Root Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 13, 2024

There are 6 speakers on the call.

Operator

Thank you for standing by, and welcome to Nail Inc. 2nd Quarter 20 24 Earnings Conference Call and Webcast. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded.

Operator

I would now like to turn the call over to Brett Millott, Senior Vice President at ICR. Please go ahead.

Speaker 1

Thank you. Good afternoon, and welcome to Snail's Q2 2024 earnings conference call and webcast. On today's call are Tony Tan, Snail's Co Chief Executive Officer Peter Tang, Chief Operating Officer and Hai Yi Chao, Chief Financial Officer. The company's Q2 2024 earnings press release was filed today with the SEC after the U. S.

Speaker 1

Stock markets closed and is available on the Investor Relations section of Snail'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. Please refer to the company's most recent Form 10 Q that was filed today with the SEC, the most recent Form 10 ks 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 statement is based.

Speaker 1

Additionally, 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 Heidi. Heidi?

Speaker 2

Good afternoon, everyone, and thank you for joining us today. I'm very excited to share with you our strong results this quarter. As we mentioned on our last quarter's conference call, now both an incredibly passionate and skilled team equipped with state of art technology and premier franchises such as ARK, which have nurtured, engaged and committed gaming communities. We plan to continue to expand the horizon of what is achievable in the realm of interactive entertainment, delighting our players across the globe. As we look to the future, I'm particularly excited about our plans to further leverage artificial intelligence across our development pipeline.

Speaker 2

The advanced AI technology in which we have been investing hold immersed potential to enhance our creativity and productivity, all while maintaining the premium quality that our players have come to expect. Our objective is to empower our talented human teams by providing them with these powerful AI tools rather than attempting to replace them. Additionally, we are eager to capitalize on the widespread attention that our ARC animated series is receiving due to the upcoming second half of the series first season. With the gaming world's eye focus on the beloved franchise, we have a prime opportunity to engage new players and further energize our existing community of dedicated art fans. We have developed ambitious plans to expand the art universe in ways that will delight both our long standing players and new commerce alike.

Speaker 2

With that, let's quickly review the quarters in numbers. Our R franchise continued to be an incredible success story. Through June 30, 2024, ART has been played for 3,700,000,000 hours with an average playing time per user of 161 hours. Additionally, as we highlighted last quarter, the top 21% of all player have spent over 100 hours inverts in the game according to data from Steam. For the Q2 of 2024, Nel generated net revenue of $21,600,000 up significantly from $9,900,000 in the Q2 of 2023.

Speaker 2

Net income in the Q2 of 2024 was $2,300,000 versus other net loss of $4,100,000 in the Q2 of 2023, primarily driven by the successful launch of new survival game, Belry, new DLC for Ark Survival Ascended. The Power Ranger premium model and revenue recognition for the release of the Scorched Earth DLC on Ark Survival Ascended. I will now hand the call over to Peter Kam, our Chief Operating Officer, to review our product roadmap and share some key developments.

Speaker 3

Hello, everyone. In the Q2 of 2024, Donkey Crew released the survival simulation titled Bell Rights into early access on Steam to rave reviews. With over 77% of the reviews giving a positive score and the overall review score on Steam being mostly positive, we have sold over 300,000 units and the wish list count for the game hovers around 900,000. We plan to continue to add content to the game and fulfill our vision for the product to set new heights of expectations for a game in this genre. We look forward to a large content update in Q4 of 2024, which will be very exciting for fans and wish list holders of the title.

Speaker 3

Additionally, our indie publishing label, Wondering Wizard, is pushing ahead full steam with our plans to expand our publishing catalog. We have signed 2 additional games in Q2 of 2024 to be released at the end of 2024 and beginning of 2025. The first project is titled 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 named Chasm of Fear, another horror FPS game developed by 2 Brothers in Macedonia under the Misty Dove banner. With plans to add 8 more titles to our upcoming slate by the end of 2024, Wandering Wizard continues to seek out new projects with a focus on quality gameplay and a defined market.

Speaker 3

Internally at Snail Games USA, we have 5 projects in development. On August 15, Project Hermes will unveil a first peek at pre rendered footage and we will be unveiling the project's commercial title in a first look developer interview with game director Primus Majda. Next, we have Project Aether and Project Ares. Both will be projects set in Eastern Fantasy. These two projects will be familiar to fans of SNL Games as they will tap into one of our well known original IPs.

Speaker 3

Project Aether will be a multiplayer experience, while Project Ares will gravitate with those seeking an AAA Eastern Fantasy RPG experience. We also have Project Poseidon, which will be very exciting for fans of SNL Games as it will be set in the franchise that is very familiar to our audience. Last but not least is Project Dionysus, which is the new IP we are very excited about. Project Dionysus will explore a unique genre of games that is emerging in popularity. More information will be released about these projects in development as they become ready for our fans.

Speaker 3

Keep an eye out on our news feed for updates. Turning to Ark Survival Ascended, the development timeline has settled down into a cadence of a new DLC every 3 months. This is up on the previously stated 2 months as we define in more detail the amount of content we want to present in each DLC. We're looking forward to assets content catching up to that of ARK: Survival Evolved and hope to be presenting new content in the future. Regarding ARK 2, the development is still ongoing and we will be releasing news about the project as soon as more information becomes available.

Speaker 3

Lastly, ARK, the animated series is looking forward to the release of the 2nd part of Season 1. With episodes 7 through 13 on the slate, fans of the ARK franchise can look forward to more dino battles as the storyline continues development. I will now pass the call off to Heidi to discuss our financial results in more detail. Heidi?

Speaker 2

Thank you, Peter. As mentioned, net revenue for the 3 months ended June 30, 2024 was $21,600,000 as compared to $9,900,000 in the 3 months ended June 30, 2023. Similar to Q1, the strong increase in net revenues was primarily due to the release of ARC: Survival Ascended on October 25, 2023. As a reminder, to properly account for revenues from sales, Nao must recognize revenue over time rather than all at once. This involves estimating when we will deliver the full game experience to customers through the transfer of the game license, downloadable content, technical support obligation and how long we estimate that player will be engaged with our game.

Speaker 2

The timing of future game updates and content releases is based on projection of when our developer will hit certain milestone. However, those estimate can change if developer meet unexpected delays or if the game platform requirements shift unexpectedly. Essentially, public accounting for our game revenue over time involve making projections that are subject to change based on development milestones. The estimated services period of our virtual goods and market conditions, this can affect the timing of our revenue recognition each period and can cause the deferral of significant revenues into future quarters. With that in mind, let's get into some of our other results.

Speaker 2

Net income for the 3 months ended June 30, 2024 was $2,300,000 compared to a net loss of $4,100,000 for the 3 months ended June 30, 2023. This improvement in net income was driven by increased revenues and continued cost cutting effort in our general and administrative operating expenses. So things for the 3 months ended June 30, 2024 were $22,900,000 as compared to $9,300,000 for the 3 months ended June 30, 2023. The $13,600,000 or 146.7 percent increase in revenue is due mainly to the release of ARC: Survival Ascended in the 4th quarter of 2023, as well as the release of Bob's Tall Tales and Bell Ride along with the ARK: Survival Ascended DLC, Forged Earth in April 2024. In addition to the increased sales of the aforementioned titles, the company deferred approximately $7,100,000 in revenue during the 3 months ended June 30, 2024 for the Ark Survival of Extended DLCs and part of the Boss Tall Tales, which have not yet been released, partially offset by the recognition of $5,600,000 for the release of Scorched Earth.

Speaker 2

Earnings before interest, taxes, depreciation and amortization was $3,100,000 versus a loss of $4,800,000 in the prior year period. A significant increase in EBITDA was due to an increase in net income of $6,400,000 and an increase in the company's tax provision for the income taxes of 1,700,000 dollars As of June 30, 2024, unrestricted cash and cash equivalents was $15,500,000 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 for joining us today, everyone. We will now open the call to questions. Operator?

Operator

Thank you. We will now begin the question and answer session. The first question comes from Pat McCan with Noble Capital Markets. Please go ahead.

Speaker 4

Good afternoon and thanks for taking my questions. My first question is has to do with the Ark Survival Ascended adoption. As I think you've mentioned before, there were some technological disconnects between the potential user base of ASA and the game based on the processing power that's necessary to run such a complex game on Unreal Engine 5. I was wondering, could you provide an update to how the adoption of that game is trending? And have there been any changes to your expectations for the adoption period for that game as far as the quarters going out several quarters and the adoption period maybe taking a little longer than originally expected because some users don't have the high end PC.

Speaker 4

How is that going? Is that going as expected or any changes there?

Speaker 5

Hi, this is Peter King. I'll be answering this question. Great question. I believe last time when I spoke on this topic, it was regarding the technological adoption rate. There's another factor of that also contributes to adoption rate and that is the catch up of content from ARC, Survival Evolved to ARC Ascended.

Speaker 5

So as we release more DLCs in ARC Ascended, the adoption rate, we certainly do see an increase. We know this by the average concurrent users on both games. We slowly see the amount of Ark Survival Ascended increasing while ARC Survival Evolve is decreasing at a similar rate. As far as technologically, the case with the graphic cards, well, that factor is contributed and compounded also by the adoption of AI and the usage of these same graphics cards keeping the price high. So we do have hurdles, but in order for us to overcome this, we have also started some development projects that will alleviate this concern by adding more content over time to Arc's survival default.

Speaker 4

Great. Thanks. Thanks for that. And then my other question or my next question, I guess I should say, was just if we could piggyback on that question with the technological gap. Would it be fair to look at the launch of ARC2, which of course you haven't stated exactly when that will happen, but out in the future, would it be fair to sort of look at the ASA adoption rate and crossing that technological barrier as kind of a leading indicator for the timing of ARC-two since you sort of have to cross that, you might want to cross that barrier first before you launch the next big launch?

Speaker 4

Absolutely. And that's

Speaker 5

a very astute point of view to notice. We are using ARC ascended as an indicator on mass adoption for Unreal 5 game engine on a multiplayer gameplay. So yes, you're absolutely right. Once we see that the mass market is ready to accept that Unreal Engine 5 in a multiplayer environment, able to process with the right computing power that will give us the right market window to launch ARP 2.

Speaker 4

Great. And if I could squeeze in one more, I was just wondering if you could give any update on how the modding program is going. Is word of that spreading? And on the other hand, has there been any pushback from users who don't want to pay for mods and that sort of thing? How is the community accepting the program?

Speaker 5

The program is being very well received. Our partners at Overwolf, who are handling the curation of the mods have reported nothing but great things about the success of our program. Recently, we've launched a Power Rangers mod through the program, which was 100% contributed by a third party studio, and this mod performed exceptionally. As we're launching our programs, we have seen other games also launch similar pay for modding programs and the other titles have not received the amount of support that we have from our community. We have received no lash back, no negative reviews about our ecosystem and allowing content creators to generate revenue from the modding program whereas the approaches from other competitors have received backlash due to their approach being significantly different from ours.

Speaker 4

Great. Much appreciated. Thanks so much for answering the questions.

Operator

This concludes our question and answer session and today's conference call. Thank you for attending today's presentation. You may now disconnect your

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