Snail Q3 2023 Earnings Call Transcript

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November 14, 2023

There are 6 speakers on the call.

Operator

Thank you for standing by, and welcome to Snail Inc. 3rd 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.

Speaker 1

Thank you. Good afternoon and welcome to Snail Inc. Q3 2023 earnings conference call and webcast. On today's call are Jin Tsai, Snail's Chief Executive Officer and Heidi Chow, Snail's Chief Financial Officer. By now, everyone should have access to the company's Q3 2023 earnings press release filed today after market close.

Speaker 1

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 10 Q, 10 ks and other SEC filings. The company makes these forward looking statements as of today and disclaims any duty to update them.

Speaker 1

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.

Speaker 2

Thank you, Jake, and hello, everyone. It's a pleasure to speak with you about our Q3 results. About 2 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.

Speaker 2

During the 1st 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: Devolved launch. For the same 10 day period, ARP. 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 ARP. Survival Evolved launch, the increased daily active user reflects our commitment to creating an enjoyable experience for our player base. All in addition to units sold and daily active user, we are seeing tremendous excitement and commitment in our player base.

Speaker 2

ARK Survival Ascended players have amassed over 14,800,000 hours of play time 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 ARP player base. We know we have a passionate and excited fan base. Our fans have been playing ARC for 8 years and now they can enjoy a fully reimagined version using the next generation of video game technology with Unreal Engine 5.

Speaker 2

We are excited about the upcoming release of the ARC Survival Ascended Xbox version and the PlayStation version with cross platform play with Steam on day 1. ARK 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 Arc Survival Evolved is active and we look forward to transitioning those players to experience the new reimagined version of Arc.

Speaker 2

I will now hand it over to Heidi to review our financial highlights from the quarter.

Speaker 3

Thank you, Jim. Hello, everyone, and thank you for joining our Q3 call. Net revenues for the 3 months ended September 30, 2023 was $9,000,000 compared to $15,600,000 for the 3 months ended September 30, 2022. The decrease in net revenue was due to a one time contract revenue payment recognized from deferred revenue for a free week promotion in the amount of $4,000,000 that occurred in the 3 months 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 $2,000,000 Sales of the company's smaller title decreased by a collective of $400,000 Net loss was $4,400,000 for the 3 months ended September 30, 2023, as compared to a net loss of $1,500,000 for the 3 months ended September 30, 2022.

Speaker 3

The decrease was primarily due to a decrease in revenue of $6,600,000 an increase in research and development expenses of $1,200,000 dollars 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 dollars a decrease in license costs and license rate amortization of $1,700,000 a decrease in merchant and agency of $500,000 a decrease in general and administrative expenses of $1,000,000 increase in other income of $300,000 and a decrease in the company's tax provision of 800,000 dollars 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 3 months ended September 30, 2023, bookings were $10,500,000 compared to $11,300,000 in the same 3 months period of prior year. For the 3 months ended September 30, 2023, EBITDA was a loss of $5,100,000 versus a loss of $1,500,000 in the same 3 months period of the prior year. This is mainly due to the decrease in revenue.

Speaker 3

As of September 30, 2023, our unrestricted cash was $4,900,000 versus $12,900,000 as of December 31, 2022. To review our detailed financial statement, please refer to the earnings press release, our most recent 10 Q and our 10 ks filings. Thank you for joining us today. And now we are ready for our first you. Your first question comes from the

Operator

line of Pat McCahon from NOBLE Capital Markets. Please go ahead.

Speaker 4

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 Arc Survival Ascended versus the price point that ARK Survival Evolved has 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?

Speaker 3

Thank you, Paul. I'll pass the first question to Peter.

Speaker 5

Hey, this is Peter. So, 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 in time to the Ark Ascended version. So it's a one large package price for all of the content previously released on Arca ascended, I mean Arca survival evolved.

Speaker 4

Got you. Okay. And then what is what sort of the average price for Survival Evolved around at this point?

Speaker 5

I believe Ark Survival Evolved is set at, I think, dollars 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.

Speaker 4

Got you. Thanks. And then my next question was just how you guys view the early success of Survival Evolved or of Survival Ascended, I'm sorry, As an indicator for the demand for ARC2, has it changed sort of your expectations for ARC2 in 2024 given just how strong a launch you've just had?

Speaker 5

Well, the results we're seeing is definitely positive in our eyes as we look forward and see how the IP of market itself is continuing to grow a new user base past 7 or 8 years here now. It's definitely a positive thing for us to see the amount of attention the IP is receiving. Arc2 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 our Unreal 5.

Speaker 4

Got you. And if I may just squeeze in a couple more. I'm wondering about the bridge loan with Naturado and if that if everything if that is sort of the loop has sort of been closed on that with the revenue shares from Survival Ascended. And if so, just to clarify, going forward, the only lingering commitment there is just for Naturado to be the sole server provider for the Arc franchise going forward for 7 years? There's nothing really else, other component to that that I'm missing?

Speaker 3

Good question, Pat. This is Heidi. Actually within the trial, what we have is the loan is more of an operational loan, is not a what we have is it is a separate transaction. And the official server, we're doing official server as Nutrado. However, for other user base for any of the unofficial server, it is not exclusive and to Nutrado.

Speaker 3

So they are different.

Speaker 4

Okay. And then is the did the Nutrado I think it was roughly $4,000,000 Is that paid off at this point after the launch?

Speaker 3

Our plan is to pay it off. So basically is the payment terms is depends on our future cash flow. And so it's not a revenue sharing, but the payment will be coming out 1 month. Okay. Right.

Speaker 3

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.

Speaker 4

Got you. Okay. Okay, great. Okay, yes. With that, I will that's all I have for now, but thank you.

Speaker 4

And again, congratulations on a strong start for Survival Ascended.

Speaker 3

Thank you.

Operator

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

Operator

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

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