Snail, Inc.

Thank you for standing by and welcome to SNAIL Inc.' 's fourth quarter and full year 2024 earnings conference call and webcast. I would now like to turn the call over to Brett Malote, Managing Director at ICR. Please go ahead.

Thank you. Good afternoon and welcome to SNAIL Inc.' 's fourth quarter and full year 2024 earnings conference call and webcast. On today's call, we have Tony Tan, co-CEO, Peter Kang, Senior Vice President, Director of Business Development Operations, and Heidi Chow, Chief Financial Officer. The company's fourth quarter and full year 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 at www.sec.gov forward slash Edgar. 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 Form 10-K to be followed by the SEC 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 additions 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 referred 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 Tony Tan, Co-Chief Executive Officer of Snail.

Tony?

Good afternoon, everyone, and thank you for joining us today. I'm very excited to share with you our results for the quarter and full year, as well as provide you with some updates with our games portfolio, and specifically our ARK franchise. With the release of Extinction DLC and Part 3 of Bob's Tall Tales DLC for ASA in the fourth quarter, we continue to capitalize on increasing popularity of the franchise. by engaging new players and continuing to excite our existing community through innovative Arc updates and launch within the Arc franchise. 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. Now, I will provide some updates on the Arc franchise. During the first quarter, we released the highly anticipated next-gen Arc mobile game, Arc Ultimate Mobile Edition on iOS and Android platforms. In the December launch month, over 2 million users downloaded the mobile game across the two mobile platforms. Through December 31st, 2024, AUX has been played for 3.9 billion hours with an average playing time per user of 162.1 hours. Additionally, as we highlighted previously, the top 21.3% of all players have spent over 100 hours immersed in the game. according to data from Steam. We are thrilled with the continued success of the ARK franchise and to see so many players entrenched themselves in the ARK universe. Before I hand the call off to Peter and Heidi to discuss our results in more detail, let's quickly go over the financials from the quarter. For the fourth quarter of 2024, Snail generated net revenue of $26.2 million, a decrease from the $28.6 million in the first quarter of 2023. In the first quarter of 2024, net revenue includes the recognition of $8.0 million in revenue from the release of Extinction and Part III of Bob's Tall Tales, arc sales of $15.5 million, and bail rights sales of $1.0 million. Thank you all again for joining. With that, I will now hand the call over to Peter Kang, our Senior Vice President, Director of Business Development and Operations, to review our product roadmap and share some key developments. Peter?

Thank you, Tony. Hello, everyone. Thanks for joining us today. I'd like to provide some updates on each of our core franchises. First, an update on Bellrite. As of the end of 2024, we have sold over 367,000 units to date, and the wishlist count for the game remains over 1 million. Regarding Honeycomb, the world beyond is a survival sandbox game set on an exuberant planet, Soda 7. Explore its vast world and face challenges on your bioengineering journey. Crossbreed plants or animals gather resources, craft items, and conduct experiments in order to develop new species. Honeycomb continues to represent Snail Games' dedication to providing a unique gameplay experience within the survival genre. We're excited to release this game in 2025. Echoes of Elysium is an airship RPG set in the procedural world of Elysium. Gather resources to design, build, and live on your customized airships. Alone or with friends, take to the skies and discover clockwork wonders that clash with ancient mysteries in an untamed paradise. Robots at Midnight bash through gangs of hostile robots and corrupt bosses in this stylish and punchy action RPG. Robots at Midnight is a retro-futuristic souls-like that takes place on Yob, a world now in ruins. Built as a luxury destination, the planet is overrun with dangers, challenging for any human to endure. Be home before midnight. Moving on to our indie publishing label, Wandering Wizard. As mentioned previously, we have expanded our publishing catalog with several games signed earlier this year. The Cecil, The Journey Begins, Chasmo Fear, Castle of Secrets, and Stone Guard. All of these indie titles will be gradually released in our pipeline. At the end of 2024, Wandering Wizard has many game titles at various stages of development and has maintained our commitment to identifying new opportunities that emphasize gameplay excellence and clear market fit. Let's turn now to the ARK franchise. For Ark Survival Ascended, we released the Extinction DLC and part three of the Bob's Tall Tale DLC in the fourth quarter. On the mobile side, we released the highly anticipated revamp of the original Ark mobile game, Ultimate Mobile Edition in December of 2024. Through the year end, Ultimate Mobile Edition has accumulated more than 2 million downloads. Looking ahead to 2025, we are proud to celebrate the launch of the Astreos map as an official partner DLC for Ark Survival Ascended, a significant evolution from its origins as a community-created mob by acclaimed map maker Nekatus. Now fully supported as a paid DLC, The Astreos map enthuses the Ark universe with a rich Greek mythology twist, delivering immersive new environments and challenges that transform the overall gameplay experience. We are excited to announce the 10-year anniversary Ark Survival Evolved Aquatica DLC, a fully underwater gameplay experience. Waking up on Aquatica, a crash-landed Ark submerged with a vast underwater biome, survivors are thrust into exotic challenges never before encountered. Extreme environmental hazards, crushing pressures, rapid currents, and a host of extraordinary creatures await within the mysterious depths. On Aquatica, survivors will uncover the potential source of element and catch a glimpse of what the future holds for those bold enough to endure. Aquatica is the first official DLC to tell a non-canonical mythical story, expanding the Ark universe into new dimensions of survival. We are excited for the next chapter in the Ark universe with the release of Ark Lost Colony DLC for Ark Survival Ascended towards the end of the year. Ark Lost Colony is a full-size canonical expansion pack featuring a new map, creatures, items, structures, and a continuation of the story of ARK. I will now pass the call out to Heidi to discuss our financial results in more detail. Heidi?

Thank you, Peter. And hello, everyone. Thank you for joining us.

As mentioned, net revenue for the three months ended December 31st, 2024 was $26.2 million as compared to $28.6 million in the three months ended December 31st, 2023. The decrease in revenues during the three months ended December 31st, 2024 was due to a reduction in sales of art, that was partially offset by the recognition of deferred revenue upon the release of ARC survival ascendant DLCs noted in our financial statements. Net revenue for the year ended December 31, 2024 was $84.5 million as compared to $60.9 million in the prior year period. The increase in net revenues was due to an increase in recognition of deferred revenue of $32.2 million related to the ARC franchise, an increase in sales bell rise of $5.9 million, partially offset by a decrease in total ARC sales of $13 million, a decrease in ARC mobile sales of $1 million, and a decrease in the company's other titles of $700,000. Net income in the fourth quarter of 2024 was $1.1 million versus $2.4 million in the fourth quarter of 2023. The decrease in net income is a result of increased research and development costs of $3 million to support our future game releases, partially offset by an increase in gross profit of $1.4 million and a decrease in advertising and marketing expenses of $900,000. Net income for the year ended December 31, 2024 increased significantly to $1.8 million versus a net loss of $9.1 million in the prior year period due to an increase in net revenue of $23.6 million. Decreased general and administrative expenses of $2.9 million, partially offset by increased research and development costs of $6.5 million, increased cost of revenue of $5.9 million, and a decrease in income tax benefit of $3 million. Booking for the three months ended December 31st, 2024 was 17 million as compared to 52.6 million for the three months ended December 31st, 2023. The decrease in booking is due mainly to the release of ARC Survival Ascendant in the fourth quarter of 2023. Bookings for the year ended December 31, 2024 was $75.7 million as compared to $85.7 million in the prior year period. Bookings decreased by $10 million or 11.7% compared to the year ended December 31, 2023 because of increased sales at a higher ASP driven by the release of Arch Survival Ascended in the fourth quarter of 2023. The releases of Box Tartels and Bellrite along with the Arch Survival Ascended DLC Scorch Earth in April 2024, Aberration in September 2024, and Extinction in December 2024 partially offset the decrease in unit sales in 2024 but each product released was at a lower ASP than the initial release of Ark Survival Ascendant. Additionally, the company recognized $13.2 million from deferred revenue upon the release of Scorched Earth, Aberration, and the first two parts of Bob's Towel Tale in 2024, and deferred $6.7 million in revenues during the year ended December 31st, 2024 for the ARC Survival Ascended DLCs have not yet released as compared to $22 million in revenue deferred during the year ended December 31st, 2023 for the ARC Survival Ascended DLC and parts of Bob's Tall Tales that have not yet launched. EBITDA for the quarter was $1.6 million versus $3.6 million in the prior year period. The $2.055.6% decrease in EBITDA was due to a decrease in net income of $1.3 million, a decrease in interest expenses and interest expenses related party of $400,000, and a decrease in provision of income taxes of $300,000. EBITDA for the year was $3.2 million versus a loss of $9.7 million in the prior year period. The $12.9 million or 133.4% increase in EBITDA was primarily because of an increase in net income of $10.9 million and a decrease in the benefit from income taxes of $3 million. partially offset by decreasing interest expense and interest expense-related party of $800,000. As of December 31, 2024, unrestricted cash and cash equivalent was $7.3 million. To review our detailed financial statements, please refer to the earnings press release of most recent 10-Q and our 10-K filing.

Thank you all for joining us today. We will not open the line for Q&A. Operator?

Thank you. We'll 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 to remove your question from the queue.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Our first question is from Michael Kapinski with Noble Capital Markets.

Please proceed with your question.

Thank you, and congratulations on a solid quarter. I have a couple of questions. When do you anticipate Bellwright would be available on Xbox, and then how many new games do you have access to Bellwright, or how many new gamers will have access to Bellwright on Xbox? And could you just talk a little bit about whether or not it would be a good candidate for Game Pass?

Hi, this is Peter Kang. I'm going to try to give some answers to this question. We do anticipate Bellwright to be available on the Xbox platform in Q4 of 2025. As far as how many new gamers, well, that's hard to say. There's lots of console gamers out there that enjoy the survival simulation crafting type of gameplay. We do believe it is a unique product in that catalog. There's not too many of those types of games on that platform. If I were to have to guess, it might be at least as much as we have on PC over time. As far as if it would be a good candidate for the Game Pass program, you know, that's up to Microsoft to consider. We do have communications open with their team regarding that subject. So, you know, hopefully that question can get answered in the future. But as of right now, we don't have a definite confirmation.

Thank you. And another question. I know that the several gaming companies in the past have gotten into a little bit of trouble as they tried to develop more games and then just kind of ran out of resources. I know that you have a different process for that. And I was wondering if you can Kind of describe that a little bit and then also discuss some of your newer titles, potential release timelines, and also the benefits of doing some revenue diversification.

Sure, sure. That's a very complicated question, but I'll do my best to break it down. So we definitely have increased our licensing pipeline where last year we went out and signed 11 new publishing deals to publish content manufactured and developed by third parties. We also kicked off or continued development of three internal projects. These projects are bigger in scale, using some with new IPs, like the project for the stars, and some with flagship IPs that we have retained for many years, named 9Yen Sutra. I believe, right. And then as we move on, we're constantly looking for new projects to publish. So we're very active in the sector looking for different projects to publish. The projects that we have signed, Honeycomb, for example, that is coming out on the second half of 2025. Eccles of Elysium, another sandbox survival game that will also be arriving second half of 2025. Robots at Midnight is going to be the first half of 2025, so coming up here in a few months.

And then how do you allocate your resources among, you know, the marketing spend against, you know, some of the titles and how do you allocate those resources?

Sure. Resource allocation is namely based on an analytical approach where we look at the size of the market that the game will be actively trying to establish a presence in. And based on the size of that market, we do some math and we deduce the correct amount of marketing budget that we can afford to spend on the project.

Great. That's all I have. Thank you. Thank you. There are no further questions at this time. I'd like to hand the floor back over to management for any closing remarks. This concludes today's conference. You may disconnect your line at this time. Thank you for your participation.