Earnings Transcript for SNAL - Q2 Fiscal Year 2024

Operator: Thank you for standing by, and welcome to Snail Inc.’s Second quarter 2024 earnings conference call and webcast. [Operator instructions] I would now like to turn the call over to Brett Milotte, Senior Vice President at ICR. Please go ahead.

Brett Milotte: Thank you. Good afternoon and welcome to Snail's second quarter 2024 earnings conference call and webcast. On today's call are Tony Tian, Snail's Co-Chief Executive Officer, Peter Kang, Chief Operating Officer, and Heidi Chow, Chief Financial Officer. The company's second quarter 2024 earnings press release was filed today with the SEC after the US 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-K 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. Additionally, on today's call, you'll refer to bookings and EBITDA, which are non-GAAP financial measures that provide useful information for the company's investors. You'll 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'll turn the call over to Heidi. Heidi?

Heidy Chow: 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, Snail built an incredibly passionate and skilled team, equipped with state-of-the-ARK 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, enlightening 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. The advanced AI technology in which we have been investing, holds immense 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're eager to capitalize on the widespread attention that our ARK animated series is receiving due to the upcoming second half of the series’ first season. With the gaming world’s eyes focused on the beloved franchise, we have a prime opportunity to engage new players and further energize our existing community of dedicated ARK fans. We have developed ambitious plans to expand the ARK universe in which that will delight both our longstanding players and newcomers alike. With that, let's quickly review the quarters in numbers. Our ARK franchise continues to be an incredible success story. Through June 30, 2024, ARK has been played for 3.7 billion 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 immersed in the game, according to data from Steam. For the second quarter of 2024, Snail generated net revenue of $21.6 million, up significantly from $9.9 million in the second quarter of 2023. Net income in the second quarter of 2024 was $2.3 million versus a net loss of $4.1 million in the second quarter of 2023, primarily driven by the successful launch of new Survival game, Bellwright, new DLC for ARK

Peter Kang: Hello, everyone. In the second quarter of 2024, DONKEY Crew released the Survival simulation titled Bellwright, 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. Additionally, our indie publishing label, Wandering Wizard, is pushing ahead full-steam with our plans to expand our publishing catalog. We have signed two additional games in Q2 of 2024, to be released at the end of 2024 and beginning of 2025. The first project is titled The Cecil

Heidy Chow: Thank you, Peter. As mentioned, net revenue for the three months ended June 30, 2024, was $21.6 million as compared to $9.9 million in the three months ended June 30, 2023. Similar to Q1, the strong increase in net revenues was primarily due to the release of ARK

Operator: [Operator Instructions]. The first question comes from Pat McCann with NOBLE Capital Markets. Please go ahead.

Pat McCann: Good afternoon and thanks for taking my questions. My first question has to do with the ARK

Peter Kang: Hi, this is Peter Kang. 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 that also contributes to adoption rate, and that is the catch-up of content from ARK

Pat McCann: Great. 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 ARK II, 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 ARK II, since you sort of have to cross that - you might want to cross that barrier first before you launch the next big launch?

Peter Kang: Absolutely, and that's a very astute point of view to notice. We are using ARK

Pat McCann: Great. And f 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?

Peter Kang: 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.

Pat McCann: 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 lines.