Snail, Inc.

Q1 2023 Earnings Conference Call


spk00: Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Snell Incorporated first quarter 2023 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. Should you require operator assistance during the conference, please press star zero to signal an operator. Please note this conference is being recorded. I will now turn the conference over to your host, Jake Pisano with ICR. Thank you. You may begin.
spk01: Thank you. Good afternoon and welcome to Snail Inc.' 's first quarter 2023 earnings conference call and webcast. On today's call are Jim Tsai, Snail's chief executive officer, and Heidi Chow, Snail's chief financial officer. By now, everyone should have access to the company's first quarter 2023 earnings press release filed today after market close. This is also available on the investor relations section of Snail Inc.' 's website at 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 as 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 useful information for our 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 would like to turn the call over to Jim. Jim?
spk04: Thank you, and hello, everyone.
spk03: It is a pleasure to speak with you on our first quarter 2023 results. The beginning of the year continues to show strong engagement for our products with continued growth of our user base. During the three months ended March 31st, 2023, we saw 1.7 million units compared to 1.3 million units in the prior year period. Our video games continue to provide highly engaging differentiated entertainment experience that provide a combination of challenge to progress and grow player engagement. In Q1 of 2023, we saw play time on our series of games increase to 106.5 million hours versus 25.1 million hours in the prior year periods. The increase on playing time is mainly due to our larger player base, a result of the many promotions ran over the previous 15 months. Through March 31st, 2023, our franchise game had been played for a total of 3.2 billion hours within average playing time per user of more than 160 hours and with the top of all players spending over 100 hours in the game. According to data related to the Steam platform, as you all know, the gaming industry is rapidly evolving. We have had the difficult decision to delay the release of Arc 2. We want to ensure that Arc 2 lifts up to our fans' high expectations. and we believe that the extra time will allow our team to create an even more captivating and engaging gaming experience. We are in constant communication with the developer to ensure milestones are made against the new timeline. You can expect Arc 2 in 2024. The extra time will allow us to deliver a AAA title that our friends will enjoy and love. During this time, we have decided to remaster the original Ark Survival game using the Unreal Engine 5. This decision was based on the unparalleled potential of this cutting-edge technology, which would enable us to provide our players with a more immersive, realistic, and enjoyable gaming experience. The Unreal Engine 5 offers several advanced features such as real-time ray tracing, dynamic global illumination, and the night-to-night virtualized geometry system. These features will allow us to bring the app survival world to life like never before with the stunning visuals, enhanced performance, and smooth gameplay. We understand that this decision may come as a surprise, especially with the anticipation surrounding the release of ARK 2. However, we believe that the remastered version of the original ARK Survival game will provide an incredible experience for both our new and existing players, laying the foundation for the strong and successful ARK 2 launch. In conclusion, We are confident that remastering Ark Survival with the Unreal Engine 5 will bring unprecedented value to our players and set a new benchmark for the gaming industry. We appreciate your understanding and support as we work towards delivering unforgettable Ark Survival experience and the outstanding Ark 2. We are thrilled to announce that in addition to Ark Survival Ascended, DLC, our team is currently working on multiple new DLCs for the art franchise. These coming DLCs will offer a variety of unique experiences, challenges, and environments, expanding the art universe and keeping our players engaged. While we cannot reveal specific details about these upcoming DLCs at this time, We can assure you that our team is dedicated to delivering captivating content that push the boundaries of the art experience. We are confident that our players will be thrilled with the new adventures and challenges that await them in this new, forthcoming expansion. The development of this new DLC is part of our ongoing commitment to provide our players with fresh, engaging content. We believe that the combination of the remaster of Survival Ascended, the upcoming DLC, and the continued development of the Arc 2 will offer an exceptional gaming experience that sets a new benchmark for the industry. I will now hand it over to Heidi to review the financial highlights from the quarter.
spk02: Thank you. Hello, everyone, and thank you for joining first quarter 2023 call. Revenue for the three months ended March 31st, 2023 was $13.5 million, a decrease of $14.6 million, or 52%. compared to the three months ended March 31, 2022. The decrease in net revenue was due to the decrease in sales of ARK attributed to a decrease in the average sales price per unit, additional deferred revenue, and one-time payment related to contracts with certain platforms. ARK sales decreased by $3.1 million. Deferred revenue from contracts decreased by $2.5 million, and one-off payment decreased by $8.5 million. Sales of the smaller titles decreased by a collective $700,000. These decreases in the company's smaller title were partially offset by an increase of $200,000 in revenue related to West Hunts. Net loss was $3 million for the three months end of March 31, 2023, as compared to a net income of $5.8 million for the three months end of March 31, 2022, representing a decrease of $8.8 million. The decrease was primarily due to a decrease in revenue of $14.6 million. An increase in research and development expenses of $1.2 million. A net decrease in interest income related party of $500,000. An increase in interest expense of $100,000 offset by a decrease in royalties of $3.2 million. A decrease in license cost and license right amortization of $1.3 million. a decrease in merchant and engine fees of $500,000, and a decrease in the company's tax provision of $2.3 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 deferral, and we believe provides a useful indicator of sales in a given period. For the three months ended March 31, 2023, bookings decreased by 48% to $13.3 million compared to the same three-month period of the prior year, primarily as a result of a decline in ARCH-related revenues. For the three months ended March 31st, 2023 EBITDA was a loss of 3.4 million versus a gain of 7.3 million in the same three months period of the prior year. This is mainly due to the decrease in revenue. As of March 31, 2023, our unrestricted cash was $4.1 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-Q filing. Thank you for joining us today, and now let's go to the questions. Operator?
spk00: Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. If you wish to remove your question from the queue, please press star 2. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question is from Pat McCann with Noble Capital.
spk05: Hey, thanks for taking my questions. My first question has to do with the ARC sales in the quarter. Can you speak to the sale price or discounts offered on the ARC units that were sold in Q1 relative to the prior year period? I guess I'm thinking that with game prices tending to decline as the game ages, I'm wondering kind of where the revenue per unit is shaping up so far this year relative to 2022.
spk02: This is Heidi. Great question. Actually, in Q1 of 2023, we did do a sale and we marked down our selling price for the base game somewhere around a 30% discount. and an offer to our players.
spk05: Gotcha. Thanks. My next question was about Survival Ascended. Can you just sort of gauge the excitement level in the gaming community for that? And maybe to break it down a little further, what is kind of the interest level that you would expect from gamers who had previously purchased games Ark Survival Evolved, to what extent do the improvements offered through Unreal Engine 5, to what extent do those really move the needle for gamers to want to come back and buy Survival Ascended even with Ark 2 coming next year? Yeah, that's that question.
spk04: Thank you. Hi, this is Jim.
spk03: I think right now the review and the community is actually a bit mixed. I would say originally, the original expectation was as an upgrade from the original App Survival Evolved and all the DLC. So upgrade meaning the definition of all the new maps and new features as a new DLC, as a paid DLC, or non-paid DLC as an upgrade. But this remastered Unreal 5, it's a completely different version of it. And I think in comparison to the current market, for instance, that there was Uncharted, a different game, all the last of us, they have remastered and repackaged and retailed and selling with the same price. So you can expect this is a completely different version of the art. And it's almost like you're from PS4 and become a PS5 version, but it's a new content. And the Art Survival Ascended is not just the Master Game, but also all the DLC altogether. So expect it to enjoy the mass quantity and also the quality that is on the Ascended. And with the updated information that's been released, I think we can certain of the support from the core fans. They think this is going to be fantastic and very excited of the Ascended to be released.
spk06: Okay. Thanks.
spk05: And then, uh, you know, my last question was, uh, regarding just your pipeline. If you could give any updates on, uh, you know, any news on arc, the animated series and when that might be, uh, getting released. And then if there are any details you can give at this time about, uh, sort of the timeline for your DLC releases, uh, here in 2023 and, you know, between now and, uh, you know, when Arc 2 releases?
spk04: Yes. Hi, this is Jim. Thank you, Clyde.
spk03: That's a great question. So, things with Arc 2 have been delayed. Actually, in now, now to Arc 2, there are several of the DLC being in the pipeline. The Ascended is one of them, and Ascended starting with Unreal 5, and then they're coming more DLC. One or two DLC that's in pipeline will be released before the up to and they all obviously they're all in Unreal 5 and other than that we have Going to be a map platform and You would have and then the animated series the TV series matter of fact, it's been Almost done which is to collaborate with the video platform and to have the release date. But I'm sure that there will be more content to be released between now and October.
spk06: Great. Thanks so much. Those are all the questions I have. Thank you for the question. As a reminder, to ask a question, please press star 1.
spk00: As there are no more questions, this concludes not only the question and answer session, but also the conference today. We thank you for your participation. You may disconnect your lines at this time.

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