Snail Inc

NASDAQ:SNAL

Earnings Call Transcript 2023-Q2

[Operator]

Good day, and welcome to the Snail, Inc. 2023 Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded. At this time, I'd like to turn the conference over to Jim Tsai, Chief Executive Officer. Please go ahead.

[Jim Tsai, executive]

Thank you for standing by, and welcome to Snail, Inc.'s Second Quarter 2023 Earnings Conference Call and Webcast. By now, everyone should have access to the company's second quarter 2023 earnings press release filed today after market closed. This is available on the Investor Relations section of Snail, Inc.'s website at www.snail.com.

During this call, management may make forward-looking statements within the meaning of federal securities laws. These forward-looking statements are subject to the risks and uncertainties described in the company's press release and other filings with the SEC.

On today's call, we will refer to bookings and EBITDA, which are non-GAAP financial measures that provide helpful information for our investors. You will find the historical reconciliation of bookings and EBITDA to the corresponding GAAP measures in the earnings press release and the company's SEC filings.

I am excited to update you on our ARK: Survival Ascended title. The DLC has passed all QC tests and is in the final stages of development. As announced to the community last month, the game will be released in October 2023 for Xbox Series S, PlayStation 5 and PC. It remains on track for release in October.

Aside from exciting features like next-generation optimized content, including The Island, a revamped Survival of The Fittest and other DLCs and maps, including Scorched Earth, Aberration, Extinction, Genesis Part 1 and Part 2, Fjordur, Ragnarok, The Center, Lost Island, Valguero and Crystal Isles. ARK: Survival Ascended will also feature a full-class platform between the console and PC, enabling user-generated content to a level of functionality never before seen in console games. This will enable users to see content at premium prices. Over time, we plan to build this to become a reliable revenue stream for Snail while giving ARK: Survival Ascended the opportunity to develop evergreen content and sales life cycle.

The economics of this are still in flux and will be finalized before launch. We are seeing tremendous feedback and excitement from our fans ready for a fresh new title and experience.

Let's take a moment to talk about ARK: Survival Evolved. It continues to generate millions of dollars per month. Nintendo Switch continues to grow in sales as more DLCs are released on that platform.

After the launch of ARK: Survival Ascended in Q4 2023, Studio Wildcard plans to release 2 brand-new expansion packs for that game in 2024, along with a completely revamped and envisioned mobile game in partnership with Grove Street Games.

Finally, ARK 2 continues development alongside ARK: Survival Ascended and is planned for a Q4 2024 release. Built upon ARK: Survival Ascended application framework, consumer merchandise and other corporate partnerships is anticipated to grow significantly in late 2023 and through 2024 with the release of the animated series during which time we plan to announce an exciting partnership later this year and various premium mod expansions that will incorporate well-known, external, preexisting intellectual properties.

During the 3 months ended June 30, 2023, we sold 0.9 million units compared to 1.6 million in the prior year period. Our video games continue to provide highly engaging, differentiated entertainment experiences that offers a combination of challenges to progress and grow player engagement. We saw 101 million playtime hours on our ARK series of games during this period. The increase in playtime is mainly due to the continuous growth of ARK's hardcore fans through June 30, 2023. Our ARK franchise game has been played for a total of 3.3 billion hours with an average playing time per user of more than 162 hours and with the top 21% of all players spending over 100 hours in the game, according to data related to the Steam platform.

Now let's review our financial highlights from the quarter. Net revenues for the 3 months ended June 30, 2023, was $9.9 million compared to $15.5 million for the 3 months ended June 30, 2022. The decrease in net revenues was due to a decrease in sales of ARK, partially attributed to a decrease in the number of days on sale in one of our primary platform partners and partially due to the upcoming release of ARK: Survival Ascended.

ARK sales and in-game purchases decreased by $5.3 million. Sales of the company's smaller titles decreased by $0.6 million. These decreases in the company's smaller titles were partially offset by an increase of $0.1 million in revenue related to West Hunt.

Net loss was $4.1 million for the 3 months ended June 30, 2023, as compared to a net loss of $1 million for the 3 months ended June 30, 2022. The decrease was primarily due to a decrease in revenue of $5.6 million, an increase in research and development expense of $1 million, an increase in interest expense of $0.1 million and an increase in Internet, server and data center costs of $0.3 million, partially offset by a decrease in royalties of $1.2 million, a decrease in license costs and license right amortization of $1.6 million, a decrease in merchant and engine fees of $0.5 million and a decrease in the company's tax provision of $0.8 million.

We present bookings and EBITDA because they are key operating measures used by our management to assess our financial performance. Bookings adjust for the impact of deferrals and we believe provides a useful indicator of sales in a given period. For the 3 months ended June 30, 2023, bookings were $9.3 million compared to $15.1 million in the same 3-month period of the prior year, primarily as a result of the decline in ARK-related revenues. For the 3 months ended June 30, 2023, EBITDA was a loss of $4.8 million versus a loss of $1.1 million in the same 3-month period of the prior year. This is mainly due to the decrease in revenues. As of June 30, 2023, our unrestricted cash was $3 million versus $12.9 million as of December 31, 2022.

To review our detailed financial statements, please refer to the earnings press release and 10-K filing. Thank you for joining us today. And now this concludes our second quarter 2023 earnings conference call and webcast. Should you have any questions, please submit to [e-mail].

[Operator]

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