Snail, Inc.

Thank you for standing by, and welcome to Snell Incorporated's fourth quarter and full year 2023 earnings conference call and webcast. I would now like to turn the call over to Jake Bassano, Vice President at ICR. Please go ahead.

Thank you. Good afternoon, and welcome to Snell Inc.' 's fourth quarter and full year 2023 earnings conference call and webcast. On today's call are Jim Tsai, Snell's Chief Executive Officer, and Heidi Chow, Snell's Chief Financial Officer. By now, everyone should have access to the company's fourth quarter and full year 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 the 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 the historical reconciliation of bookings and EBITDA to the corresponding GAAP measures and the earnings press release in the company's SEC filing. And now I will turn the call over to Jen. Thank you, Jake, and hello, everyone.

It's a pleasure to speak with you about our fourth quarter and full year results. We had a great year and accomplished many things, including releasing Ops Survival Ascended, releasing an improved product roadmap, announcing exciting initiatives like intelligence to bolster our product offerings. In October, we released the highly anticipated Ox Survival Ascended game. Since then, we have sold more than 1.5 million copies and locked more than 97.5 million gameplay hours. Our community is still captivated by the ARK experience, and we continue to improve the game with exciting DLC updates. Since its launch, Survival Ascended has had an average DAU, or Daily Active Users, of 182,000, which is a healthy increase of four times the average DAU observed during the same period of the original ARK, Survival Evolved, launch. The increased DAU reflects our commitment to creating an enjoyable experience on our strategy to build communities, attract and retain new and existing players, and continue growing our ARK player base. We also plan new DLCs for the ARK franchise, which are coming to ARK Survival Ascension. in late March. Our animation will be released by a well-known streaming platform, Paranoid Plus, initially in the North American region and globally two weeks later. The notoriety of the IP will reach a new generation of players, and we are planning marketing campaigns to capitalize on this newfound reach. The fact that sandbox survival games are top-rated currently, with a plethora of new co-op games We still stand alone at the top on the multiplayer level, along with our technological advancements in our premium mod program that provides endless content based on user-generated content. As the user base of Sandbox Survival Games continues to grow, AWK will continue to be the standard by which other games are measured. All the while, we continue to innovate on gameplay and technology, keeping us on the frontier. with an improved product roadmap. capabilities. The results of this are that our development projects can dramatically reduce the time between ideation and implementation. As we look forward into the near future, we are now sampling emerging AI technology in the next step of the development pipeline, where 2D art is produced into 3D assets. In this step, we have already identified several technologies that have shown great promise, and we are confident that within the year, they will be ready for direct use in our production pipeline for prototype research on Meshi and Lumen AI, both progressing in AI media and pass it directly into the development process to be evaluated and implemented into the game project. These AI agents can work together as a team to generate a game project. The two main tools we are researching in this sector are ChatDev and Society of Brain by Google Brain. The industry is trying to hang onto the hand-crafted model and compare games made by AI tools to those made by factories. At Snail, we want to use AI while making high-quality games, reducing costs, and passing the savings onto our consumers. We look forward to the developments we make during the year and will continue sharing more information on our upcoming quarterly earnings calls. 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 fourth quarter and full year call. Net revenues for the three months ended December 31st, 2023 was $28.6 million, as compared to $15.3 million in the three months ended December 31st, 2022. The increase in net revenues was primarily due to the release of ARC Survival Ascended. Net revenues for the year ended December 31st, 2023 decreased by $13.5 million to $60.9 million, or 18.2%. compared to 74.4 million in the prior year period. The decrease in net revenue was due to the decrease in ARC mobile sales of 2.9 million, a decrease in one-time deferred revenue from contracts recognized in 2022 of 10.3 million, one-time payments in 2022 of 8.5 million that did not occur in 2023, and an increase in deferred revenues of 25.2 million related to ARC sales, partially offset by an increase in ARC sales of 32.7 million. Net income for the three months ended December 31st, 2023 was 2.4 million compared to the net loss of 2.3 million for the three months ended December 31st, 2022. The increase in net income is due to the release of ARC survival ascended, reduced general and administrative expenses of 2.5 million, and a decreased professional fees related to compliance with public company requirements and litigation-related expenses. Partially offset by increased advertising and marketing costs of $900,000 related to ARC survival ascended release. and then 3.9 million decrease in the income tax benefits for the period. Net loss was 9.1 million for the full year ended December 31st, 2023, as compared to net income of 1 million for the year ended December 31st, 2022, representing a decrease of 10.1 million. Bookings for the three-month end of December 31, 2023 were $52.6 million as compared to $11.9 million for the three-month end of December 31, 2022. The increase was due to the strong release of arch survival ascended on the Steam, PlayStation, and Xbox platforms. Bookings for the year ended December 31, 2023 was $85.7 million as compared to $63.7 million in the year ended December 31, 2022. The increase was due to the release of ARK survival ascendant in the fourth quarter of 2023. In addition to increased sales of ARK survival ascendant, The company deferred approximately $22 million in revenues during the fourth quarter of 2023 for the Arch Survival Ascended DLCs that have not yet released and have $10.3 million in one-time deferred contract revenue recognized in 2022 that did not occur in 2023. Earning before interest, taxes, depreciation, and amortization EBITDA for the three months ended December 31st, 2023 increased by 8.8 million or 169% as compared to the three months ended December 31st, 2022. The increase was primarily the result of an increase in net income of 4.7 million partially offset by an increase in provision for income taxes of 3.9 million. It is a decrease by 9 million compared to the year ended December 31st, 2022, primarily as a result of a decrease in net income of 10.1 million, partially offset by a decrease in interest income of 700,000 and an increase in interest expenses of 600,000. As of December 31, 2023, unrestricted cash was $15.2 million versus $12.9 million as of December 31, 2022. To review our detailed financial statements, please refer to the earnings press release, our most recent 10-Q and our 10-K filings.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your headset before pressing the star keys. Your first question comes from Pat McCann with Noble Capital. Please go ahead.

Hey, thanks for taking my questions. My first question was just about the animated series. I'm wondering if you could give any information on how that has been received so far, and maybe you could also touch on the animated series DLC as well.

Hi, this is Jim Tai, CEO of Snail Games. to answer the question related to animated series. I think by far we already know that animated series, the first season, the episode has been released in video streaming platform, which already received quite, I would say positive review and also the critic and the score has been quite promising and I think the another benefit from releasing the video on the video streaming platform is that it has provided a free promotion and marketing to outside of the art fans so they can understand what the story is wrapped around for the ARC Survival Evolved video game. That's a great help and benefit for the cells of the ARC Survival Evolved. Even back in 2015, the Master Game, if fans haven't heard about it, and then they preview the animation, and then they may be curious, they may start from the Master Game and going on DLC. The other question on the animated DLC, we are planning and then we don't have the exact date and news to be announced, but we are working on it and expect to have more visible

Date and schedule and the information in the coming forum in the coming days Thank you, and then my next my next question was you know given the the the mod revenue sharing program I was just wondering how you know, how the modding, you know, has there been an uptick in modding? You know, what are you seeing right now insofar as modding is concerned with the game?

Okay, yeah, thank you. This is Jim again. Thank you for the question. So if we talk about modding, this is very exciting news because before we hop in onto the mod platform, we already doing the mod program for five, six years in the past, And if you look at the current server occupation, there's actually 50% or 60% or even more was we call it private server, which it would be very popular in the matter that they are playing the art in their own version. There's only like 10, 15, a little bit about its official server that we provide in the past. which is provide us the great potential to be on the modern system, right? So right now the model, the model platform we provided is not, it's still the same features and more enhanced tool for the model to be able to utilize whatever the data and the features in that tool, but also it opened up for the monetization, not just for the company, but also all the creators, the content creators. So it's exciting news, but this is just beginning. So other than the product cycle in the past, this will be a new trajectory in the coming days, and we expect that it will be a long-term strategy and also a monetization another long-term monetization for the app franchise.

Okay, great. And then if I could ask one more question, I was just, I was wondering if you could comment any on the, any updates in the development of Arc 2 when you look at potential release, you know, what quarter you might want to release it, you know, when you're looking at late 2024, early 2025, just wondering how much flexibility you might have to kind of pick, pick a time to release it that makes most sense as far as user adoption. I'm thinking, you know, you know, thinking about like in Q4 with the Christmas holiday, you know, how are you viewing that and how much flexibility do you have when it comes to releasing ARC 2?

Yes, thank you for the questions. Yes, there was a lot of questions wrapped around when is ARC 2 coming out, even or especially after the ARC ascended, got released, and also the animated series got released and you see all the The voiceover, one of the voiceovers, Vin Diesel, was actually in the ARC-II trailer. So you see the connection. The team is working very hard to try to have the ARC-II released early. But as we may know, because there was a long time for the ARC survival and ARC Ascended, and then definitely the ARC-II has the higher bar, that the quality has superseded in the past and even the upper centers. So we don't have a set day. I think we'll have a more clear schedule in the coming months. I can't say for now, but it definitely would be good news and information in coming days.

Great. Thank you so much. That's all I've got.

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There are no further questions at this time. This concludes today's teleconference.

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