Operator
Good day, ladies and gentlemen. Thank you for standing by, and welcome to GameHop's second 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 objections, you may disconnect at this time. I will now turn the call over to today's speaker host, Ms. Ali Wong. Ali, please proceed.
Thank you, operator. Hello, everyone. Thank you all for joining us on today's conference call to discuss the financial results of Game House for the second 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 Fung, Chairman of the Board, Mr. Carl Tsai-Ying, Chief Executive Officer, and Mr. Sean 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 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.
各位投资人,分析师,以及长期关注公司的朋友们,大家好。 感谢大家参加 Gamehouse 2020 财年第二季度的业绩电话会。
Good day, everyone, and thank you for joining Gamehouse Earnings Conference Call for the second quarter of fiscal year 2026. This quarter marks the milestone for Gamehouse. 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.
同比增长约为151% 达到约90万美元 同时我们的营业利润率
这绝非偶然 而是我们在成本结构优化 投放策略迭代 以及产品组合聚焦上 坚守战略定律的必然结果
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 and 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 ARP-DAU, 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 提升自负自主权上取得了长途进展 截至12月底 整个公司的DTC投入贡献已达到约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 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 channel. 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, CTC will become a powerful engine for ongoing margin improvement. 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 runners. In RPG, we recently signed a new title with a project scope of approximately $10 million and an expected lifecycle 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 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 inside skin are being applied to our upcoming projects. 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 monotized 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. At the same time, we're 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. This quarter, our Hauhan internal AI creative platform was fully deployed. In just three months, the platform process nearly 30,000 requests, significantly reducing production cycle time 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 extension. 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 of 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. 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. 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 fiscal year 2026, ending March 31st, 2026, at a range of $24 million to $26 million. With that, I will now turn the call over to Sean, 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 fiscal year 2026, which ended December 31st, 2025. Please note that all figures are in U.S. 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. On that side, 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. To bring 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, monetization improvements we are seeing in ARP-DAU 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 market 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 relation capabilities, as well as strategic hiring to support business expansion. Moving 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 30, 2025. We believe this provides sufficient liquidity to meet our working capital needs for the next 12 months. On capital allocation, as a remainder, 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 U.S. dollars. 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 fiscal year 2026, ending March 31st, 2026, we expect total revenue in the range of approximately $24 million to $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 second quarter, producing meaningful margin expansion. Our balance sheet is healthy and our cash position is strengthened. Going forward, our priority remains clear, discipline, investment in high potential titles, continuous strengthening of our platform and population infrastructure, and a balanced approach to growth, profitability, and shareholder returns. With that, we are happy to take your questions. Operator, please proceed.
Operator
Thank you. If you would like to ask a question, please press star 1 on your telephone. If you would like to remove yourself from queue, please press star than 2. Once again, that is star than 1 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. And today's first question comes from Tina Wong at SDICS International.
Please go ahead. 恢复,那以及它背后的催化性是什么,那第二个问题是关于利润的,我们看到这个这个季度经营利润率是提升到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,这个营销投加大以后,我们的这个经营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 goals to resume goals? And what is the catalyst behind?
My second question is how should we think about future OB margin trends, especially when you wrap up marketing campaigns for new products? 谢谢 Tina 我是Sean 我来回答你的第一个问题 Thank you Tina I will answer your first question 首先是感谢 Tina对公司的持续关注 在二六财年的第二个季度里 我们总共录得了营收大概是2630万美元 那么相较去年同期以及财产的第一个季度来讲 略有一些下降 那么这样的这个变动呢 主要是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 那么从我们这个财务的结构上来看呢 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 那我们这个财年的Q2呢 销售和营销运约同比下降了13.6%和18.4% 那这样的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 从结果上来看呢 虽然营收端短期一些这个压制 但是我们的盈利结构呢是得到了比较显著的优化 大家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那个卡尔来回答您的这个第二个问题相关 我们这个净利润超过了去年 两倍 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 核心入户的盘子 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 那刚刚Brand在前面有提到 就是说我们目前产品 Pipe 1正在从 这个RPG和Puzzle这两大品类呢 双轨并进 那其中呢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 我们也是例证在26年年底前 推出4到5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定的一条路 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 之前我们讲了更多呢 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 我们希望它能够在营收端啊 也能做出一些贡献 那这条路上呢 我们现在也做一些 比较有意思的一个尝试 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 这个是我对您的一个问题回答 I will give English translation for myself. Thank you, Tina, for your question and for your continued interest in our company. In the second quarter of fiscal year 2026, we recorded total revenue of approximately 26.3 million. Well, this represents a slight decline compared to the last year and the first quarter of fiscal year 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 supply. From a financial structure purpose 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. And second, to account for a seasonal surge in user acquisition costs typically seen across major global markets during the year and 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, and 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 scale. In the puzzle category, we are aiming to launch four to five new titles at 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 earning reports. Beyond this, we remain focused on the empowerment of the content industry through AI technology. While our previous efforts were primarily directed 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 developments with you in the upcoming quarters.
That will conclude my answer to your question, and I will give the second question to Carl, our CEO. 更加注重收入质量和利润质量的平衡 另一方面我们也在实际通过更细致的运营手段 提升变现效果和用户价值 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 我们在部分产品上的渠道结构 和用户经营效率进一步的改善空间 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 新产品进入上限和重点推广阶段时 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 而不是有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 和现在公司也已经建立了比较长的数据分析 投放评估和动态优化体系 我们会持续跟踪货客成本 流程 付费转化 LTE和回收周期等关键指标 并据此动态调整预算和投放结果 尽量确保推广投入在可回收和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 your question The improvement in operating margin in this period Primarily driven by continued refinement of operations and efficiency again 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 LiveOps events, more targeted content, and offer designed based on user segmentation and continued enhancement of personalized monetization strategies to improve conversion and lifetime value. In addition, DTC remains an important level 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 models. 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 the 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 on 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 EPI, retention, TV and payback period and dynamically adjust this 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.
Operator
Our next question today comes from Zhenghui Chen with Heji Capital.
Please go ahead. 啊 我这边有两个问题,而第一个问题是本财年B2C的目标是多少? 在整个产品组合中B2C的渗透率的现实天花板在哪里? 第二个问题是关注到在500,000美元的回购授权中目前公司披露的以回购金额只有45,9万美元,不到授权额度的10% 但是授权期的话已经过半了 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 target for the full facial year? And what's the realistic selling 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. 公司在用户经营、变成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,我们预计到本餐营末,DTC在整体收入中的占比有望达到15%以上。 从目的发展阶段来看,我们认为DTC的渗透率还远未达到天花板。 One, according to the countries and areas in a different country and countries in a different state and local countries, the business at the future of the project. The market is also in the market, the business of the network, the business network, and the business network, and the technology-based service, and the business network. Thank you. 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的适配度并不完全一致,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市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。 总体而言,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链能力的重要参长抓手。 Okay, I will translate to myself. DTC remains one of our key strategic priorities in improving user engagement, monetization, efficiency, and overall profit structure. Based on our current execution pace and product 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 ceiling. On one hand, as the regulatory and policy environment continues 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, 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. In that state, 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 median 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 Sean.
Okay, thank you, Zhenghui. I will answer your second question about our return. Thank you, Jim Hui, and I will answer your second question about our share repurchase program. 推出我们首个回购计划以来 那么截止25年12月31日 这个公司已经回购了大约37万股的A类普通股 那么实际上呢 我们目前新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 与我们这个已经有的这个股东回报计划的 那么目前回购计划用了不到10%左右的这个额度 你刚才这个有提到过 我觉得主要核心原因呢 还是在于严格的合规要求 以前的当前股票市场流动性现状的一个客观的职业 那在具体的执行层面呢 我们首先是必须要严格遵守SEC的相关的规定 有的这个有关的规则 对于我们公司在公开市场回购的方式 数量都有非常明确和严格的限制 当中最核心的一条呢就是我们这个每天回购的数量通常不能超过过去四周这个日均交易量的25% 那在目前流动性水平下呢我们其实是需要非常审慎的在规则框架内去使用我们这个回购计划 那我们的操作策略呢是在抑制我们股价一些非理性的波动 那么保护二级市场正常的交易流动性 以及总体的这个合规框架当中呢去找到一个比较合适的平衡点 您刚才有提到我们现在现行的回购计划时间已经过半 但是只要这个市场条件允许 而且符合合规的相关要求呢 我想公司的管理层会继续 临火和稳步的推进这个回购计划 同时公司也将努力通过提升 投资者以及市场的可触达度 并且持续的达成良好的业绩表现 来带动市场关注度和股票流动性的提升 那么届时也将会为我们更高效的 执行回购计划 我想创立一个更好的市场环境 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 the first repurchase program in August last year, we have repurchased approximately 370,000 cost-aid 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 peak being below 10% is not a lack of capital, but rather the objective constraints increased by strict compliance requirements and current market liquidity. At the execution level, we must strictly obey to SEC regulations. These rules impose very specific limits on the manner and value of open market repurchases. And one of the central constraints is under the rule 10B slash 18 safe harbor is that our daily repurchase volume typically cannot exceed 25% of ADTV of our repairs 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 think, I believe that management will continue to advance the re-purchase plan flexibly and steadily as long as market condition and compliance are all. So, 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, I think, create a more favorable environment for the efficient execution of our repurchase program. 这是我对您第二个问题的回答 That will be my answer to your second question 谢谢郑慧, thank you 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.
Operator
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.
