within a healthy range.

[Non-English content]

In the short term, there may be some temporary fluctuation in profitability as multiple new titles enter the launch phase. That is normal during a new product ramp-up period. Because we will stagger the launches and carefully control the payback cycle, we expect the impact to be temporary. As these products move into a more stable operating phase, we expect profitability to return to a more normalized level in the following quarter.

[Non-English content]

Thank you for the question. Internally, this positioning has become an increasingly important strategic focus for us. As I see it, the core of this positioning is to connect the two ends of the capability chain we have already built. On one end is distribution. This is our core business, built on a decade of expertise in global publishing, user growth, live operations, and monetization capabilities. On the other end is content generation. As AI matures, the way content is produced is being fundamentally reshaped. Our goal is to use AI to connect these two ends into a closed loop. AI-driven content generation layered on top of our mature global distribution, forming an integrated capability that is difficult for others to replicate.

[Non-English content]

In terms of execution, the most direct step is AI-generated games. Brian mentioned earlier, this quarter we completed key capabilities building in AI-generated game content. This means we are embedding generative AI directly into the production process of game content itself, not just applying it to creative assets or live operations. This is our first concrete step toward making the content generation tangible.

[Non-English content]

That said, our understanding of content is not limited to games. We believe this set of capabilities, AI-driven content generation combined with global distribution, can in essence be extended to other forms of interactive content beyond games. While staying focused on our core business, we are also proactively exploring the potential applications of this platform capability in the broader content domain. This part is still in the exploratory stage. As conditions mature, we will update the market on our progress in a timely manner. We believe this direction will define the core competitive mode of the next phase for games and for the broader content industry, and we are laying solid groundwork to position ourselves for that opportunity.

Thank you, Zhenhui. That's our answer.

Okay. The next question comes from Hua Rong with Jinyu Asset. Please go ahead.

[Non-English content]

13.9% company wide means 86% of your revenue still flows through platforms paying commission. What's preventing faster adoption? Is it player behaviors, platform restrictions, or something else?

[Non-English content] Your operating margin improved to 2.1% this quarter from 1% a year ago, and the cumulative net income for the first nine months grew approximately 40% year over year.

Candidly, much of that improvement has come from reduced marketing spend rather than revenue growth. As you move into fiscal 2027 and ramp up user acquisition again to support your new product pipeline, how much of this margin improvement is structural and sustainable? Should we expect margins to compress again once marketing spend comes back? Thank you.

[Non-English content]

Thank you for your question. This is Carl. I'll answer your first question. On DTC, we do see it as one of the important near-term levers to improve margins. That said, we need to balance several factors as we scale it, including compliance, user experience, payment conversion, and the broader platform ecosystem.

[Non-English content]

First, from a compliance perspective, not every market currently allows us to directly promote or trigger third-party payment options inside the game. At this stage, the U.S. is the primary market where we have relatively broad latitude to present third-party payment options in-game. We will continue to expand DTC only under a fully compliant framework.

[Non-English content]

Second, from a player behavior perspective, in-app purchases through app stores remain the simplest and most seamless payment method for many users. They require the fewest steps and benefit from strong user trust. If we push third-party payment too aggressively, it may negatively affect overall payment conversion. Therefore, our focus is not simply to maximize the DTC ratio, but to maximize total net revenue. In other words, we need to find the right balance between commission savings and payment conversion.

[Non-English content]

In addition, in-app purchase performance is also an important signal for platforms when they evaluate product quality and allocate organic traffic. When we increase DTC penetration, we also need to consider its potential impact on organic traffic, user experience, and the overall economics of each product.

[Non-English content]

Overall, we will continue to steadily increase our DTC share, especially in markets where compliance is clear and user acceptance is strong. We will do it in a disciplined and sustainable way, rather than forcing a rapid increase at the expense of conversion or platform relationships.

Okay. This is Shawn, and I will answer your second question in Chinese first, and I will also let Ally to translate my answer into English.

[Non-English content]

Thank you for the question. It's true that part of our current margin does benefit from our deliberate pullback in low efficiency user acquisition. As we potentially scale that spending back up in fiscal 2027, there will be some give back on that portion. That's a fair point. At the same time, if you look at gross margin, it reached approximately 54% this quarter, up about two percentage points year-over-year. That improvement is unrelated to the level of our user acquisition spend. It is driven by two structural factors. First, the increase in DTC penetration directly reduces our platform commission costs. Second, the optimization of developer profit sharing arrangements as certain mature titles progress through their lifecycle. The portion is sustainable, and as DTC penetration continues to climb toward the 15%-20% range, this structural growth margin benefit will expand further. That is broadly how we see it. Thank you.

Thank you, Hua Rong. That will be the answer of us.

This concludes our question and answer session. I would like to turn the conference back over to Shawn Zhang for any closing remarks.

Okay. Thank you, operator. Thank you all for participating on today's call, sorry for disconnecting for several times, thank you for your support. We appreciate your interest and look forward to reporting to you again next quarter on our progress.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Good day, ladies and gentlemen. Thank you for standing by, and welcome to Gamehaus second quarter of FY26 earnings conference call. Currently, all participants are in listen-only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. As a reminder, we are recording today's call. If you have any objections, you may disconnect at this time. I will now turn the call over to today's Speaker Host, Miss Ally Wang. Ally, please proceed.

Thank you, Operator. Hello, everyone. Thank you all for joining us on today's conference call to discuss the financial results of Gamehaus for the second quarter of FY26. We released our earnings results earlier today. The press release is available on the company's website as well as from newswire services. On the call with me today are Mr. Brian Xie Feng, Chairman of the Board, Mr. Carl Cai Yimin, Chief Executive Officer, and Mr. Shawn Zhang, Head of Capital Markets and Investor Relations. Brian will review business operations and company highlights, followed by Shawn, who will discuss detailed financial results. They will all be available to answer your questions during the Q&A session.

Before we proceed, I would like to remind you that this call may contain forward-looking statements which are inherently subject to risks and uncertainties that may cause actual results to differ from our current expectations. For detailed discussions of the risks and uncertainties, please refer to our filings with the SEC. Also, please note that unless otherwise stated, all figures mentioned during the conference call are in U.S. dollars. With that, I would like to introduce our chairman, Brian. Brian will deliver his remarks in Chinese, and I will follow up with corresponding English translations. Please go ahead, Brian.

Good day everyone, and thank you for joining Gamehaus Earnings Conference Call for the second quarter of FY26. This quarter marks a milestone for Gamehaus. We have demonstrated to the market that the company is successfully navigating through its development cycle and completing the transition toward a sustainable growth model centered on efficiency and profitability. During the quarter, total revenue reached approximately $26.3 million, solidly at the upper end of our revenue forecast for the second quarter. What's more encouraging is the significant improvement in our profitability. Net income grew approximately 151% year-over-year to about $0.9 million. Meanwhile, operating margin expanded significantly from 0.8% in the year ago period to 3.3%. This reflects our disciplined execution in optimizing our cost structure, refining user acquisition strategies, and focusing our product portfolio. On the expense side, we remain firmly focused on efficiency.

Selling and marketing expenses decreased approximately 18.4% year-over-year, including a roughly $2.1 million reduction in advertising spend. Facing the intensely competitive year-end promotional season, we avoided aggressively pursuing user volume and instead directed resources precisely toward activating and retaining high-value players through refined operations. This strategic decision delivered immediate results. Although overall user base pulled back in line with our adjusted spending, average revenue per daily active user, or ARPDAU, increased significantly year-over-year to $0.566, and our daily payer conversion rate rose from 2.1% to 2.5%. This demonstrates that we are unlocking significantly greater value from each active user.

而在开源方面，我们在DTC渠道的突破正在重塑我们的利润模型。从去年下半年开始推进以来，我们在摆脱单一平台依赖、提升支付自主权上取得了长足进展。截至十二月底，整个公司的DTC收入贡献已达到约10%，核心头部产品GCS更是突破了30%的大关。这不仅意味着我们能以更灵活的方式服务玩家，更直接、可观的平台分成，化作了实打实的净利润。随着未来谷歌等巨头在更多区域开放第三方支付授权，DTC将成为我们利用率持续释放的强劲引擎。

On the revenue side, our breakthroughs in the DTC channel are reshaping our margin profile. Since we began this initiative in the second half of last year, we have made substantial progress in reducing our reliance on a single platform and strengthening our control over payment channels. As of the end of December, DTC accounted for approximately 10% of our total revenue, while our flagship title GCS surpassed 30%. This not only means we can serve players with greater flexibility, but also translates directly into meaningful platform commission savings, which improve our bottom line. As major players like Google extend DTC access to additional markets, DTC will become a powerful engine for ongoing margin improvement.

除了夯实当下的盈利底盘，我们也在积极构筑未来的增长阶梯。目前我们的产品Pipeline正在从RPG和Puzzle两大品类双轨并进。在RPG品类，我们坚持走向高up的市场，近期签约了一款千万美元级的重量级产品，预估生命周期为一两年，将率先从港澳台及亚洲其他高净值地区启动发行。同时，两款体量可观的定制开发项目以及一款调优产品也锁定，将在未来几个季度蓄势待发。在去年发行RPG产品的过程中，我们根据在早期表现遇到的挑战进行了内部的及时复盘，以及这些宝贵的经验迅速转化为后续项目的避坑指南和优化的基石。

Beyond strengthening our current profitability foundation, we are also actively building a pipeline for future growth. Our pipeline is advancing in parallel across both RPG and Puzzle genres. In RPG, we recently signed a new title with a project scope of approximately $10 million and an expected life cycle of one to two years. This title will initially launch in Hong Kong, Macau, Taiwan, and other parts of Asia, reflecting our strategy to expand into high ARPU Asian markets with the RPG within the RPG category. We also secured two additional sizable custom development projects and a further title currently in the optimization phase, which we expect to bring online over the coming quarters. In response to challenges we encountered in the early operations of RPG titles launched last year, we completed a thorough post-launch review, and the insights gained are being applied to our upcoming projects.

在Puzzle品类，我们已经刨通了与小步快跑敏捷迭代的合作模式。目前私家核心外部研发工作室每月可稳定输出三至四个原型产品进行测试。作为长生命周期以广告变现为主的稳定现金流业务，我们力争在2026年年底前将四至五款优质的Puzzle新血脉推向市场。

In the puzzle category, we have successfully established a collaboration model built on rapid prototyping and agile iteration. We currently work with four core external partners who supply three to four prototype games per month for testing. Puzzle games are primarily monetized through advertising and tend to have longer life cycles, providing a steady, long-duration revenue stream. Our goal is to bring four to five high-quality new puzzle titles to market by the end of calendar year 2026.

同时，我们深知未来游戏行业之争是技术效率之争，我们以AI为中长期的战略的底层基础设施。

At the same time, we are keenly aware that technological efficiency will be critical to gaining a competitive edge in the future gaming industry. We continue to view AI as a foundational infrastructure to our mid- to long-term platform strategy.

本季度，我们的浩瀚内部AI创作平台已全面投入实战。短短三个月内，内部定制团队的调用次数已接近三万次，极大地缩短了美术和视频素材产出周期。我们预计本财年第三季度末，调用量将翻番，突破六万次。虽然AI的布局在短期内还未能显著体现出财务风险，但它在深刻地重塑我们的生产工作流程，并作为未来规模化扩张提前铺好了高速公路。

This quarter, our Haohan internal AI creative platform was fully deployed. In just three months, the platform processed nearly 30,000 requests, significantly reducing production cycle times for art and video assets. We expect platform usage to double and exceed 60,000 requests by the end of the quarter ending March 31st. While these AI initiatives have limited near-term financial impact, they are already profoundly reshaping our production workflows and laying the groundwork for future scalable expansion.

最后，我想向大家强调管理层对公司长期价值的坚定信心。为切实回报股东，我们在本财年启动了上限为500万美元的股票回购计划。截至十二月三十一日，我们已经完成了约37万股A类普通股的回购。在复杂多变的市场环境下，为促进公司价值回归提供了重要的压舱石。

Lastly, I want to reiterate that management remains confident in the company's long-term value. To return value to shareholders, we initiated a share repurchase program with the total authorization of up to $5 million. As of December 31st, we had completed the repurchase of approximately 370,000 Class A ordinary shares, supporting our share price in a complex and volatile market environment.

整体而言，我们对公司的中期发展轨迹保持信心。过去几个季度，我们已经完成了运营效率第一阶段转型，盈利能力得到了实质性证明。接下来，我们将带着更健康的利润表、更充沛的现金流和更丰富的产品线，迎接新一轮的高质量增长。

In summary, we remain confident in the company's medium-term trajectory. Over the past several quarters, we have completed the first phase of our operational efficiency transformation, and our improved profitability is now clearly demonstrated in the results. Going forward, we are well-positioned to enter the next phase of high-quality growth, equipped with a healthier income statement, more robust cash flows, and a stronger product pipeline.

展望下一个季度，基于对当前产品节奏和市场环境的审慎评估，我们将截至2026年3月31日的2026财年第三季度营业收入指定为在$2,400万至$2,600万美元之间。

Looking ahead, based on a prudent assessment of our current product launch timing and market conditions, we are setting our revenue guidance for the third quarter of FY26, ending March 31st, 2026, at a range of $24 million-$26 million.

接下来请Shawn继续详细介绍我们的财务表现。

With that, I will now turn the call over to Shawn, who will walk you through our financial results in more detail.

Thank you, Brian, and hello everyone. I will now walk through our financial results in more detail for the second quarter FY26, which ended December 31st, 2025. Please note that all figures are in US dollars, and all comparisons are made on a year-over-year basis, unless otherwise stated. As Brian noted, total revenue for the quarter was $26.3 million, a decrease of 7.8% from $28.5 million in the year-ago period. Advertising costs declined 18.9% year-over-year, which drove the lower traffic and user acquisition that Brian discussed. That said, revenue came in near the upper end of our forecast for the second quarter, and the trajectory is in line with our long-term growth strategies.

Breaking down our revenue, in-app purchase revenue was $23.9 million, compared with $25.5 million a year ago, a decrease of 6.4%. Advertising revenue was $2.4 million, down from $3.0 million in the same period last year. As we highlighted before, transition improvements we are seeing in ARPDAU and payer conversion helped partially offset the impact of lower user acquisition volumes. Turning to expenses, total operating costs and expenses were $25.4 million, down 10.1% from $28.3 million a year ago, reflecting continued progress in our cost discipline efforts. More specifically, cost of revenue decreased 10.2% to $12.2 million, primarily driven by lower platform fees and reduced profit-sharing payments to game developers.

Research and development expenses increased 7.5% to $2.1 million, reflecting our ongoing collaborations with multiple developers across the development and testing phases as we build out our future game pipeline. Selling and marketing expenses decreased 18.4% to $9.7 million. The $2.1 million reduction in advertising costs was the primary driver, consistent with the efficiency focused approach Brian described. General and administrative expenses were $1.4 million, up 65.5% from $0.9 million a year ago. This was primarily due to higher salary expenses associated with our efforts to improve corporate governance, financial reporting, and investor relations capabilities, as well as strategic hiring to support business expansion. Going to profitability, operating income improved significantly to $0.9 million from $0.2 million in the year-ago period.

Operating margin expanded to 3.3% from 0.8%, which we believe validates the operational adjustments we have been making. Other income net was approximately $0.1 million, compared to $0.2 million in the year-ago period. Net income for the quarter was $0.9 million, compared with $0.4 million a year ago. We ended the quarter with $17.4 million in cash and cash equivalents, compared with $15.2 million as of June 30th, 2025. We believe this provides sufficient liquidity to meet our working capital needs for the next 12 months. On capital allocation, as a reminder, our board authorized a 5 million share repurchase program in August 2025, with a one-year authorization period, through August 18, 2026.

As of December 31st, we have repurchased approximately 370,000 Class A ordinary shares for approximately $459,000. We will continue to evaluate repurchase activity based on market conditions, share price, and our broader capital priorities. Lastly, as Brian mentioned, for the third quarter of FY26, ending March 31st, 2026, we expect total revenue in the range of approximately $24 million-$26 million. To wrap up, we are pleased with the quarter's results. Costs declined more than 10%, while revenue landed near the top of our forecast for the quarter, producing meaningful margin expansion. Our balance sheet is healthy and our cash position strengthened. Going forward, our priority remains clear, disciplined investment in high-potential titles, continuous strengthening of our platform and publishing infrastructure, and a balanced approach to growth, profitability, and shareholder returns.

With that, we are happy to take your questions. Operator, please proceed.

Thank you. If you would like to ask a question, please press star one on your telephone. If you would like to remove yourself from queue, please press star then two. Once again, that is star then one if you have a question. Additionally, when asking a question, please state your questions in Chinese first, and then immediately translate them into English for the convenience of everyone on the call. Today's first question comes from Tina Wong at SDIC Securities International. Please go ahead.

好的，谢谢管理层接受我的提问。我这边有两个问题，是关于我们的这个财务展望的。首先第一个问题是，那公司的这个收入在过去几个季度都有下滑，那想请管理层帮我们解答一下，我们的这个收入增长预计是会在什么时候恢复，以及它背后的催化剂是什么？那第二个问题是关于利润的。我们看到这个季度净利润率是提升到了3.3%，想请管理层帮我们分析一下，就是未来的这个利润率趋势，尤其是在我们的这个新产品上线之后，这个营销投入加大以后，我们的这个净利润率会是怎么样的一个表现？我自己翻译一下。Thanks, management, for taking my questions.

I have two questions regarding financial outlook. The first one is, we noticed that the revenue has been declined for a few consecutive quarters. How should we think about future revenue trends? When do you expect revenue growth to resume, and what is the catalyst behind? My second question is: how should we think about future OP margin trend, especially when you wrap up marketing campaign for new products? Thanks.

Thank you, Tina. I am Shawn. I will answer your first question.

首先感谢Tina对公司的持续关注。在26财年的第二个季度里，我们总共录得了营收大概是$2,630万。相较去年同期以及这个财年的第一个季度来讲，略有一些下降。这样的变动主要来自于公司综合了市场情况、目前的产品结构，以及我们后续管线项目的情况之后，主动进行的一个结构性的调整。从我们财务的结构上来看，我们营收的下降直接关联于我们销售与营销费用的主动缩减。我们这个财年的Q1、Q2，销售和营销费用同比下降了13.6%和18.4%。 调整既有对我们现在老产品运营策略的一个优化，也有根据全球，这个年底全球主要市场的节假日期间投放成本比较高企的一个季度性的调整。那么从结果上来看，虽然营收端短期有一些这个压力，但是我们的盈利结构呢，是得到了比较显著的优化。当然是可以看到，就是我们在Q2的营业利润率从去年的同期的0.8%是大幅提升到了3.3%，这个也跟稍后可能请Carl来回答您的这个第二个问题相关。那么我们这个净利润超过了去年同期的两倍，那这就说明我们在新的运营策略底下，我们这个现有主力产品的核心用户的盘子依然非常稳固，而且变现的效率呢，也得到了比较明显的提升。那么刚刚Brian在前面有提到，就是说我们目前产品pipeline正在从这个RPG和Puzzle这两大品类呢双轨并进。那其中的RPG我们有几款产品将在接下来几个季度陆续推出来，那么当中呢，有很多款这个体量，都是相当可观的。Puzzle品类的话呢，我们也是力争在2025年年底前，推出四到五款新的作品。那么未来呢，这条内生的增长线将会是公司最稳最确的一条路。有关的这个进展呢，将会在接下来几个季度的业绩发布中，跟各位继续陆续的报告。除此以外，我们一直在讲另外一个重点是这个AI技术对于这个内容产业的一个赋能。那之前我们讲的更多呢，可能是怎么去提高我们的工作效率和降低成本。那么下一步呢，我们期望它能够在营收端也能做出一些贡献。那这条路上呢，我们现在也在做一些比较有意思的尝试，那么希望在未来几个季度当中，我们有机会可以跟各位来分享。这个是我对您第一个问题的回答。I will give the English translation for myself.

Thank you, Tina, for your question and for your continuing interest in our company. In the second quarter of FY26, we recorded total revenue of approximately $26.3 billion, while this represents a slight decline compared to the same period last year and the first quarter of fiscal 2026. This shift is primarily the result of proactive structural adjustment made by the company. These decisions were based on a comprehensive evaluation of current market conditions, our existing product mix, and our upcoming pipeline. From a financial perspective, the decline in revenue is directly correlated to our strategic reduction in selling and marketing expenses. In Q1 and Q2, our S&M expenses decreased by 13.6% and 18.4% year-over-year respectively. This adjustment serves two purposes.

First, to optimize the operational strategy for our mature legacy titles. Second, to account for a seasonal surge in user acquisition costs typically seen across major global markets during the year-end holiday season. As a result, although the top line has faced short-term pressure, our profitability structure has significantly improved. You can see that our operating margin in the second quarter rose sharply to 3.3% from 0.8% in the same period last year. Our net income more than doubled. This demonstrates that, under our refined operational strategy, the core user base of our flagship products remains resilient and our monetization efficiency has been notably enhanced. Also, as Brian mentioned earlier, our product pipeline is moving forward on a dual-track strategy focusing on RPG and puzzle genres.

For RPG, we have several titles slated for release over the upcoming quarters, many of which are quite substantial in scope. In the puzzle category, we are aiming to launch four to five new titles by the end of calendar year 2026. This organic growth engine will be the company's most stable and certain path forward, and we will continue to provide updates on our progress in future earnings reports. Beyond this, we remain focused on the empowerment of the content industry through AI technology. While our previous efforts were primarily directly toward improving operational efficiency and cost reduction, our next objective is for AI to contribute directly to revenue generation. We are currently conducting some very promising experiments in the area and look forward to share those development with you in the upcoming quarters.

That will conclude my answer to your question, and I will give you the second question to Carl, our CEO.

好的，谢谢Tina的提问。您问到本期营业利润率的增长的情况，实际上本期营业利润率的改善呢，主要是得益于公司对现有产品组合持续推进精细化运营和效率优化的结果。一方面我们在现有项目上坚持相对稳健的经营策略，更加注重收入质量和利润质量的平衡。另一方面，我们也在持续通过更细致的运营手段，提升变现效能和用户价值，包括对核心运营活动的优化，围绕不同用户分层开展更有针对性的内容和付费设计，以及持续推进个性化商业化调优，提升整体转化和生命周期价值。此外，刚刚Brian也提到，DTC也是我们提升盈利能力的重要抓手之一。那随着DTC的持续推进，我们在部分产品的渠道结构和用户经营效率有进一步的改善空间，这不仅有助于提升利润率，也能够增强我们对用户关系和长期价值的掌控力。基于这些举措，在新品进入大规模投入之前，我们会维持稳定利润率水平，公司也会继续以稳健经营为前提，保障收入和利润保持在相对健康的状态。不过从产品生命周期的角度来看，利润率未来的表现不会是一种单边扩张的趋势。新产品进入上线和重点推广阶段时，我们通常会加大市场投放和发行资源的投入，以争取更好的用户规模和更长周期的收入贡献。在过程中，短期营业利润率可能会受到一定的压力，这种压力更多是公司基于增长机会进行的主动投入，而不是业务盈利能力的削弱。我们之所以对这类投入有相对谨慎的信心，和公司也已经建立了比较强的数据分析、投放评估和动态优化体系。我们会持续跟踪获客成本、付费转化、LTV和回收周期等关键指标，并据此动态调整预算和投放计划，尽量确保推广投入在可回收、可验证、风险可控的框架下推进。经过一定的回收周期之后，利润水平通常也会逐步修复并回升。所以整体上我们会继续在利润稳定、投入纪律和长期增长之间做出平衡。

Okay, I will translate my answer to English. Thank you for the question. The improvement in operating margin this period primarily driven by continued refinement of operations and efficiency gains in our existing portfolio. On one hand, we have maintained a relatively disciplined operating strategy for our current titles with a strong focus on balancing revenue quality and profitability. On the other hand, we have been improving monetization efficiency and user value through a range of more granularly operating initiatives, including optimization of live ops events, more targeted content, and offer design based on user segmentation and continued enhancement of personalized monetization strategies to improve conversion and lifetime value. In addition, DTC remains an important lever for improving profitability. As we continue to expand our DTC efforts, we see further room to optimize channel mix and improve user economics in selected titles.

This not only supports margin improvement, but also strengthens our direct relationship with users and ability to capture long term value. Based on these initiatives, before new products enter a heavy investment cycle, we will keep their stable margin level, and we will continue to prioritize stable execution to maintain healthy revenue and profitability. That said, from a product cycle perspective, we do not expect margins to expand in a straight line. When new titles move into launch and scaled marketing phases, we typically increase user acquisition and publishing investment in order to capture larger audience potential and build long term revenue contribution. During that period, operating margin may come under short term pressure. Importantly, we would view this as a deliberate investment behind future growth opportunities, rather than a weakening of our profitability of the existing business.

We remain disciplined but confident in managing this process because we have built a strong, data-driven framework for marketing evaluation and optimization. We closely monitor key metrics such as CPI, retention, LTV, and payback period, and dynamically adjust budgets accordingly. This helps ensure the growth investment remains recoverable, measurable, and within a controlled risk framework. After a reasonable payback period, profitability would typically recover and improve. Overall, our approach is to balance margin stability, disciplined investment, and long-term growth.

Thanks. That helps a lot.

Thank you.

Thank you, Tina.

Our next question today comes from Zheng Hui Chen with Hegel Capital. Please go ahead.

好，感谢管理层。我这边有两个问题，第一个问题是本财年D2C的目标是多少？在整个产品组合中，D2C的渗透率的现实天花板在哪里？第二个问题是关注到在$500万的回购授权中，目前公司披露的已回购金额只有$45.9万，不到授权额度的10%，但是授权期已经过半了。请问一下，这个是在为产品管线投资保留现金吗？下面的话我就翻译一下。Thanks for managers.

Here are my two questions. First one is what is your D2C targets for the full fiscal year? What's the realistic ceiling for the D2C penetration across your portfolio?

The second is you've repurchased only $459,000 of the $5 million authorized buyback program. That's less than 10% of the authorization with roughly half the time expired. Are you preserving cash for pipeline investment? Thanks.

哎，好的，我是Tao，由我来回答您关于DTC的第一个问题。首先感谢您的提问。刚刚也提到了，DTC也是公司在用户经营、变现效率和利润结构优化方面非常重要的战略方向之一。那基于当前的推进节奏和产品适配情况，我们预计到本财年末，DTC在整体收入中的占比有望达到15%以上。从目前发展阶段来看，我们认为DTC的渗透率还远未达到天花板。一方面，随着更多国家和地区在相关政策环境逐步放开，行业在用户触达、支付链路和运营方式上都在获得更大的灵活性。另外一方面，随着公司的DTC基础设施、用户触达能力以及支付体验运营方法论等体系的持续完善，我们认为DTC在现有的产品组合中的渗透空间仍具一定的进步潜力。当然，我们对于DTC的推进始终保持着审慎和长期主义的态度，公司一贯坚持严格遵循各个平台和应用商店的政策，同时高度重视用户体验，确保DTC相关的触达、转化和服务流程是合规、顺畅且可持续的。我们更关注的是在合规的前提下逐步提升DTC的运营效率和用户接受度，而不是追求短期激进的提升。从组合层面来看，不同产品、不同地区以及不同用户群体对DTC的适配并不完全一致，因此DTC的渗透率的提升会是一个渐进式结构化优化的过程，而不是所有产品同步快速提升。未来我们会继续围绕高产品和高价值用户群体，稳步推进DTC渗透率的提升，并在保障合规和用户体验的前提下，持续释放部分经营利润和经营效率。总体来，对DTC的中长期发展保持积极的判断，认为它仍然会是公司未来提升盈利能力和强化用户直连能力的重要增长抓手。DTC remains one of our strategic priorities in improving user engagement, monetization, efficiency, and overall profit structure.

Based on our current execution pace and product-market fit, we expect DTC to account for more than 15% of total revenue by the end of this fiscal year. At this stage, we believe DTC penetration is still far from reaching its limit. On one hand, as regulatory and policy environment continue to evolve more favorably across a number of countries and regions, the industry is gaining great flexibility in user reach, payment flows and operating models. On the other hand, we can, as we continue to strengthen our DTC infrastructure, our touch points, payment experience, operating know-how and data capability. We believe there is still meaningful room to further increase DTC penetration across our existing portfolio. That said, we are approaching DTC with a disciplined and long-term mindset. We remain firmly committed to complying with platform and app store policies, while also placing strong emphasis on user experience.

Our goal is to ensure that all DTC-related user journey, conversion flows and service processes remain compliant, smooth and sustainable. We are focused on steadily improving efficiency and user adoption over time, rather than pursuing aggressive short-term expansion. At the portfolio level, DTC suitability varies by title, region, and user cohort, so we expect penetration gains to be gradual and structurally driven rather than uniform across all products. Going forward, we will continue to prioritize those titles and user segments where DTC has the strongest fit, and we believe that under a compliant and user-friendly framework, there is still substantial opportunity to unlock further margin and operating efficiency benefits. Overall, we remain positive on the medium to long-term potential of our DTC and see it as an important level for enhancing both profitability and our direct relationship with users.

Okay, I will pass the next question to Shawn.

Thank you, Zheng Hui. I will answer your second question about our share repurchase program.

首先，跟长期关注和支持公司发展的投资人一样，公司也是一直非常关注公司价值的公允程度，同时也是坚定地致力于维护公司价值和广大股东的权益。自从去年八月份推出我们首个回购计划以来，截止2025年12月31日，公司已经回购了大约37万股的A类普通股。实际上，我们目前现金流的健康状况是完全有能力同时支撑新游戏的研发、宣发，与我们已有的股东回报计划的。目前回购计划用了不到10%左右的额度，您刚才有提到过，我觉得主要核心原因还是在于严格的合规要求，以及当前股票市场流动性现状的客观制约。

Okay, thank you for your question and much like the other investors who have long followed and supported our development, the company is deeply focused on the fair valuation of our business and remains steadfastly committed to protecting company value and shareholder interests. Since the launch of our first repurchase program in August last year, we have repurchased approximately 370,000 Class A ordinary shares as of December 31st, 2025. I would like to clarify that our current cash flow and financial health are more than sufficient to support our R&D and promotional efforts for the new games, while fulfilling our shareholder return programs at the same time. The primary reason for the utilization being below 10% is not a lack of capital, but rather the objective constraints induced by strict compliance requirements and current market liquidity. At the execution level, we must strictly adhere to SEC regulations. These rules impose very specific limits on the manner and volume of open market repurchases. One of the essential constraints is under the Rule 10b-18 safe harbor that our daily repurchase volume typically cannot exceed 25% of ADTV of our shares over the preceding four weeks. Consequently, given the current liquidity levels, we must be extremely prudent in executing the program within this regulatory framework. Our operational strategy is to find the optimal balance between mitigating irrational price volatility, preserving secondary market liquidity, and ensuring full regulatory compliance. While you noted that the program's term is halfway through, I believe that management will continue to advance the repurchase plan flexibly and steadily as long as market conditions and compliance allow. Furthermore, the company is working to enhance investor outreach and market accessibility by consistently delivering robust operational performance, we aim to drive increased market attention and liquidity, which will in turn create a more favorable environment for the efficient execution of our repurchase program. That will be my answer to your second question. Thank you, Zheng Hui Chen.

Thank you. That concludes our question and answer session, as there are no additional questions at this time. I will now hand back to the management team for closing remarks.

Okay, thank you operator and thank you all for participating on today's call and thank you for your support. We appreciate your interest and look forward to reporting to you again next quarter on our progress.

Thank you. That concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.