Operator
Good day, ladies and gentlemen. Thank you for standing by and welcome to GameHaas' 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, Ms. Allie Wong. Allie, please proceed.
Thank you, Operator. Hello, everyone. Thank you all for joining us on today's conference call to discuss the financial results of GameHoff 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 Fung, Chairman of the Board, Mr. Carl Cai Yiming, Chief Executive Officer, and Mr. Shuang 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 translation. Please go ahead, Brian. Hello, everyone. Thank you for joining us for Gamehouse 3rd quarter fiscal year 2026 earnings call.
Thank you very much. 实际经济润约320万美金,同比增长约40%。 这不是单一季度的偶然成果, 而是我们在过去几个季度在产品组合, 投放节奏,成本结构,和支付渠道等多个纬度上 持续优化所累积的结构性回报。 This quarter, we continue to deliver on the efficiency-first profitability-focused 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 shilling 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.
In the use of the service and the delivery level, we saw the the user-side market analysis of the long-term, the gap was 0.5 million, compared to more than 13%, the customer-served service from the past year ago, the 2.2% was on the basis of 2.4% This is the keyhole that the user-side market is as part of the user-side market.
Through the calculation, the user-side market is using the user-side market, and the user-side market on the user and monetization side, our investment and more targeted live ops continues to pay off. ARP-DAU reached $0.55, up approximately 13% year over year, and the daily pair conversion improved from 2.2% to 2.4%. These games 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. We recognize that MAU and DAU declined year-over-year this quarter. That is a direct result of our decision to pull back from 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 FISCO 2027, we expect our user base to return to work, and the operational infrastructure and segmentation capabilities we have built will allow us to monetize those new users more effectively from day one. 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. 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% to 20%. 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. 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 expected 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. In this quarter, we signed an additional RPG title for global distribution, currently targeting in August to September launch window. In Puzzle, we tested seven to eight prototypes this quarter. Two of those showed strong enough results to move into extended development. A moderately scaled puzzle title that is already liked 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.
In the development of technology technology, the AI has been from the single-time tools to use into the company's core business process, the technology development system, and the new phase of GBS-中-台深度融合.
On technology, AI at Gamehouse has moved past the stand-alone tool phase and is now being integrated directly into our core business workflow, our R&D system and our GBS platform. We see this playing out across three areas. 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 co-pilots work alongside human engineers as a matter of course. 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. Third, we are building enterprise-grade AI infrastructure. This quarter, we advance work in parallel on our internal code service, system-level MCP integration and open-coil process automation, laying the groundwork for a reusable, scalable and well-governed AI platform across the company. 都处理了24万次大模型调用
覆盖的范围从早期的素材生成 大幅扩展至客服自动化 市场扫描工作流 愿意智能问答 以及其他多个早期agent的工作流场景 这意味着AR已经深度渗透进 公司各业务线的日常工作之中 正在让我们的生产效力 决策速度以及组织能力 发生本质性的变化 虽然AR能力的建设在短期 对财务表现直接贡献仍然有限
但对公司长期中长期的差异化竞争优势的塑造作用 已经清晰可见 These efforts are producing tangible measurable results Our浩瀚 AI creative platform processed nearly 70,000 requests this quarter exceeding the 60,000 target we said last quarter Beyond creative production our centralized AI gateway handled approximately 240,000 large language model calls during the quarter, with use cases expanding 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.
Thank you for joining us. all global customers'.
Stepping back, the pace at which our AI capabilities are compounding is also shaping how we think about GameHop'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 Gamehouse going forward, and it is the most significant long-term investment we're making on behalf of our shareholders. Regarding capital returns, as of March 31, 2026, we have repurchased approximately 392,000 Class A ordinary shares for a total of approximately 480,000. $62,000. We will continue to execute the buy-back program opportunistically based on the market conditions, 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. For the fourth quarter of fiscal This reflects the current pace of product launches, pre-launch marketing investment for upcoming titles, and the reallocation of operating resources from certain later life cycle titles for new products. 更充沛的现金储备,以及在AI与DTC等关键能力上所形成的体系化优势,公司将进入一个全新的高质量增长阶段。 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. With that, let me turn the call over to Sean for a closer look at our financials.
Thank you, Brian, and 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% 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, and 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 percent 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 ARP-DAU and payer conversion helped partially offset the impact of lower user acquisition volumes. Turning to expenses, total operating costs and expenses were $25.7 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 continues to increase and reduce profit-sharing payments to game developers as some mature titles move 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. Night income for the quarter was $0.5 million, up from $0.4 million a year ago. So, looking at the first nine months of fiscal year 2026, cumulative night income increased approximately 40% year-over-year, reflecting the continued improvement in our profitability profile. We ended the quarter with $18.3 million in 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 U.S. dollars shared repurchase program in August 2025 with a one-year authorization period through August 18, 2026. As of March 31st, 2026, we have repurchased approximately 392,000 Class A ordinary shares for approximately 482,000 U.S. dollars. Going forward, we will continue to be 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. It is the operating 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 this execution, strengthening our publishing and platform infrastructure, advancing our product, and delivering sustainable long-term value for shareholders. With that, we are now happy to take your questions. Operator, please proceed.
Operator
We will now begin the question and answer session. To ask a question, you may press star, then one on your touchtone 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 start and then to. When asking a question in Chinese, please repeat your question in English as well for everyone's convenience. Our first question comes from Henghui with Sanhi Capital.
Please go ahead. 你好管理层 我有两个问题想要提问 第一个问题是公司提到有三款RPG产品 都计划在八月至九月上线 那么在这么转的时间窗口内的话 其中发布这么多产品 是否存在互相分流或资源紧张的风险 你们打算如何错开营销支出呢 我来翻译一下第一个问题 You have three RPG titles targeting an or get to September launch window. That's a lot of titles in a narrow time frame. Is there a risk of a cannibalization of resources strain? And how are you struggling the marketing spend across them? The second question is, I just mentioned in Brian's talk about GameHorse's long-term goal is to make a digital content for a development of AI-driven content. I don't know if I can give more information. In Brian's earlier remarks, he mentioned that Gamehorse's longer-term goal is to evolve into an AI-driven, in targeted platform, both content generated and distribution. Could you give us some more specific color on this, beyond the games you are constantly working on? what does this actually mean, and where are you today along this path? That's all. Thank you.
I will just let Carl, our CEO, to answer the first question.
I'm Carl. I will answer the first question. My answer will be using Chinese. And from Ellie, I will translate it into English. As you mentioned, the three RPG products in the 8th to 9th of the year, we will definitely be very careful of the management so that we can avoid the conflict between the products and users.
This is Karl, 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.
First, in the time of the release, we will be able to release three products and release.
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.
从而避免临近上线时出现资源紧张 Second, we have already started preparing the required launch materials and events 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 From a marketing standpoint, 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. In the short term, there may be some temporary fluctuation and profitability as multiple new titles enter the launch phase. That is normal during a new product ramp-up period. However, 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.
Hello, I'm Sean. I'll answer your second question. I will answer your second question. In Chinese first, and I will let Ali to translate into English.
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.
That's what you're talking about. 这是我们把内容生成这一端给它做事的第一个指点。 or live operations. This is our first concrete step for making the content generation and tangible. 在更广义的内容领域去应用 那这部分呢 目前还处于探索当中 未来如果说条件成熟了之后呢 我们也会及时的去市场去报告这个进展 我们相信呢 这个方向将定义下一个阶段的游戏 乃至更广义的内容行业核心竞争的一个壁垒 那我们呢 正在为占据这个位置去做非常扎实的准备 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, and 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, Zhonghui. That's our answer.
Operator
Okay, and the next question comes from Hua Rong with Jin Yu Asset. Please go ahead.
I have two questions for management. The first one is BTC is clearly the most accountable margin level in the near term, but 13.9% company-wide means 86% of your revenue still flows through platforms paying commissions. What's preventing faster adoption? Is it player behavior, platform, restrictions or something else? Your operating margin improved to 2.1% this quarter from 1% a year ago, and the cumulative net income for the first nine months grow approximately 40% year over year. But 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.
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. can be a bit more clear in the game in the game.
Therefore, the company will be able to continue to improve DTC's覆盖範围.
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 US is the primary market where we have relatively broad latitude to present third-party payment options in-game. So we will continue to expand DTC only under a fully combined flip framework 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 benefits 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. In addition, in-app purchase performance is also an important signal for platforms when they evaluate product quality and allocate organic traffic. So 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. Overall, we will continue to steadily increase our DTC share, especially in markets where compliance is clear and user acceptance is strong. But we will do it in a disciplined and sustainable way, rather than forcing a rapid increase at the expense of conversion or platform relationship.
Okay, this is Sean, and I will answer your second question in Chinese first, and I will also let Ali to translate my answer into English. 这个27财年如果说我们重新再去投入的话呢 会有一定程度的回吐 这个是客观的 不过如果同时如果我们去看我们这个季度毛利率的话呢 那大概是54% 同比提升了呢大概两个百分点 这个改善呢我觉得它是跟买量多少没有关系的 主要我觉得是来自两个结构性的因素 第一是刚才Cowell提到DTC渗透率的提升 直接降低了我们平台分成的成本 第二部分我觉得是一部分成熟产品的生命周期 推进带来的分发 我们的开发者分成结构有一定的优化 我觉得这部分都是留得住的 而且随着我们DTC占比朝着刚才讲15%到20% is going to continue to increase, I think the institutional capital of the bondage will continue to expand.
So, thank you for the question. It's true that part of our current margin does benefit from our deliberate pullback and low-efficiency user acquisition, and as we potentially scale that spending back up in fiscal 2027, there will be some giveback 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% to 20% range, this structural growth margin benefit will expand further. That is broadly how we see it. Thank you.
Thank you, Yavarro. That will be the answer of us.
Operator
This concludes our question and answer session. I would like to turn the conference back over to Sean Zhang for any closing remarks.
Okay. Thank you operator and thank you all for participating on today's call and sorry for disconnecting for several times and thank you for your support. We appreciate your interest and look forward to reporting to you again next quarter on our progress.
Operator
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
