Snail, Inc. Reports Third Quarter 2022 Financial Results


CULVER CITY, Calif., Dec. 15, 2022 (GLOBE NEWSWIRE) — 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.
    • 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.
    • 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.
    • 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 )
       

Snail Games USA Inc



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