Snail, Inc. Reports Third Quarter 2023 Financial Results

November 14, 2023 at 4:06 PM EST
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CULVER CITY, Calif., Nov. 14, 2023 (GLOBE NEWSWIRE) -- Snail, Inc. (NASDAQ: SNAL) (“Snail” or “the Company”), a leading, global independent developer and publisher of interactive digital entertainment, today announced financial results for its third quarter ended September 30, 2023.

“We are thrilled with our third quarter results and the successful official release of ARK Survival Ascended. Collaborating with the incredible Studio Wildcard team on this captivating remake of ARK Survival Evolved has been an absolute delight,” said Jim Tsai, CEO of Snail. “In a short time, we have witnessed an overwhelming level of engagement from our growing global player base. In the first 24 hours, we sold 336,000 units, greatly surpassing our initial expectations. To date, we have sold more than 600,000 units. We are looking forward to continuing to build upon the momentum and creativity within this exciting new chapter of the ARK series.”

Third Quarter 2023 & Subsequent Business Highlights

  • ARK: Survival Evolved. In the three months ended September 30, 2023, ARK: Survival Evolved averaged a total of 231,337 daily active users (“DAUs”) versus 339,884 DAUs in the prior year period.

    • ARK: Survival Evolved units sold increased for the third quarter 2023 compared to the same period last year; approximately 1.2 million vs. 1.1 million, respectively.
    • Through September 30, 2023, total playtime for the ARK franchise amounted to 3.4 billion hours with an average playing time per user of more than 162 hours and with the top 21.0% of all players spending over 100 hours in the game, according to data obtained from the Steam platform.
  • ARK: Survival Ascended. On October 25, 2023, the Company launched its flagship remake of the ARK franchise leveraging Unreal Engine 5's stunning graphics and introduced a game-altering cross-platform modding system, ushering in a new era of creativity.

    • ARK: Survival Ascended was ranked the top #1 selling game on Steam on launch day.
    • Within five days of launch, ARK: Survival Ascended ranked among the top 8 most popular and played games on Steam with 221,000 average DAUs.
    • From initial launch through October 31, 2023, units sold surpassed expectation by 1.6x.

Selected Third Quarter 2023 Financial Highlights

  • Revenue was $9.0 million for the three months ended September 30, 2023, compared to revenue of $15.6 million in the prior year period, representing a decrease of $6.6 million year over year. The decrease in net revenues was due to a one-time contract revenue payment recognized from deferred revenue for a free week promotion in the amount of $4.0 million that occurred in the three months ended September 2022 but not in 2023 and a decrease in sales of ARK, due to lower average selling prices. ARK sales and in-game purchases decreased by $2.0 million. Sales of the Company’s smaller titles decreased by a collective $0.4 million.

  • Net loss was $4.4 million for the three months ended September 30, 2023 as compared to a net loss of $1.5 million for the three months ended September 30, 2022, representing a decrease of $2.9 million.

  • Bookings for the three months ended September 30, 2023 decreased by $0.8 million, or 7.3%, compared to the three months ended September 30, 2022, primarily as a result of a decrease in ARK revenues and in-game purchases which contributed to $2.0 million of the decrease during the three months ended September 30, 2023 and $4.0 million in deferred revenue recognized during the three months ended September 30, 2022 for obligations met during the period.

  • Earnings before interest, taxes, depreciation and amortization (“EBITDA”) for the third quarter of 2023 was a loss of $5.1 million compared to a loss of $1.5 million in the prior year period.

  • As of September 30, 2023, unrestricted cash was $4.9 million versus $12.9 million as of December 31, 2022.

Use of Non-GAAP Financial Measures

In addition to the financial results determined in accordance with U.S. generally accepted accounting principles, or GAAP, Snail believes Bookings and EBITDA, as non-GAAP measures, are useful in evaluating its operating performance. Bookings and EBITDA are non-GAAP financial measures that are presented as supplemental disclosures and should not be construed as alternatives to net income (loss) or revenue as indicators of operating performance, nor as alternatives to cash flow provided by operating activities as measures of liquidity, both as determined in accordance with GAAP. Snail supplementally presents Bookings and EBITDA because they are key operating measures used by management to assess financial performance. Bookings adjusts for the impact of deferrals and, Snail believes, provides a useful indicator of sales in a given period. EBITDA adjusts for items that Snail believes do not reflect the ongoing operating performance of its business, such as certain non-cash items, unusual or infrequent items or items that change from period to period without any material relevance to its operating performance. Management believes Bookings and EBITDA are useful to investors and analysts in highlighting trends in Snail’s operating performance, while other measures can differ significantly depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which Snail operates and capital investments.

Bookings is defined as the net amount of products and services sold digitally or physically in the period. Bookings is equal to revenues excluding the impact from deferrals. Below is a reconciliation of total net revenue to Bookings, the closest GAAP financial measure.                      

     
 Three Months ended September 30,Nine Months ended September 30,
  2023  2022  2023  2022 
 (in millions)(in millions)
Total net revenue$9.0 $15.6 $32.3 $59.1 
Change in deferred net revenue 1.5  (4.3) 0.8  (7.3)
Bookings$10.5 $11.3 $33.1 $51.8 
     

We define EBITDA as net income (loss) before (i) interest expense, (ii) interest income, (iii) income tax provision (benefit from) and (iv) depreciation and amortization expense. The following table provides a reconciliation from net income (loss) to EBITDA:

     
 Three Months ended September 30,Nine Months ended September 30,
  2023  2022  2023  2022 
 (in millions)(in millions)
Net (loss) income$(4.4)$(1.5)$(11.5)$3.3 
Interest income and interest income – related parties -  -  (0.1) (0.6)
Interest expense and interest expense – related parties 0.4  0.3  1.0  0.6 
(Benefit from) provision for income taxes (1.2) (0.4) (3.0) 0.8 
Depreciation and amortization expense, property and equipment 0.1  0.1  0.3  0.4 
EBITDA$(5.1)$(1.5)$(13.3)$4.5 
     

Webcast Details

The Company will host a webcast at 5:00 PM ET today to discuss the third quarter 2023 financial results. Participants may access the live webcast and replay on the Company’s investor relations website at https://investor.snail.com/.

Forward-Looking Statements

This press release contains statements that constitute forward-looking statements. Many of the forward-looking statements contained in this press release can be identified by the use of forward-looking words such as “anticipate,” “believe,” “could,” “expect,” “should,” “plan,” “intend,” “may,” “predict,” “continue,” “estimate” and “potential,” or the negative of these terms or other similar expressions. Forward-looking statements appear in a number of places in this press release and include, but are not limited to, statements regarding Snail’s intent, belief or current expectations. These forward-looking statements include information about possible or assumed future results of Snail’s business, financial condition, results of operations, liquidity, plans and objectives. The statements Snail makes regarding the following matters are forward-looking by their nature: growth prospects and strategies; launching new games and additional functionality to games that are commercially successful; expectations regarding significant drivers of future growth; its ability to retain and increase its player base and develop new video games and enhance existing games; competition from companies in a number of industries, including other casual game developers and publishers and both large and small, public and private Internet companies; its ability to attract and retain a qualified management team and other team members while controlling its labor costs; its relationships with third-party platforms such as Xbox Live and Game Pass, PlayStation Network, Steam, Epic Games Store, My Nintendo Store, the Apple App Store, the Google Play Store and the Amazon Appstore; the size of addressable markets, market share and market trends; its ability to successfully enter new markets and manage international expansion; protecting and developing its brand and intellectual property portfolio; costs associated with defending intellectual property infringement and other claims; future business development, results of operations and financial condition; the ongoing conflicts involving Russia and Ukraine, and Israel and Hamas, on its business and the global economy generally; rulings by courts or other governmental authorities; the Share Repurchase Program, including expectations regarding the timing and manner of repurchases made under the program; its plans to pursue and successfully integrate strategic acquisitions; assumptions underlying any of the foregoing.

Further information on risks, uncertainties and other factors that could affect Snail’s financial results are included in its filings with the Securities and Exchange Commission (the “SEC”) from time to time, annual reports on Forms 10-K and quarterly reports on 10-Q filed, or to be filed, with the SEC. You should not rely on these forward-looking statements, as actual outcomes and results may differ materially from those expressed or implied in the forward-looking statements as a result of such risks and uncertainties. All forward-looking statements in this press release are based on management’s beliefs and assumptions and on information currently available to Snail, and Snail does not assume any obligation to update the forward-looking statements provided to reflect events that occur or circumstances that exist after the date on which they were made.

About Snail, Inc.

Snail is a leading, global independent developer and publisher of interactive digital entertainment for consumers around the world, with a premier portfolio of premium games designed for use on a variety of platforms, including consoles, PCs and mobile devices.

For additional information, please contact: investors@snail.com

 Snail, Inc. and Subsidiaries    
Condensed Consolidated Balance Sheets
(Unaudited)
         
   September 30, 2023   December 31, 2022 
         
 ASSETS       
         
 Current Assets:       
 Cash and cash equivalents$ 4,948,832  $12,863,817 
 Restricted escrow deposit 1,037,739   1,003,804 
 Accounts receivable, net of allowances for credit losses of $19,929 and $31,525, respectively 4,083,369   6,758,024 
 Accounts receivable - related party, net 11,599,229   11,344,184 
 Loan and interest receivable - related party 103,249   101,753 
 Prepaid expenses - related party 2,500,000   - 
 Prepaid expenses and other current assets 11,482,303   10,565,141 
 Total current assets 35,754,721   42,636,723 
         
 Restricted cash and cash equivalents 1,115,084   6,374,368 
 Prepaid expenses - related party 5,582,500   5,582,500 
 Property, plant and equipment, net 4,768,715   5,114,799 
 Intangible assets, net - license - related parties 130,435   1,384,058 
 Intangible assets, net - other 271,918   272,521 
 Deferred income taxes 10,902,503   7,602,536 
 Other noncurrent assets 171,512   198,668 
 Operating lease right-of-use assets, net 2,738,554   3,606,398 
 Total assets$61,435,942  $72,772,571 
         
 LIABILITIES, NONCONTROLLING INTERESTS AND STOCKHOLDERS' EQUITY       
         
 Current Liabilities:       
 Accounts payable$9,956,626  $9,452,391 
 Accounts payable - related party 19,669,868   19,918,259 
 Accrued expenses and other liabilities 2,305,132   1,474,088 
 Interest payable - related parties 527,770   527,770 
 Revolving loan 6,000,000   9,000,000 
 Notes payable 4,358,333   5,416,666 
 Convertible notes, net of discount 515,217   - 
 Current portion of promissory note 2,832,231   86,524 
 Current portion of deferred revenue 5,848,320   4,335,404 
 Current portion of operating lease liabilities 1,470,718   1,371,227 
 Total current liabilities 53,484,215   51,582,329 
         
 Accrued expenses 311,276   457,024 
 Promissory note, net of current portion -   3,221,963 
 Deferred revenue, net of current portion 5,680,439   5,216,042 
 Operating lease liabilities, net of current portion 1,814,962   2,930,529 
 Total liabilities 61,290,892   63,407,887 
         
 Commitments and contingencies       
         
 Stockholders' Equity:       
 Class A common stock, $0.0001 par value, 500,000,000 shares authorized, 9,251,420 shares issued, 7,901,145 and 8,053,771 shares outstanding as of September 30, 2023 and December 31, 2022, respectively 925   925 
 Class B common stock, $0.0001 par value, 100,000,000 shares authorized, 28,748,580 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively 2,875   2,875 
 Additional paid-in capital 25,945,549   23,436,942 
 Accumulated other comprehensive loss (287,685)  (307,200)
 Accumulated deficit (16,346,691)  (4,863,250)
   9,314,973   18,270,292 
 Treasury stock at cost (1,350,275 and 1,197,649 shares, respectively) (3,671,806)  (3,414,713)
 Total Snail, Inc. equity 5,643,167   14,855,579 
 Noncontrolling interests (5,498,117)  (5,490,895)
 Total stockholders' equity 145,050   9,364,684 
 Total liabilities, noncontrolling interests and stockholders' equity$ 61,435,942  $72,772,571 
         


Snail, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
(Unaudited)
                 
  Three months ended September 30, Nine months ended September 30,
   2023   2022   2023   2022 
                 
 Revenues, net$8,981,135  $15,614,171  $32,331,876  $59,132,284 
 Cost of revenues 9,463,086   12,424,067   29,659,788   40,397,396 
                 
 Gross profit, (loss) (481,951)  3,190,104   2,672,088   18,734,888  
                 
 Operating expenses:               
 General and administrative 3,452,141   4,478,907   11,915,126   13,525,001 
 Research and development 1,317,400   116,624   3,892,039   479,630 
 Advertising and marketing 215,477   198,417   488,318   569,127  
 Depreciation and amortization 112,914   128,536   346,084   435,644 
 Total operating expenses 5,097,932   4,922,484   16,641,567   15,009,402 
                 
 (Loss) income from operations (5,579,883)  (1,732,380)  (13,969,479)  3,725,486 
                 
 Other income (expense):               
 Interest income 47,147   12,712   98,411   45,789 
 Interest income - related parties 504   505   1,496   582,128 
 Interest expense (370,376)   (261,070)   (961,196)   (613,338) 
 Interest expense - related parties -   -   -   (3,222) 
 Other income 313,156   19,500   321,331   319,153 
 Foreign currency transaction (loss) gain (1,394)  16,169   (25,606)  21,679 
 Total other (expense) income, net (10,963)  (212,184)  (565,564)  352,189 
                 
 (Loss) income before (benefit from) provision for income taxes (5,590,846)  (1,944,564)  (14,535,043)  4,077,675 
                 
 (Benefit from) provision for income taxes (1,156,675)  (398,998)  (3,044,380)  803,305 
                 
 Net (loss) income (4,434,171)  (1,545,566)  (11,490,663)  3,274,370 
                 
 Net (loss) income attributable to non-controlling interests (1,539)  (6,828)  (7,222)  56,348 
                 
 Net (loss) income attributable to Snail, Inc. and Snail Games USA Inc. (4,432,632)  (1,538,738)  (11,483,441)  3,218,022 
                 
 Comprehensive income statement:               
                 
 Other comprehensive income (loss) related to currency translation adjustments, net of tax (1,512)  5,682   19,515   (76,720)
                 
 Total comprehensive (loss) income$(4,434,144) $(1,533,056) $(11,463,926) $3,141,302 
                 
 Net (loss) income attributable to Class A common stockholders:               
 Basic$(955,763) $(1,538,738) $(2,477,768) $3,218,022 
 Diluted$(955,763) $(1,538,738) $(2,477,768) $3,218,022 
                 
 Net loss attributable to Class B common stockholders:               
 Basic$(3,476,869) $-  $(9,005,673)  $- 
 Diluted$(3,476,869) $-  $(9,005,673)  $- 
                 
 (Loss) income per share attributable to Class A and B common stockholders:               
 Basic$(0.12) $(0.04) $(0.31)  $0.09 
 Diluted$(0.12) $(0.04) $(0.31)  $0.09 
                 
 Weighted-average shares used to compute income per share attributable to Class A common stockholders(1):               
 Basic 7,901,145   35,000,000   7,909,715   35,000,000 
 Diluted 7,901,145   35,000,000   7,909,715   35,000,000 
                 
 Weighted-average shares used to compute income per share attributable to Class B common stockholders:               
 Basic 28,748,580   -   28,748,580   - 
 Diluted 28,748,580   -   28,748,580   - 


Snail, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
 For the Nine Month Period Ended September 30, 2023
  2022
         
 Cash flows from operating activities:       
 Net (loss) income$(11,490,663) $3,274,370 
 Adjustments to reconcile net income to net cash used in operating activities:       
 Amortization - intangible assets - license -   250,000 
 Amortization - intangible assets - license, related parties 1,253,623   5,552,938 
 Amortization - intangible assets - other 603   672 
 Amortization - loan origination fees and debt discounts 142,656   19,149 
 Depreciation and amortization - property and equipment 346,084   435,644 
 Stock-based compensation expense 622,007   - 
 Gain on lease termination -   (122,533)
 Gain on paycheck protection program and economic injury disaster loan forgiveness -   (174,436)
 Gain on disposal of fixed assets -   (17,067)
 Interest income from shareholder loan -   (580,878)
 Interest income from restricted escrow deposit (33,935)  - 
 Deferred taxes (3,058,738)  - 
         
 Changes in assets and liabilities:       
 Accounts receivable 2,674,655   7,648,432 
 Accounts receivable - related party (255,045)  (3,803,606)
 Prepaid expenses - related party (2,500,000)  (4,875,000)
 Prepaid expenses and other current assets 156,450   (2,232,406)
 Other noncurrent assets (2,903)  (15,228)
 Accounts payable 846,553   2,905,024 
 Accounts payable - related party (248,391)  (1,402,791)
 Accrued expenses 134,131   (127,993)
 Interest receivable - related parties (1,496)  - 
 Interest payable - related parties -   1,490 
 Lease liabilities (148,233)  (103,782)
 Deferred revenue 767,883   (7,297,736)
 Net cash used in operating activities (10,794,759)  (665,737)
         
 Cash flows from investing activities:       
 Repayment on loan provided by related party -   (300,000)
 Purchases of property and equipment -   (5,256)
 Proceeds from sale of property and equipment -   19,500 
 Repayment on Pound Sand note -   1,496,063 
 Net cash provided by investing activities -   1,210,307 
         
 Cash flows from financing activities:       
 Repayments on promissory note (59,589)  (57,967)
 Repayments on note payable (3,750,000)  (3,333,333)
 Repayments on revolving loan (3,000,000)  - 
 Borrowings on note payable 2,275,000   - 
 Borrowings on short-term note -   10,000,000 
 Proceeds from issuance of convertible notes 847,500   - 
 Payments on paycheck protection program and economic injury disaster loan -   (90,198)
 Refund of payments on paycheck protection program and economic injury disaster loan -   48,305 
 Cash dividend declared and paid -   (8,200,000)
 Refund of dividend withholding tax overpayment 1,886,600   - 
 Purchase of treasury stock (257,093)  - 
 Payments of offering costs in accounts payable (342,318)  - 
 Net cash used in financing activities (2,399,900)  (1,633,193)
         
 Effect of currency translation on cash and cash equivalents 20,390   (52,810)
         
 Net decrease in cash and cash equivalents, and restricted cash and cash equivalents (13,174,269)  (1,141,433)
         
 Cash and cash equivalents, and restricted cash and cash equivalents - beginning of period 19,238,185   16,554,115 
         
 Cash and cash equivalents, and restricted cash and cash equivalents – end of period$6,063,916  $15,412,682 
         
 Supplemental disclosures of cash flow information       
 Cash paid during the period for:       
 Interest$725,885  $594,189 
 Income taxes$504,581  $831,400 
 Noncash transactions during the period for:       
 Loan and interest payable - related parties$-  $103,890 
 Loan and interest receivable - related parties$-  $(103,890)
 Loan and interest from shareholder$-  $94,934,400 
 Dividend distribution$-  $(94,934,400)
 Deferred tax assets$(241,229) $- 
 Prepaid income taxes$241,229  $- 
 Change in deferred revenues due to gain contingency$1,209,430  $- 
 Change in other receivables due to gain contingency$(1,209,430) $- 
 Noncash finance activity during the period for:       
 Issuance of warrants in connection with equity line of credit$(105,411) $- 
 Gain on paycheck protection program and economic injury disaster loan forgiveness$-  $(174,436)