UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
CURRENT REPORT
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Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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Item 2.02 Results of Operations and Financial Condition.
On December 15, 2022, Snail, Inc. (the “Company”) issued a press release to report its financial results for the quarter ended September 30, 2022. Attached hereto as Exhibit 99.1 is a copy of the Company’s press release.
This information, including the Exhibit attached hereto, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, except as shall be expressly set forth by specific reference in such filing.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
| Exhibit No. | Description | |
| 99.1 | Press Release dated as of December 15, 2022 | |
| 104 | Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101) |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| SNAIL, INC. | ||
| Date: December 15, 2022 | By: | /s/ Jim S. Tsai |
| Name: | Jim S. Tsai | |
| Title: | Chief Executive Officer | |
Exhibit 99.1
Snail, Inc. Reports Third Quarter 2022 Financial Results
Culver City, CA – December 15, 2022 – Snail, Inc. (Nasdaq: SNAL) (“Snail” or “the Company”), a leading, global independent developer and publisher of interactive digital entertainment, today announced third quarter 2022 financial results for the quarter ended September 30, 2022. These third quarter results are prior to the exchange of stock and reflect the activities of Snail Games USA Inc. and its subsidiaries.
Jim Tsai, Chief Executive Officer of Snail, commented: “We are thrilled to share our first earnings report as a public company. Our goal of creating immersive gaming experiences and products will be supported by our access to the capital markets. We look forward to continuing to execute against our product roadmap and provide high-end entertainment experiences for consumers around the world.”
Third Quarter 2022 and Subsequent Business Highlights
| · | ARK: Survival Evolved. In the three-month period ended September 30, 2022, ARK: Survival Evolved averaged a total of 328,583 daily active users (“DAUs”) versus 221,336 DAUs in the prior year period. |
| o | 4.4x growth in new install for the third quarter 2022 vs. third quarter 2021; 6.4M vs. 1.2M, respectively. Growth is largely due to Epic Games’ Free Week. |
| o | Units sold sustained for the third quarter 2022 compared to same period last year; 1.1M vs. 1.2M, respectively. Units sold includes game and DLCs. |
| o | Through September 30, 2022, total playtime amounts to 2.9 billion hours. |
| · | IPO. On November 9, 2022, the Company completed its initial public offering (“IPO”), in which it issued and sold 3,000,000 shares of Class A common stock at a public offering price of $5.00 per share for gross proceeds to the Company of approximately $15.0 million. Concurrently with the IPO, the stockholders of Snail Games USA collectively exchanged 500,000 shares of Snail Games USA common stock for 6,251,420 shares of Class A common stock and 28,748,580 shares of Class B common stock of Snail, Inc. |
| · | Share Repurchase Program. On November 10, 2022, the Company’s board of directors approved and established a new share repurchase program (the “Share Repurchase Program”) to reacquire shares of Snail, Inc.’s Class A common stock. The maximum aggregate value of the shares repurchased shall not exceed $5.0 million, and there is no fixed expiration date on the Share Repurchase Program. The exact number of shares of Class A common stock and timing and method of the repurchase are at the discretion of the CEO, CFO and Treasurer. As of December 13, 2022, 1,090,877 shares of Class A common stock were repurchased pursuant to the Share Repurchase Program and the average price paid per share was $2.98. |
Third Quarter 2022 Financial Highlights
| · | Revenue decreased by 36.1% to $15.6 million for third quarter of 2022 from $24.4 million over the same period in the prior year primarily as a result of a decrease in ARK units sold. ARK related revenues decreased by $8.5 million attributable to the age of the game and sales normalizing in 2022 after the initial release of Genesis II in June 2021. One off payments and revenue recognized for previous contract payments were the cause of $3.3 million of the $8.5 million decrease in ARK revenue, with reduced sales of ARK and ARK mobile responsible for the remaining $5.2 million decrease. |
| · | Net loss for the third quarter of 2022 was $1.5 million compared to net income of $3.8 million in the prior year period due to the reduced sales of ARK, static licensing fees, and increased general and administrative costs. |
| · | Bookings for the three months ended September 30, 2022, decreased by $6.9 million, or 37.9%, to $11.3 million, compared to the prior year period, primarily as a result of a decline in ARK-related revenues. |
| · | EBITDA for the third quarter of 2022 was a loss of $1.5 million compared to a gain of $4.6 million in the prior year period. |
| · | As of September 30, 2022, cash was $9.0 million. This cash balance does not reflect the net proceeds from IPO of approximately $12.0 million, which occurred on November 9, 2022. |
Heidy Chow, Chief Financial Officer of Snail stated: “We are pleased with the continued engagement in our ARK series of games. We want to remind investors that we are committed to investing in our brand and fostering long-term growth. This includes focusing on the upcoming release of ARK 2, launching additional products, and implementing initiatives that enhance our product suite and improve our speed to market.”
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, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| (in millions) | (in millions) | |||||||||||||||
| Total net revenue | $ | 15.6 | $ | 24.4 | $ | 59.1 | $ | 83.2 | ||||||||
| Change in deferred net revenue | (4.3 | ) | (6.2 | ) | (7.3 | ) | (11.4 | ) | ||||||||
| Bookings | $ | 11.3 | $ | 18.2 | $ | 51.8 | $ | 71.8 | ||||||||
We define EBITDA as net income (loss) before (i) interest expense, (ii) interest income, (iii) income tax provision (benefit) 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, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| (in millions) | (in millions) | |||||||||||||||
| Net income (loss) | $ | (1.5 | ) | $ | 3.8 | $ | 3.2 | $ | 17.0 | |||||||
| Interest income and interest income – related parties | - | (0.4 | ) | (0.6 | ) | (1.1 | ) | |||||||||
| Interest expense and interest expense – related parties | 0.3 | 0.1 | 0.6 | 0.3 | ||||||||||||
| Income tax provision (benefit) | (0.4 | ) | 0.9 | 0.8 | 4.2 | |||||||||||
| Depreciation and amortization expense | 0.1 | 0.2 | 0.4 | 0.6 | ||||||||||||
| EBITDA | $ | (1.5 | ) | $ | 4.6 | $ | 4.4 | $ | 21.0 | |||||||
Webcast Details
The Company will host a webcast at 5:00 PM ET today to discuss the third quarter 2022 financial results. Participants may access the live webcast and replay on the Company’s investor relations website at https://investor.snail.com/. The earnings call may also be accessed by dialing 1 (877) 451-6152 from the United States, or by dialing 1 (201) 389-0879 internationally.
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.
Contacts:
Investors:
investors@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, Google Stadia, 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 effects of the COVID-19 pandemic and the ongoing conflict involving Russia and Ukraine 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, including its Quarterly Report on Form 10-Q and other periodic reports on Forms 10-K and 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.
Snail Games USA Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
| September 30, 2022 | December 31, 2021 | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash | $ | 9,044,666 | $ | 10,164,338 | ||||
| Accounts receivable, net of allowances for doubtful accounts of $19,929 and $31,525, respectively | 4,596,313 | 12,244,785 | ||||||
| Accounts receivable - related party, net | 12,239,430 | 8,435,823 | ||||||
| Loan and interest receivable - related party | 101,249 | 203,408 | ||||||
| Prepaid expenses - related party, net of long-term portion | 1,500,000 | 3,145,000 | ||||||
| Prepaid expenses and other current assets | 11,704,897 | 11,017,007 | ||||||
| Total current assets | 39,186,555 | 45,210,361 | ||||||
| Restricted cash and cash equivalents | 6,368,016 | 6,389,777 | ||||||
| Prepaid expenses - related party | 6,520,000 | - | ||||||
| Property, plant and equipment, net | 5,245,271 | 5,678,701 | ||||||
| Intangible assets, net - license - related parties | 3,235,038 | 8,787,976 | ||||||
| Intangible assets, net - license | - | 250,000 | ||||||
| Intangible assets, net - other | 275,600 | 277,148 | ||||||
| Deferred income taxes | 8,191,051 | 8,191,051 | ||||||
| Other noncurrent assets | 194,032 | 199,919 | ||||||
| Operating lease right-of-use assets, net | 3,887,326 | 5,100,912 | ||||||
| Total assets | $ | 73,102,889 | $ | 80,085,845 | ||||
| LIABILITIES, NONCONTROLLING INTERESTS AND EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | 6,765,934 | $ | 3,871,510 | ||||
| Accounts payable - related party | 22,330,781 | 23,733,572 | ||||||
| Accrued expenses and other liabilities | 2,375,610 | 2,975,475 | ||||||
| Loan payable - related parties | - | 400,000 | ||||||
| Interest payable - related parties | 527,770 | 528,439 | ||||||
| Revolving loan | 9,000,000 | 9,000,000 | ||||||
| Short term note | 6,666,667 | - | ||||||
| Notes payable | - | 216,329 | ||||||
| Current portion of long-term debt | 79,425 | 77,348 | ||||||
| Current portion of deferred revenue | 3,934,693 | 11,005,517 | ||||||
| Current portion of operating lease liabilities | 1,339,172 | 1,688,965 | ||||||
| Total current liabilities | 53,020,053 | 53,497,155 | ||||||
| Accrued expenses | 454,438 | - | ||||||
| Long-term debt, net of current portion | 2,825,390 | 2,885,434 | ||||||
| Deferred revenue, net of current portion | 9,048,505 | 9,275,417 | ||||||
| Operating lease liabilities, net of current portion | 3,285,679 | 4,375,786 | ||||||
| Total liabilities | 68,634,064 | 70,033,792 | ||||||
| Commitments and contingencies | ||||||||
| Equity: | ||||||||
| Common stock, $0.01 par value, 1,000,000 shares authorized, 500,000 shares issued and outstanding | 5,000 | 5,000 | ||||||
| Additional paid-in capital | 12,881,055 | 94,159,167 | ||||||
| Due from shareholder - loan receivable | - | (91,388,176 | ) | |||||
| Due from shareholder - interest receivable | - | (2,965,346 | ) | |||||
| Accumulated other comprehensive loss | (343,277 | ) | (266,557 | ) | ||||
| Retained earnings (accumulated deficit) | (2,593,035 | ) | 16,045,231 | |||||
| Total Snail Games USA Inc. equity | 9,949,743 | 15,589,319 | ||||||
| Noncontrolling interests | (5,480,918 | ) | (5,537,266 | ) | ||||
| Total equity | 4,468,825 | 10,052,053 | ||||||
| Total liabilities, noncontrolling interests and equity | $ | 73,102,889 | $ | 80,085,845 | ||||
Snail Games USA Inc. and Subsidiaries
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
(Unaudited)
| For the | For the | |||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenues, net | $ | 15,614,171 | $ | 24,361,019 | $ | 59,132,284 | $ | 83,200,198 | ||||||||
| Cost of revenues | 11,468,961 | 15,478,327 | 37,744,863 | 48,381,061 | ||||||||||||
| Gross profit | 4,145,210 | 8,882,692 | 21,387,421 | 34,819,137 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative | 5,434,013 | 3,997,917 | 16,177,534 | 13,053,478 | ||||||||||||
| Research and development | 116,624 | 216,798 | 479,630 | 588,207 | ||||||||||||
| Advertising and marketing | 198,417 | 148,752 | 569,127 | 265,812 | ||||||||||||
| Depreciation and amortization | 128,536 | 208,896 | 435,644 | 638,659 | ||||||||||||
| Total operating expenses | 5,877,590 | 4,572,363 | 17,661,935 | 14,546,156 | ||||||||||||
| Income (loss) from operations | (1,732,380 | ) | 4,310,329 | 3,725,486 | 20,272,981 | |||||||||||
| Other income (expense): | ||||||||||||||||
| Interest income | 12,712 | 21,230 | 45,789 | 71,857 | ||||||||||||
| Interest income - related parties | 505 | 420,164 | 582,128 | 1,128,397 | ||||||||||||
| Interest expense | (261,070 | ) | (114,447 | ) | (613,338 | ) | (304,918 | ) | ||||||||
| Interest expense - related parties | - | (2,016 | ) | (3,222 | ) | (5,983 | ) | |||||||||
| Other income | 19,500 | 31,247 | 319,153 | 482,790 | ||||||||||||
| Foreign currency transaction gain (loss) | 16,169 | (15,987 | ) | 21,679 | (80,755 | ) | ||||||||||
| Equity in loss of unconsolidated entity | - | - | - | (314,515 | ) | |||||||||||
| Total other income (expense), net | (212,184 | ) | 340,191 | 352,189 | 976,873 | |||||||||||
| Income (loss) before provision for income taxes | (1,944,564 | ) | 4,650,520 | 4,077,675 | 21,249,854 | |||||||||||
| Income tax provision (benefit) | (398,998 | ) | 891,538 | 803,305 | 4,214,245 | |||||||||||
| Net income (loss) | (1,545,566 | ) | 3,758,982 | 3,274,370 | 17,035,609 | |||||||||||
| Net gain (loss) attributable to non-controlling interests | (6,828 | ) | (125,881 | ) | 56,348 | (489,499 | ) | |||||||||
| Net income (loss) attributable to Snail Games USA Inc. | (1,538,738 | ) | 3,884,863 | 3,218,022 | 17,525,108 | |||||||||||
| Comprehensive income statement: | ||||||||||||||||
| Other comprehensive income (loss) | 5,682 | 382,088 | (76,720 | ) | 421,048 | |||||||||||
| Total other comprehensive income (loss) | $ | (1,533,056 | ) | $ | 4,266,951 | $ | 3,141,302 | $ | 17,946,156 | |||||||
Snail Games USA Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| Nine Months Ended September 30, | 2022 | 2021 | ||||||
| Cash flows from operating activities: | ||||||||
| Net income | $ | 3,274,370 | $ | 17,035,609 | ||||
| Adjustments to reconcile net income to net cash (used in) provided by operating activities: | ||||||||
| Amortization - intangible assets - license | 250,000 | 450,000 | ||||||
| Amortization - intangible assets - license, related parties | 5,552,938 | 10,675,193 | ||||||
| Amortization - intangible assets - other | 672 | 6,149 | ||||||
| Amortization - loan origination fees | 19,149 | 22,388 | ||||||
| Depreciation and amortization - property and equipment | 435,644 | 638,659 | ||||||
| Gain on lease termination | (122,533 | ) | - | |||||
| Gain on paycheck protection program and economic injury disaster loan forgiveness | (174,436 | ) | (392,200 | ) | ||||
| Gain on disposal of fixed assets | (17,067 | ) | - | |||||
| Interest income from shareholder loan | (580,878 | ) | (1,074,881 | ) | ||||
| Deferred taxes | - | 2,682 | ||||||
| Decrease in non-controlling interest - dissolution of subsidiary | - | 39,340 | ||||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | 7,648,432 | 5,049,456 | ||||||
| Accounts receivable - related party | (3,803,606 | ) | 2,542,956 | |||||
| Prepaid expenses - related party | (4,875,000 | ) | - | |||||
| Prepaid expenses and other current assets | (2,232,406 | ) | (5,689,750 | ) | ||||
| Other noncurrent assets | (15,228 | ) | 241,422 | |||||
| Accounts payable | 2,905,024 | (390,331 | ) | |||||
| Accounts payable - related party | (1,402,791 | ) | 311,024 | |||||
| Accrued expenses | (127,993 | ) | 700,163 | |||||
| Interest payable - related parties | 1,490 | 5,983 | ||||||
| Lease liabilities | (103,782 | ) | (130,090 | ) | ||||
| Deferred revenue | (7,297,736 | ) | (11,389,985 | ) | ||||
| Net cash (used in) provided by operating activities | (665,737 | ) | 18,653,787 | |||||
| Cash flows from investing activities: | ||||||||
| Loan provided to related party | - | (24,506,321 | ) | |||||
| Repayment on loan provided by related party | (300,000 | ) | - | |||||
| Acquisition of license rights - related party | - | (5,000,000 | ) | |||||
| Purchases of property and equipment | (5,256 | ) | (3,403 | ) | ||||
| Proceeds from sale of property and equipment | 19,500 | - | ||||||
| Repayment on Pound Sand note | 1,496,063 | - | ||||||
| Investment at cost | - | (895 | ) | |||||
| Net cash provided by (used in) investing activities | 1,210,307 | (29,510,619 | ) | |||||
| Cash flows from financing activities: | ||||||||
| Repayments on long-term debt | (57,967 | ) | (6,731,666 | ) | ||||
| Repayments on short-term note | (3,333,333 | ) | - | |||||
| Borrowings on long-term debt | - | 2,904,815 | ||||||
| Borrowings on short-term note | 10,000,000 | - | ||||||
| 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 | - | ||||||
| Borrowings on revolving loan | - | 6,500,000 | ||||||
| Cash dividend declared and paid | (8,200,000 | ) | - | |||||
| Net cash (used in) provided by financing activities | (1,633,193 | ) | 2,673,149 | |||||
| Effect of currency translation on cash and cash equivalents | (52,810 | ) | 380,403 | |||||
| Net decrease in cash, and restricted cash and cash equivalents | (1,141,433 | ) | (7,803,280 | ) | ||||
| Cash, and restricted cash and cash equivalents - beginning of period | 16,554,115 | 33,902,707 | ||||||
| Cash, and restricted cash and cash equivalents – end of period | $ | 15,412,682 | $ | 26,099,427 | ||||
| Supplemental disclosures of cash flow information | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | 594,189 | $ | 105,577 | ||||
| Income taxes | $ | 831,400 | $ | 3,300,000 | ||||
| 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 | ) | $ | - | |||
| Noncash financing activity during the period: | ||||||||
| Gain on paycheck protection program and economic injury disaster loan forgiveness | $ | (174,436 | ) | $ | (392,200 | ) | ||