Snail Inc. Q1 2023 Earnings Call
Speaker 1: It F that.
Speaker 1: I.
Operator: Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Snail, Inc. Q1 2023 Earnings Call. At this time, all participants are in listen only mode. A question and answer session will follow the formal presentation. Should you require operator assistance during the conference, please press star zero to signal an operator. Please note this conference is being recorded. I will now turn the conference over to your host, Jake Pisano with ICR. Thank you. You may begin.
Speaker 2: Good afternoon, ladies and gentlemen, and thank you for standing by.
Speaker 2: Welcome to the snail corporation first quarter 2023 earnings call. At this time, all participants aren't elicit only mode. A question and answer session will follow the formal presentation. Should you require operator assistance during the conference, please press star zero to signal operator. Please note this conference is being recorded.
Jake Pisano: Thank you. Good afternoon, welcome to Snail, Inc.'s Q1 2023 Earnings Conference Call and Webcast. On today's call are Jim Tsai, Snail's Chief Executive Officer, and Heidy Chow, Snail's Chief Financial Officer. By now, everyone should have access to the company's Q1 2023 earnings press release filed today after market close. This is also available on the investor relations section of Snail, Inc.'s website at www.snail.com. During this call, management may make forward-looking statements within the meaning of federal securities laws. These forward-looking statements are subject to the risks and uncertainties as described in the company's press release and other filings with the SEC. On today's call, we will refer to bookings and EBITDA, which are non-GAAP financial measures that provide useful information for our investors.
Speaker 2: I will now turn the conference over to your host, Jake Pisano with ICR. Thank you, you may begin.
Speaker 3: Thank you. Good afternoon and welcome to snail angst first quarter 2023 earnings conference call and webcast.
Speaker 3: 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 first quarter 2023 earnings press release filed today after market close.
Speaker 3: This is also available on the investor relations section of Snail Inc.'s website at www.snail.com.
Speaker 3: During this call, management may make forward-looking statements within the meaning of federal securities laws. These forward-looking statements are subject to the risks and uncertainties as described in the company's press release and other filings with the SEC.
Speaker 3: On today's call, we will refer to bookings and EBITDA, which are non-GAAP financial measures that provide useful information for our investors.
Jake Pisano: You will find a historical reconciliation of bookings and EBITDA to the corresponding GAAP measures in the earnings press release in the company's SEC filings. Now I would like to turn the call over to Jim. Jim?
Speaker 3: You will find a historical reconciliation of bookings in Ibadah to the corresponding GAAP measures in the earnings press release and the company's SEC filings. And now I would like to turn the call over to Jim. Jim. Thank you and hello everyone.
Jim Tsai: Thank you. Hello, everyone. It is a pleasure to speak with you on our Q1 2023 results. The beginning of the year continues to show strong engagement for our products with continued growth of our user base. During the 3 months ended 31 March 2023, we saw 1.7 million units compared to 1.3 million units in the prior year period. Our video games continue to provide highly engaging, differentiated entertainment experience that provide a combination of challenge to progress and grow players' engagement. In Q1 2023, we saw playtime on our ARK series of games increase to 106.5 million hours versus 25.1 million hours in the prior year period. The increase on playing time is mainly due to our larger player base, a result of the many promotions ran over the previous 15 months.
Speaker 4: It is a pleasure to speak with you on our first quarter 2023 results.
Speaker 4: The beginning of the year continues to show strong engagement for our products with continued growth of our user base.
Speaker 4: During the three months ended March 31st, 2023, we saw 1.7 million units compared to 1.3 million units in the prior year period.
Speaker 4: Our video games continue to provide highly engaging, differentiated, entertainment experience that provide a combination of challenge to progress and grow player engagement. In Q1 of 2023, we saw playtime on our Aksyrias
Jim Tsai: Through 31 March 2023, our ARK franchise game had been played for a total of 3.2 billion hours within average playing time per user of more than 160 hours, and with the top 25% of all players spending over 100 hours in the game, according to data related to the Steam platform. As you all know, the gaming industry is rapidly evolving. We have had the difficult decision to delay the release of ARK 2. We want to ensure that ARK 2 lives up to our fans' high expectations, and we believe that the extra time will allow our team to create an even more captivating and engaging gaming experience. We are in constant communication with the developer to ensure milestones are met against the new timeline. You can expect ARK 2 in 2024.
Speaker 4: player base a result of the many promotions ran over the previous 15 months.
Speaker 4: Through March 31, 2023, our art franchise game had been played for a total of 3.2 billion hours within average playing time per user of more than 160 hours and with the top.
Speaker 4: 20 white percent of all players spending over 100 hours in the game.
Speaker 4: According to data related to the Steam platform, as you all know, the gaming industry is rapidly evolving. We have had the difficult decision to delay the release of Oc2. We want to ensure that Oc2 lifts up to our fans high-end, low-end, and low-end devices.
Speaker 4: We believe that the extra time will allow our team to create an even more captivating and engaging gaming experience. We are in constant communication with the developer to ensure milestone is made against the new timeline. You can expect up to in 2024 the extra time will allow us to do.
Jim Tsai: The extra time will allow us to deliver a AAA title that our fans will enjoy and love. During this time, we have decided to remaster the original ARK: Survival Evolved game using the Unreal Engine 5. This decision was based on the unparalleled potential of this cutting-edge technology, which would enable us to provide our players with a more immersive, realistic, and enjoyable gaming experience. The Unreal Engine 5 offers several advanced features, such as real-time ray tracing, dynamic global illumination, and the Nanite virtualized geometry system. These features will allow us to bring the ARK: Survival Evolved world to life like never before with the stunning visuals, enhanced performance, and smooth gameplay. We understand that this decision may come as a surprise, especially with the anticipation surrounding the release of ARK 2.
Speaker 4: gaming experience. The Unreal Engine 5 offers several advanced features such as real-time ray tracing, dynamic global illumination, and the Nanite virtualized geometry system.
Speaker 4: These features will allow us to bring the app survival world to life like never before with the stunning visuals, enhanced performance, and smooth gameplay. We understand that this decision may come as a surprise, especially with the anticipation surrounding the release of app 2.
Jim Tsai: However, we believe that the remastered version of the original ARK Survival game will provide an incredible experience for both our new and existing players, laying the foundation for the strong and successful ARK 2 launch. In conclusion, we are confident that remastering ARK Survival with the Unreal Engine 5 will bring unprecedented value to our players and set a new benchmark for the gaming industry. We appreciate your understanding and support as we work towards delivering unforgettable ARK Survival experience and the outstanding ARK 2. We are thrilled to announce that in addition to ARK Survival Ascended DLC, our team is currently working on multiple new DLC for the ARK franchise. These coming DLCs would offer a variety of unique experience, challenges, and environments, expanding the ARK universe and keeping our player engaged.
Speaker 4: However, we believe that the remastered version of the original Op. Survival game will provide an incredible experience for both our new and existing players, laying the foundation for the strong and successful Op. 2 launch. In conclusion, we are confident that remastering Op. Survival will be a great opportunity for players to learn and play.
Speaker 4: with the Unreal Engine 5 will bring unprecedented value to our players and set a new benchmark for the gaming industry. We appreciate your understanding and support as we work towards delivering unforgettable off-survival experience and outstanding up to.
Speaker 4: We are thrilled to announce that in addition to our survival extended DLC our team is currently working on multiple new DLC for the up franchise
Speaker 4: This coming DLCs would offer a variety of unique experience and challenges and environments expanding the art universe and keeping our player engaged.
Jim Tsai: While we cannot reveal specific details about these upcoming DLCs at this time, we can assure you that our team is dedicated to delivering captivating content that push the boundaries of the ARK experience. We are confident that our players will be thrilled with the new adventures and challenges that await them in these new forthcoming expansions. The development of this new DLC is part of our ongoing commitment to provide our players with fresh, engaging content. We believe that the combination of the remaster ARK: Survival Ascended, the upcoming DLC, and the continued development of the ARK 2 will offer an exceptional gaming experience that sets a new benchmark for the industry. I will now hand it over to Heidy to review the financial highlights from the quarter.
Speaker 4: While we cannot review specific details about this upcoming DOC's at this time, we can assure you that our team is dedicated to delivering captivating content that pushed the boundaries of the off-expired.
Speaker 4: and challenges that weigh them in this new, forthcoming expansions.
Speaker 4: flash, engaging content, we believe that the combination of the remaster of the Bible Assended, the upcoming DOC and the continued development of the Act II will offer an exceptional gaming experience that sets a new benchmark for the industry. I will now...
Heidy Chow: Thank you. Hello, everyone, and thank you for joining Q1 2023 call. Revenue for the three months ended 31 March 2023 was $13.5 million, a decrease of $14.6 million or 52% compared to the three months ended 31 March 2022. The decrease in net revenue was due to the decrease in sales of ARK, attributed to a decrease in the average sales price per unit, additional deferred revenue, and a one-time payment related to contracts with certain platforms. ARK sales decreased by $3.1 million. Deferred revenue from contracts decreased by $2.5 million. One-off payment decreased by $8.5 million. Sales of the smaller titles decreased by a collective $700,000. These decreases in the company's smaller title were partially offset by an increase of $200,000 in revenue related to West Hunt.
Speaker 4: hand it over to Heidi to review the financial highlights from the quarter.
Speaker 4: over to Heidi to review the financial highlights from the quarter. Thank you.
Speaker 5: 31, 2023 was 13.5 million, a decrease of 14.6 million or 52% compared to the three months and March 31, 2022.
Speaker 5: in the average sales price per unit.
Speaker 5: Additionally, deferred revenue and one-time payment related to contracts with certain platforms.
Speaker 5: Arc sales decreased by 3.1 million.
Speaker 5: Deferred revenue from contrast decreased by $2.5 million and one off-payment decreased by $8.5 million.
Speaker 5: Sales of the smaller titles decreased by a collective 700,000.
Speaker 5: These decreases in the company's smaller title were partially upset by an increase of $200,000 in revenue related to West Hunt. Net loss was $3 million for the three months ended March 31, 2023 as compared to a net income of $2 million.
Heidy Chow: Net loss was $3 million for the three months ended 31 March 2023, as compared to a net income of $5.8 million for the three months ended 31 March 2022, representing a decrease of $8.8 million. The decrease was primarily due to a decrease in revenue of $14.6 million, an increase in research and development expenses of $1.2 million, a net decrease in interest income related party of $500,000, an increase in interest expense of $100,000, offset by a decrease in royalties of $3.2 million, a decrease in license cost and license right amortization of $1.3 million, a decrease in merchant and engine fees of $500,000, and a decrease in the company's tax provision of $2.3 million. We present bookings and EBITDA because they are key operating measures used by our management to assess our financial performance.
Speaker 5: of $5.8 million for the three months ended March 31, 2022.
Speaker 5: Representing a decrease of 8.8 million.
Speaker 5: The decrease was primarily due to a decrease in revenue of $14.6 million.
Speaker 5: An increase in research and development expenses of 1.2 million can let decrease in interest income related to 500,000.
Speaker 5: An increasing interest expense of 100,000 of set by a decrease in royalties of 3.2 million.
Speaker 5: A decrease in license cost and license right amortization of 1.3 million.
Speaker 5: a decrease in merchant and engine fees of $500,000.
Speaker 5: and a decrease in the company's tax provision of 2.3 million.
Speaker 5: We present bookings and EBITDA because they are key operating measures.
Heidy Chow: Bookings adjusts for the impact of deferral, and we believe provides a useful indicator of sales in a given period. For the three months ended 31 March 2023, bookings decreased by 48% to $13.3 million compared to the same three-month period of the prior year, primarily as a result of a decline in ARK-related revenues. For the three months ended 31 March 2023, EBITDA was a loss of $3.4 million versus a gain of $7.3 million in the same three-month period of the prior year. This is mainly due to the decrease in revenue. As of 31 March 2023, our unrestricted cash was $4.1 million versus $12.9 million as of 31 December 2022. To review our detailed financial statements, please refer to our earnings press release and 10-Q filing. Thank you for joining us today, and now let's go to the questions. Operator.
Speaker 5: used by our management to assess our financial performance. Bookings adjust for the impact of deferral, and we believe provides a useful indicator of sales in a given period.
Speaker 5: For the three months ended March 31st, 2023, bookings decreased by 48% to 13.3 million.
Speaker 5: compared to the same three-month period of the prior year, primarily as a result of a decline in ARK-related revenue. For the three months ended March 31, 2023, EBITDA was a loss of $3.4 million versus a gain of $7.3 million in the same three-month period of the prior year.
Speaker 5: This is mainly due to the decrease in revenue.
Speaker 5: 1 million versus 12.9 million as of December 31, 2022.
Speaker 5: To review our detailed financial statements, please refer to the earnings press release and 10-Q filing. Thank you for joining us today, and now let's go to the questions.
Operator: Thank you. At this time, we will 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. If you wish to remove your question from the queue, please press star two. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Our first question is from Pat McCann with Noble Capital.
Speaker 2: Operator. Thank you. At this time, we will 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. If you wish to remove your question from the queue, please press star 2.
Speaker 2: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions.
Patrick McCann: Hey, thanks for taking my questions. My first question has to do with the ARK sales in the quarter. Can you speak to the sale price or discounts offered on the ARK units that were sold in Q1 relative to the prior year period? I guess I'm thinking that with game prices tending to decline as the game ages, I'm wondering where the revenue per unit is shaping up so far this year relative to 2022.
Speaker 2: Our first question is from Pat McCann with Noble Capital.
Speaker 6: Hey, thanks for taking my questions. My first question has to do with the ARC sales in the quarter. Can you speak to the sale price or discounts offered on the ARC units that were sold in Q1 relative to the prior year period?
Speaker 6: I guess I'm thinking that with game prices tending to decline as the game ages, I'm wondering kind of where the revenue per unit is shaping up so far this year relative to 2022.
Heidy Chow: Hi, Pat. This is Heidy. Great question. Actually, in Q1 of 2023, we did do a sale, and we marked down our selling price for the base game somewhere around a 30% discount, and offer to our players.
Speaker 5: Hi Pat. This is Heidi. Great question. Actually in Q1 of 2023 we did do a sale and we marked down our selling price for the base game somewhere around a 30% discount and it offered to our band.
Patrick McCann: Gotcha. Thanks. My next question was about Survival Ascended. Can you just sort of gauge the excitement level in the gaming community for that? Maybe to break it down a little further, what is the interest level that you would expect from gamers who had previously purchased ARK: Survival Evolved? To what extent do the improvements offered through Unreal Engine 5, to what extent do those really move the needle for gamers to want to come back and buy Survival Ascended even with ARK 2 coming next year? Yeah, that question.
Speaker 7: players
Speaker 6: the game. Um. Gotcha. Thanks. Um my next question was about survival ascended. Um can you can you just sort of gauge the excitement level and the gaming community for that and maybe to break it down a little further. Uh you know what? What is the
Speaker 6: ARC 2 coming next year.
Speaker 6: coming next year? Yeah, that's that question.
Jim Tsai: Thank you. Hi, this is Jim. I think right now the review and the community is actually a bit mixed. I would say originally, the original expectation was as an upgrade from the original ARK: Survival Evolved and all the DLC. Upgrade, meaning the definition of all the new maps and new feature as a new DLC, as a paid DLC or non-paid DLC as an upgrade. This remaster, Unreal 5, is completely different version of it. I think a comparison to the current market, for instance, that there was Uncharted, a different game, or The Last of Us. They have remastered and repackaging in retail and selling with the same price. You can expect this is a completely different version of the ARK, and it's almost like from PS4 and become a PS5 version.
Speaker 4: Jim I think right now the review and the community is actually a bit next I would say originally the original.
Speaker 4: expectation was as an upgrade from the original App Survival Evolved and all the DLC. So, upgrades meaning the definition of all the new maps and new features as a new DLC, as a paid DLC or non-paid DLC.
Speaker 4: a different game, all the Last of Us. They have remastered and repackaged in retail and selling with the same price. So you can expect this is a completely different version of the art.
Jim Tsai: It's a new content, and the ARK: Survival Ascended is not just the master game, but also all the DLC all together. Expected to enjoy the mass quantity and also the quality that is on the Ascended. With the updated information that been released, I think we can certain of the support from the core fans. They think this is going to be fantastic and very excited of the Ascended to be released.
Speaker 4: and It's almost like you from ps4 and become a ps5 version but it's a new content and it's the And the our survival ascendant is not just the the master game, but also all the DLC all together
Speaker 4: So, expected to enjoy the mass quantity and also the quality that is on the assent. And with the updated information that's been released, I think we gain certain of the support from the core friends. They think this is done.
Patrick McCann: Okay, thanks. My last question was regarding just your pipeline. If you could give any updates on any news on ARK, the animated series, and when that might be getting released? If there are any details you can give at this time about sort of the timeline for your DLC releases here in 2023 and between now and when ARK 2 releases?
Speaker 6: going to be fantastic and very excited of the Ascendant to be released. Okay, thanks. And then my last question was regarding just your pipeline. If you could give any updates on any news on Ark, the animated series, and when that might be
Speaker 6: getting released, and then if there are any details you can give at this time about sort of the timeline for your DLC releases here in 2023 and between now and when Arc 2 releases.
Jim Tsai: Yes. Hi, this is Jim. Thank you, Pat. That's a great question. Since the ARK 2 been delayed, actually in now maybe to ARK 2, there's a several of the DLC be in the pipeline. The Ascended is one of them. Ascended starting with Unreal 5, then they come in more DLC. One or two DLC that's in pipeline will be released before the ARK 2, obviously, they're all in Unreal 5. Other than that, we have going with the Mac platform, the animated series, the TV series. Matter of fact, it's been almost done. We're just trying to collaborate with the video platform to have the release date. I'm sure that there will be more content to be released between now and after release.
Yes, hi, this is Jim. Thank you guys. That's a great question. So, um, things we ought to delay actually in now.
now to app 2. There's a separate DLC in the pipeline. The Ascendant is one of them. And the Ascendant is starting with Unreal 5 and then they come in more DLCs. One or two DLC that the pipeline will be released before the app 2.
And they are all in Unreal 5. And other than that, we had a lot of people
going with the Mac platform and then the animated series, the TV series. Matter of fact, it's been almost done. We're just trying to collaborate with the video platform.
and to have the release date. But I'm sure that there will be more content to be released between now and October . Great, thanks so much. Those are all the questions I have.
Patrick McCann: Great. Thanks so much. Those are all the questions I have.
Jim Tsai: Thank you for the question.
Operator: As a reminder, to ask a question, please press star one. As there are no more questions, this concludes not only the question and answer session, but also the conference today. We thank you for your participation. You may disconnect your lines at this time.
Thank you for the question. As a reminder, to ask a question, please press star 1.
As there are no more questions, this concludes not only the question and the session but also the conference today. We thank you for your participation. You may discapitalize at this time.
The.
aon a little. One. you
For.
