Snail Inc

NASDAQ:SNAL

Earnings Call Analysis

Snail Inc. Reports Significant Revenue Growth Driven by ARK Franchise Success

In the third quarter of 2024, Snail Inc. achieved net revenues of $22.5 million, soaring from $9 million in the same quarter a year prior. This remarkable growth was fueled by the launch of the ARK: Aberration expansion and Bobs Tall Tales DLC, contributing $8.2 million. Additionally, total ARK sales increased by $5.9 million, alongside $1 million from Bellwright sales. The company transitioned from a net loss of $4.4 million to a modest profit of $200,000. Bookings rose by 53.6% to $16.1 million, indicating strong market performance as the company anticipates continued growth in its game portfolio.

A Strong Quarter for Snail Inc.

Snail Inc. reported a remarkable performance in the third quarter of 2024, showcasing significant growth across various metrics. Net revenue surged to $22.5 million, a substantial leap from $9 million in the same period last year. This growth was driven primarily by the successful launches of major content updates, notably 'ARK: Aberration Ascended' and 'Part 2 of Bob's Tall Tales,' generating $8.2 million alone. Furthermore, sales across other ventures, including total ARK sales and Bellwright, added to the company’s revenue stream.

Turning Losses into Profits

This quarter also marked a pivotal shift from losses to profit, with net income now at $200,000 compared to a net loss of $4.4 million last year. The substantial increase in revenue has played a crucial role in this turnaround, demonstrating the effectiveness of Snail's product strategy and community engagement. Investments in quality and innovative content have evidently resonated with players, highlighting a successful operational focus.

Bookings and Financial Health

Bookings for the quarter reached $16.1 million, up from $10.5 million a year earlier, reflecting a 53.6% increase driven largely by continuous player engagement and the expansion of ARK content. However, approximately $8.2 million of this was recognized as deferred revenue. Despite this, the company's EBITDA improved significantly, soaring to $500,000 from a loss of $5.1 million previously. Cash reserves also strengthened with $10.6 million available, indicating solid financial health amid ongoing debt repayments, including $3 million towards a revolving loan.

The ARK Franchise's Continued Momentum

The ARK franchise remains a cornerstone of Snail’s success, with impressively engaging statistics showing players motivated by deep gameplay experiences—3.8 billion total hours logged and a noteworthy average playtime of 162 hours per user. Top players are committing over 100 hours, solidifying ARK's place in the competitive gaming landscape. The company plans to maintain this engagement strategy by spacing out DLC releases to every three months, enabling deeper development of content.

Future Growth and New Titles on the Horizon

Looking ahead, Snail plans to continue expanding its portfolio, including the upcoming release 'ARK: Ultimate Survivor Edition' for mobile platforms, promising a comprehensive PC game experience. Moreover, the indie publishing label, Wandering Wizard, is set to unveil new titles, further diversifying Snail’s offerings and potential revenue streams. This proactive approach to content and franchise expansion positions Snail Inc. favorably amidst an increasingly competitive market.

Challenges and Community Engagement

While the fiscal outlook is largely positive, challenges remain. Analyst inquiries during the call highlighted concerns over gross margins during promotional events, such as the Steam summer sale. However, management reassured participants that overall sales improvements, alongside strategic pricing, remain integral to mitigating these issues in future quarters. Furthermore, the anticipation surrounding the animated series, though limited on specific viewership data, suggests robust community interest continues to be cultivated.

Earnings Call Transcript 2024-Q3

[Operator]

Thank you for standing by, and welcome to Snail Inc. Third Quarter 2024 Earnings Conference Call and Webcast.

I would now like to turn the call over to Brett Milotte, Senior Vice President at ICR. Please go ahead.

[Brett Milotte]

Thank you. Good afternoon, and welcome to Snail Inc.'s Third Quarter 2024 Earnings Conference Call and Webcast. On today's call, we have Tony Tian, Co-CEO; Heidy Chow, Chief Financial Officer; and Peter Kang, Senior Vice President, Director of Business Development and Operations.

The company's third quarter 2024 earnings press release was filed today with the SEC after the U.S. stock market closed and is available on the Investor Relations section of Snail Inc.'s website at www.snail.com or the SEC's website. During this call, management may make forward-looking statements regarding future events and the future financial performance of the company. Actual events and results may differ materially from our expectations and forward-looking statements are subject to certain risks and uncertainties.

Please refer to the company's most recent Form 10-Q that was filed today with the SEC, the most recent Form 10-K that was filed with the SEC on April 1, 2024, and other SEC filings. The company makes these forward-looking statements as of today and disclaims any duty or obligation to update them or to release publicly any updates or revisions to any forward-looking statements to reflect any change in its expectations or any change in events, conditions or circumstances on which any such statement is based.

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

And now I will turn the call over to Tony Tian, Co-Chief Executive Officer of Sale. Tony?

[Xuedong Tian, executive]

Thank you, Brett. Good afternoon, everyone, and thank you for joining us today. I'm very excited to share with you our results for the quarter as well as provide you with some updates on our games portfolio and specifically our ARK franchise.

Firstly, I would like to give a brief overview of where Snail stands today with the release of the first half of ARK: The Animated Series first season and the full-size expansion, ARK: Aberration. We are capitalizing on the increased popularity of the franchise by engaging new players and continuing to excite our existing community through innovative updates and launch within the ARK franchise. As such, we remain committed to being pioneers in the world of interactive entertainment, including strategic investments in advanced AI technologies that enhance both creativity and productivity.

During the third quarter, we released the highly anticipated full-size expansion of DLC, ARK: Aberration Ascended and Part 2 of Bobs Tall Tales DLC for ARK: Survival Ascended. As the new DLC content continues to engage with our player base, we are continually optimizing our DLC pipeline to further enhance the ARK experience our players have come to know.

Through September 30, 2024, ARK has been played for 3.8 billion hours with an average playing time per user of 162 hours. Additionally, as we highlighted previously, the top 21.2% of all players have spent over 100 hours immersed in the game, according to data from Steam. We are thrilled with the success of the ARK franchise and to see so many players enjoying our games as indicated by this data.

Before I hand the call over to Peter and Heidy to discuss our results in more detail, let's quickly go over the financials from this quarter.

For the third quarter of 2024, Se generated a net revenue of $22.5 million, a notable jump from $9.0 million in the third quarter of 2023. The increase in net revenue was due to the recognition of $8.2 million in revenue from the release of Aberration and part 2 of Bobs Tall Tales, an increase in total ARK sales of $5.9 million, and also an increase in Bellwright sales of $1.0 million, partially offset by other items outlined in our financial statements.

Net income in the third quarter of 2024 increased significantly to $0.2 million versus net loss of $4.4 million in the third quarter of 2023 as a result of the aforementioned increase in net revenue.

Thank you all again for joining. With that, I will now hand the call over to Peter Kang, our Senior VP, Director of Business Development and Operations, to review our product road map and share some key developments. Peter?

[Peter Kang, executive]

Thank you, Tony, and hello, everyone. Thanks for joining us today.

Firstly, I'd like to provide some updates on each of our core franchises. Earlier in 2024, Donkey Crew released the survival simulation titled, Bellwright into Early Access on Steam. As a reminder, that launch was an incredible success with over 78% of reviews giving a positive score, and the overall Steam review score being "mostly positive". As such, we have sold over 380,000 units to date and the wish discount for the game remains over 1 million. There are a lot of new developments on this project. Keep an eye out on Bellwright's Steam store page for the most up-to-date sneak peeks at the upcoming content.

We are excited to welcome Honeycomb: The World Beyond to our Snail's games portfolio. Honeycomb is an upcoming single-player sci-fi survival venture where players explore vast biomes, cross-breed alien species and build a base to support their mission to save humanity. Honeycomb represents Snail Games dedication to providing a unique gameplay experience within the survival genre.

Moving on to our indie publishing label, Wandering Wizard. As previously mentioned, we have expanded our publishing catalog, having signed two additional games earlier this year, which will be released in Q1 of 2025. Respectively, the first project is titled, The Cecil: The journey Begins, a horror game set in the legendary Cecil Hotel in Los Angeles and developed by Genie Interactive Games.

The second title is, Chasmal Fear, another horror FPS game developed by two Brothers in Macedonia under the MystiveDev banner. Since the second quarter of 2024, we have signed two more games, Castle of Secrets and Stoneguard. Castle of Secrets takes players into the shadowing depths of a psychological horror narrative that follows young Susan's journey through a cursed family legacy. While Stoneguard is an immersive survival strategy game set in a dark medieval world where players must protect the magical lifestone from relentless enemies.

We anticipate Wandering Wizard to have additional titles in various stages of development by year's end, while maintaining our commitment to identifying new opportunities that emphasize gameplay excellence and clear market fit.

Let's turn now to the ARK franchise. Firstly, on ARK: Survival Ascended, as we mentioned last quarter, our development time line has slowed down to a cadence of launching a new DLC every 3 months, compared to 2 months previously. This strategy has been successful as we focus further on the quality and level of detail that our fans appreciate from all of the DLCs in the franchise.

In third quarter 2024, we have released the highly anticipated full-size expansion, ARK: Aberration Ascended for our ARK: Survival Ascended players. Along with the full-size expansion, we also released Steampunk Ascent, which is part 2 of a paid DLC Bobs Tall Tales. Delivering on our commitment to provide players with quality and engaging content, Steampunk Ascent brings new skins, structures, items and creatures into the world of ARK.

Later this year, we will be releasing ARK: Ultimate Survivor Edition on Mobile platforms. The updated dino-adventure on iOS and Android offers the complete full-scale PC game experience right on your mobile devices.

With ARK: The Animated Series, we are excited by the release of part 1 of Season 1 and the feedback from our community. As we look forward, we are even more excited to share with our fans of the ARK franchise, the exciting developments in the storyline as well as more dino battles.

I will now pass the call off to Heidy to discuss our financial results in more detail. Heidy?

[Heidy Kingwan Chow, executive]

Thank you, Peter, and hello, everyone. Thank you for joining us today.

Net revenue for the 3 months ended September 30, 2024, was $22.5 million as compared to $9 million in the 3 months ended September 30, 2023. The strong increase in net revenue was primarily due to the release of Aberration and part 2 of Bobs Tall Tales, which resulted in $8.2 million of revenue in the third quarter.

Additionally, we saw an increase in total art sales of $5.9 million, and an increase in Bellwright sales of $1 million, partially offset by other items outlined in our financial statements.

Net income in the third quarter of 2024 increased significantly to $200,000 versus a net loss of $4.4 million in the third quarter of 2023 as a result of the aforementioned increase in net revenue.

Bookings for the 3 months ended September 30, 2024, was $16.1 million as compared to $10.5 million for the 3 months ended September 30, 2023. The $5.6 million or 53.6%, an increase in booking is due mainly to the release of ARK: Survival Ascended in the fourth quarter of 2023. The releases of Bobs Tall Tales and the Bellwright in the first half of 2024 as well as the releases of ARK: Survival Ascended DLC operation in September of 2024.

In addition to increased sales of the aforementioned titles, bookings decreased because of the company recognized deferred revenue of approximately $8.2 million during the 3 months ended September 30, 2024, for the release of Aberration and part 2 of Bobs Tall Tales, partially offset by the deferral of $2.6 million in revenue for sales of ARK: Survival Ascended DLCs and the remaining part of Bobs Tall Tales, which have not yet launched. During the 3 months ended September 30, 2023, the company also deferred $1.8 million in prepaid royalty for ARK: Survival Ascended and ARK 2.

EBITDA for the quarter ended was $500,000 versus a loss of $5.1 million in the prior year period. The $5.6 million or 109.7% an increase in EBITDA was due to our increase in net income and a decrease in the benefit from income taxes of $1.4 million, partially offset by a decrease in interest expenses of $300,000.

As of September 30, 2024, unrestricted cash and cash equivalents was $10.6 million. During the 9 months ended September 30, 2024, the company paid $3 million of its revolving loan and also paid off the convertible debt.

To review our detailed financial statements, please refer to the earnings press release and our most recently filed Form 10-Q, which was filed today with the SEC. Thank you all for joining us today.

We will now open the line for Q&A. Operator?

[Operator]

[Operator Instructions] The first question comes from the line of Michael Kupinski with NOBLE Capital Markets.

[Michael Kupinski, analyst]

I got just a couple here. I just want to know, in terms of the Steam summer sale, I was just wondering how that affected the quarter and the sales. In particular, too, did that affect gross margins because gross margins look like they were just a little bit lower than what I was looking for. And I was just wondering if you can just comment how successful that Steam summer sale was.

[Heidy Kingwan Chow, executive]

Michael, thank you. That was a great question. Summer sale was great. And then because during the summer, we definitely had sold more units and our gross profit as well. And it did significantly actually improve for the quarter.

[Michael Kupinski, analyst]

Got you. And then I was just wondering, too, in terms of any updates on The Animated Series. I know you're kind of limiting the questions here. Any updates on The Animated Series viewership, and how well it was received? Any interest for another season? Can you give us an update there as well?

[Peter Kang, executive]

This is Peter. So the rights to updates on The Animated Series belongs to our distribution partner, Paramount+. So we're not at liberty to disclose. The same goes with viewership numbers. Those analytics are very hard to come by for us.

What we do know is that the second half of the first season is on the slate to be released, and we hope that it's well received by the viewership out there.

[Operator]

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.