Snail, Inc.

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 Milot, Senior Vice President at ICR. Please go ahead.

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 Tan, Co-CEO, Heidi Chao, 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 it's 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. Questions 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 to 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 Tan, Co-Chief Executive Officer of Snail. Tony?

Thank you, Brad. 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 Snow stands today. With the release of the first half of ARK Animated Series first season and the full-size expansion, ARK Aberrations, we are capitalizing on the increased popularity of the franchise by engaging new players and continuing to excite our existing community. Through innovative art updates and launch within the art franchise, as such, we remain committed to being pioneers in the world of interactive entertainment, including strategic investment in advanced AI technologies that enhance both creativity and productivity. During the third quarter, we released the highly anticipated full-size expansion of DLC, Arc Aberration Ascendant, and part two of Bob's Tortoise DLC for Arc Survival Ascendant. 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 out to Peter and Heidi to discuss our results in more detail. Let's quickly go over the financials from this quarter. For the third quarter of 2024, SNAIL 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 recommendation of $8.2 million in revenue from the release of Aberration and Part 2 of Bob's Tall Tales, an increase in total act sales of $5.9 million, and also an increase in bail rights sales of $1.0 million, partially offset by other items out of line in our financial statements. Net income in the third quarter of 2024 increased significantly to $0.2 million versus net loss of $4.2 million. $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 roadmap and share some key developments. Peter?

Thank you, Tony. Now, 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 title, 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, quote, mostly positive. As such, we have sold over 380,000 units to date and the wishlist count 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 games portfolio. Honeycomb is an upcoming single-player sci-fi survival adventure where players explore vast biomes, crossbreed 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 Chasmo Fear, another horror FPS game developed by two brothers in Macedonia under the Misty Dev 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 shadowy 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 timeline has slowed down to a cadence of launching a new DLC every three months compared to two 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 two of a paid DLC, Bob's Tall Tale. Delivering on our commitment to provide players with quality and engaging content, Theme Punk Ascent brings new skins, structures, items, and creatures into the world of ARK. Later this year, we will be releasing ARK Ultimate Survival 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 one of season one and the feedback from our community. As we look forward, we're 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 Heidi to discuss our financial results in more detail. Heidi?

Thank you, Peter. And hello, everyone. Thank you for joining us today. Net revenue for the three months ended September 30th, 2024 was $22.5 million, as compared to $9 million in the three months ended September 30th, 2023. The strong increase in net revenue was primarily due to the release of Aberration and Part 2 of Bob's 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 bail rights sales of $1 million, partially offset by other items outlined in our financial statement. 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 three months ended September 30th, 2024 was $16.1 million as compared to $10.5 million for the three months ended September 30th, 2023. The $5.6 million or 53.6% increase in booking is due mainly to the release of Arch Survival Ascended in the fourth quarter of 2023. The releases of Bob's Tall Tales and 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 three months end of September 30th, 2024, for the release of Aberration and Part 2 of Bob's Tall Tales. Partially offset by the defer of $2.6 million in revenue for sales of ARC Survival Ascended DLCs and the remaining part of Bob's Tall Tales, which have not yet launched. During the three months end of September 30th, 2023, The company also deferred $1.8 million in pre-paid royalties for ARC Survival Ascended and ARC II. 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% 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 nine months and 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?

Thank you. We will now 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. You may press star 2 if you would like to remove your questions from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. As a reminder, please restrict yourself to one question and one follow-up. One moment, please, while we poll for questions. The first question comes from the line of Michael Kupinski with Noble Capital Markets. Please go ahead.

Thank you for taking my questions. 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.

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

Gotcha. 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?

Hey, this is Peter. So, you know, the rights to updates on the animated series belongs to our distribution partner at 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.

Sorry for that.

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

Gotcha. Well, let others ask a question. I'll get back in queue. Thank you.

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