Snail, Inc.

Thank you for standing by, and welcome to Snail Inc.' 's third quarter 2023 earnings conference call and webcast. I would now like to turn the call over to Jake Pisano, Vice President at ICR. Thank you. Please go ahead.

Thank you. Good afternoon, and welcome to Snail Inc.' 's third 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 third quarter 2023 earnings press release filed today after market close. This earnings press release 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 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 risks and uncertainties. Please refer to the company's most recent 10Q, 10K, and other SEC filings. The company makes these forward-looking statements as of today and disclaims any duty to update them. On today's call, we will refer to bookings and EBITDA, which are non-GAAP financial 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 Jim.

Thank you, Jake, and hello, everyone. It's a pleasure to speak with you about our third quarter results. About two weeks ago, we launched the highly anticipated ARP remake, ARP Survival Ascended. We are incredibly proud of the snail and studio wildcard teams and appreciate all the passion, effort, and creativity in getting this game in front of millions of players. As today, we have sold over 600,000 ARK Survival Ascended copies on the Steam platform. During the first 10 days following the ARK Survival Ascended launch, we sold 1.5x units compared to the same 10 day period of the original ARK Survival Evolved launch. For the same 10 day period, Survival Ascended had an average daily active users of 258,000, which is a healthy increase of 7.5x of the average daily active user observed during the same 10-day period of the original art. Survival Evolved Launch. The increased daily active user reflects our commitment to creating an enjoyable experience for our player base. Oh, in addition to unit sold and daily active user, we are seeing tremendous excitement and commitment in our player base. ARK Survival Ascended players have amassed over 14.8 million hours of playtime to date. We are thrilled to participate in this successful ARK Survival Ascended launch as the number of units sold on Steam has exceeded our expectations. We are making significant progress on our strategy to build communities, attract and retain new and existing players, and continue growing our ARK player base. We know we have a passionate and excited fan base. Our fans have been playing ARK for eight years, and now they can enjoy a fully reimagined version using the next generation of video game technology with Unreal Engine 5. We are excited about the upcoming release of the Art Survival Ascended Xbox version and the PlayStation version with cross-platform play with Steam on day one. Art Survival Ascended will also feature full cross-platform modding between the consoles and PC, enabling user-generated content monetization opportunities to create a shared economy with our loyal fan base. This virtuous monetization cycle will allow Ark Survival Ascended to transform into evergreen content with an extended life cycle. With the launch of Ark Survival Ascended, we are thrilled to see existing players forging their way to the reimagined version of the game. Our player base in Ark Survival Evolved is active, and we look forward to transitioning those players to experience the new, reimagined version of Ark. I will now hand it over to Heidi to review our financial highlights from the quarter.

Thank you, Jim. Hello, everyone, and thank you for joining our third quarter call. Net revenues for the three months end of September 30th, 2023 was $9 million compared to $15.6 million the three months end of September 30th, 2022. The decrease in net revenue was due to a one-time contract revenue payment recognized from deferred revenue for a three-week promotion in the amount of $4 million that occurred in the three-month end of September 2022, but not in 2023, and a decrease in sales of ARC due to a lower average selling price. ARC sales and in-game purchases decreased by 2 million. Sales of the company's smaller title decreased by a collective of 400,000. Net loss was $4.4 million for the three months end of September 30th, 2023, as compared to a net loss of $1.5 million for the three months end of September 30th, 2022. The decrease was primarily due to a decrease in revenue of $6.6 million, an increase in research and development expenses of $1.2 million, an increase in interest expense of approximately $100,000, and an increase in internet, server, and data center costs of $300,000, partially offset by a decrease in royalties of $900,000, a decrease in license costs and license right amortization of $1.7 million, a decrease in merchant agency of $500,000, a decrease in general and administrative expenses of $1 million. Increasing other income of $300,000 and a decrease in the company's tax provision of $800,000. We present bookings and EBITDA because they are key non-GAAP operating measures used by our management to assess our financial performance. Bookings adjust for the impact of deferral and VBD provides a useful indicator of sales in a given period. For the three months ended September 30th, 2023, bookings were $10.5 million compared to $11.3 million in the same three-month period of prior year. For the three months ended September 30th, 2023, EBITDA was a loss of $5.1 million versus a loss of $1.5 million in the same three-month period of the prior year. This is mainly due to the decrease in revenues. As of September 30th, 2023, our unrestricted cash was $4.9 million versus $12.9 million as of December 31st, 2022. To review our detailed financial statement, please refer to the earnings press release, our most recent 10-Q and our 10-K filings. Thank you for joining us today, and now we're ready for our first question.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the one on your telephone keypad. You will hear a three-tone prompt acknowledging your request. Questions will be taken in the order received. And should you wish to cancel your request, please press the star followed by the two. If you're using a speakerphone, please leave your handset before pressing any keys. Your first question comes from the line of Pat McCann from Noble Capital Markets. Please go ahead.

Hey, thanks for taking my questions and congratulations on the successful launch of Survival Ascended. My first question has to do with the pricing. It looks like it's you're charging around, it's going for around $45 on Steam, and please correct me if I have any numbers wrong, but I'm wondering what is the differential between what you're getting for Ark Survival Ascended versus the price point that Ark Survival Evolved is at this point in time? How much more are you getting now that it's you've relaunched the game and you're able to kind of charge a premium price again.

Thank you, Paul.

I'll pass this question to Peter.

Hey, this is Peter. So, you know, what you're getting with Ark Survival Ascended is a one-time price where it includes all of the, not only the base game, but the DLCs that will be converted and timed to the Ark Ascended versions. So it's a one large package price for all of the content previously released on ARCA Survival Evolved.

Gotcha. Okay.

And what's sort of the average price for Survival Evolved at this point?

I believe ARCA Survival Evolved is set at I think $15 on steam. And so that is only for the base game. And so if you wanted to come in and catch up on the content, not only would you have to pay for the base game, but each additional paid DLC that you're looking to acquire.

Gotcha. Thanks. And then my next question was just how you guys view the, the early success of survival evolved or of survival ascended. I'm sorry. As an indicator for the demand for ARC-II, has it changed sort of your expectations for ARC-II in 2024, given just how strong a launch you've just had?

Well, you know, the results we're seeing is definitely – positive in our eyes as we look forward and see how the IP of Arc itself is continuing to grow a new user base past seven or eight years here now. It's definitely a positive thing for us to see the amount of attention the IP is receiving. Arc 2 will have varying gameplay from Arc Ascended. And so we strongly believe that Arc 2 will continue to push the envelope as far as how much our technology is required to play the game and enjoy the content at the highest fidelity for Unreal 5.

Gotcha. And if I may just squeeze in a couple more. You know, I'm wondering about the, you know, the bridge loan with Netrato and if that you know, if everything, if that's sort of, the loop has sort of been closed on that with, you know, the revenue shares from Survival ascended. And if so, just to clarify, going forward, the only lingering commitment there is just for Netrato to be the sole server provider for the ARK franchise going forward for seven years. There's nothing really else You know, um, what the component to that that I'm missing.

Great question Pat. Um, this is Heidi. Um, actually within the trial though, what we have is the loan is more of a operational loan is not a what we have is. It is a separate transaction. And the official server, we're doing official server as Netrado. However, for other user base, for any of the unofficial server, it is not exclusive to Netrado. So they're different.

Okay.

And then is the – did the – is the Netrado – I think it was roughly $4 million. Is that – paid off at this point after the launch?

Our plan is to pay it off. So basically, the payment terms depends on our future cash flow. And so it's not a revenue sharing, but the payment will be coming up. So basically, there is a specified terms. And we'll make our payment according with the terms, but it's not sharing of our revenue.

Gotcha. Okay. Okay, great.

Okay, yeah, you know, with that, I will, you know, that's all I have for now, but thank you. And again, congratulations on a strong start for Survival Ascended.

Thank you. Thank you. There are no further questions at this time. Please proceed. Thank you. There are no further questions at this time.

Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.