SNAL Snail Inc

Snail, Inc. (Nasdaq: SNAL) (“Snail” or “the Company”), a leading, global independent developer and publisher of interactive digital entertainment, today announced financial results for the three months ended June 30, 2023.

Jim Tsai, Chief Executive Officer of Snail, commented: “Earlier last month we had to make the difficult decision to delay the release of ARK: Survival Ascended. We are expected to launch the game in October 2023. The title has passed QC and beta testing and now in the last stages of development. We are excited to bring our fans a remastered ARK game with loads of new content and world to explore.”

Second Quarter 2023 and Subsequent Financial and Business Highlights

• Revenue was $9.9 million for the three months ended June 30, 2023, compared to revenue of $15.5 million in the prior year period, representing a decrease of $5.6 million year over year. The decrease in net revenues was due to a decrease in sales of ARK, partially attributed to a decrease in the number of days on sale in one of our primary platform partners and partially due to the upcoming release of ARK: Survival Ascended. ARK sales and in-game purchases decreased by $5.3 million. Sales of the Company’s smaller titles decreased by a collective $0.6 million. These decreases in the Company’s smaller titles were partially offset by an increase of $0.1 million in revenue related to West Hunt.
• ARK: Survival Evolved. In the three months ended June 30, 2023, ARK: Survival Evolved averaged a total of 240,522 daily active users (“DAUs”) versus 359,077 DAUs in the prior year period.
  • ARK units sold decreased for the second quarter 2023 compared to the same period last year; approximately 0.9 million vs. 1.6 million, respectively.
  • Through June 30, 2023, total playtime for the ARK franchise amounted to 3.3 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 from the Steam platform.
• Net loss was $4.1 million for the three months ended June 30, 2023 as compared to a net loss of $1.0 million for the three months ended June 30, 2022, representing a decrease of $3.1 million. The decrease was primarily due to a decrease in revenue of $5.6 million, an increase in research and development expense of $1.0 million, an increase in interest expense of $0.1 million, and an increase in internet, server, and data costs of $0.3 million, partially offset by a decrease in royalties of $1.2 million, a decrease in license cost and license right amortization of $1.6 million, a decrease in merchant and engine fees of $0.5 million, and a decrease in the Company’s tax provision of $0.8 million.
• Bookings for the three months ended June 30, 2023 decreased by $5.8 million, or 38.5%, compared to the three months ended June 30, 2022, primarily as a result of a decrease in ARK revenues and in game purchases which contributed to $5.3 million of the decrease during the three months ended June 30, 2023. The decrease in ARK revenues during the three months ended June 30, 2023 was due partially to fewer sales days in the period and the anticipated release of ARK: Survival Ascended.
• Earnings before interest, taxes, depreciation and amortization (“EBITDA”) for the second quarter of 2023 was a loss of $4.8 million compared to a loss of $1.1 million in the prior year period.
• As of June 30, 2023, unrestricted cash was $3.0 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 June 30,							Six months ended June 30,
		2023			2022				2023			2022
	(in millions)							(in millions)
Total net revenue	$	9.9		$	15.5			$	23.4		$	43.5
Change in deferred net revenue		(0.6	)		(0.4	)			(0.8	)		(3.0	)
Bookings	$	9.3		$	15.1			$	22.6		$	40.5

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 June 30,							Six months ended June 30,
			2023			2022				2023			2022
		(in millions)							(in millions)
	Net (loss) income	$	(4.1	)	$	(1.0	)		$	(7.1	)	$	4.8
	Interest income and interest income – related parties		-			(0.1	)			(0.1	)		(0.6	)
	Interest expense and interest expense – related parties		0.3			0.2				0.6			0.4
	(Benefit from) provision for income taxes		(1.1	)		(0.3	)			(1.9	)		1.2
	Depreciation and amortization expense, property and equipment		0.1			0.1				0.2			0.3
	EBITDA	$	(4.8	)	$	(1.1	)		$	(8.3	)	$	6.1

Webcast Details

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

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, 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 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, 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.

Snail, Inc. and SubsidiariesCondensed Consolidated Balance Sheets(Unaudited)

		June 30, 2023				December 31, 2022
	ASSETS
	Current Assets:
	Cash and cash equivalents	$	2,960,160			$	12,863,817
	Restricted escrow deposit	1,025,193				1,003,804
	Accounts receivable, net of allowances for credit losses of $19,929 and $31,525, respectively	4,963,566				6,758,024
	Accounts receivable - related party, net	11,733,226				11,344,184
	Loan and interest receivable - related party	102,745				101,753
	Prepaid expenses - related party	2,500,000				-
	Prepaid expenses and other current assets	12,216,801				10,565,141
	Total current assets	35,501,691				42,636,723
	Restricted cash and cash equivalents	1,113,960				6,374,368
	Prepaid expenses - related party	5,582,500				5,582,500
	Property, plant and equipment, net	4,881,629				5,114,799
	Intangible assets, net - license - related parties	326,087				1,384,058
	Intangible assets, net - other	272,119				272,521
	Deferred income taxes	9,490,241				7,602,536
	Other noncurrent assets	180,778				198,668
	Operating lease right-of-use assets, net	3,032,069				3,606,398
	Total assets	$	60,381,074			$	72,772,571
	LIABILITIES, NONCONTROLLING INTERESTS AND STOCKHOLDERS' EQUITY
	Current Liabilities:
	Accounts payable	$	8,658,585			$	9,452,391
	Accounts payable - related party	19,611,207				19,918,259
	Accrued expenses and other liabilities	2,678,848				1,474,088
	Interest payable - related parties	527,770				527,770
	Revolving loan	6,000,000				9,000,000
	Short term note	2,916,667				5,416,666
	Current portion of promissory note	2,845,303				86,524
	Current portion of deferred revenue	4,125,505				4,335,404
	Current portion of operating lease liabilities	1,437,140				1,371,227
	Total current liabilities	48,801,025				51,582,329
	Accrued expenses	384,150				457,024
	Promissory note, net of current portion	-				3,221,963
	Deferred revenue, net of current portion	4,660,343				5,216,042
	Operating lease liabilities, net of current portion	2,191,465				2,930,529
	Total liabilities	56,036,983				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 June 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 June 30, 2023 and December 31, 2022, respectively	2,875				2,875
	Additional paid-in capital	25,708,907				23,436,942
	Accumulated other comprehensive loss	(286,173		)		(307,200		)
	Accumulated deficit	(11,914,059		)		(4,863,250		)
		13,512,475				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	9,840,669				14,855,579
	Noncontrolling interests	(5,496,578		)		(5,490,895		)
	Total stockholders' equity	4,344,091				9,364,684
	Total liabilities, noncontrolling interests and stockholders' equity	$	60,381,074			$	72,772,571

Snail, Inc. and SubsidiariesCondensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited)

		Three months ended June 30,								Six months ended June 30,
		2023				2022				2023				2022
	Revenues, net	$	9,892,253			$	15,463,522			$	23,350,741			$	43,518,113
	Cost of revenues	9,335,765				12,259,514				20,196,702				27,973,329
	Gross profit	556,488				3,204,008				3,154,039				15,544,784
	Operating expenses:
	General and administrative	3,937,234				4,250,882				8,462,985				9,046,094
	Research and development	1,200,842				179,050				2,574,639				363,006
	Advertising and marketing	168,292				212,039				272,841				370,710
	Depreciation and amortization	118,110				138,791				233,170				307,108
	Total operating expenses	5,424,478				4,780,762				11,543,635				10,086,918
	(Loss) income from operations	(4,867,990		)		(1,576,754		)		(8,389,596		)		5,457,866
	Other income (expense):
	Interest income	19,791				17,705				51,264				33,077
	Interest income - related parties	499				130,695				992				581,623
	Interest expense	(296,237		)		(186,213		)		(590,820		)		(352,268		)
	Interest expense - related parties	-				(1,496		)		-				(3,222		)
	Other income	-				296,969				8,175				299,653
	Foreign currency transaction (loss) gain	(21,845		)		7,916				(24,212		)		5,510
	Total other (expense) income, net	(297,792		)		265,576				(554,601		)		564,373
	(Loss) income before (benefit from) provision for income taxes	(5,165,782		)		(1,311,178		)		(8,944,197		)		6,022,239
	(Benefit from) provision for income taxes	(1,081,887		)		(327,347		)		(1,887,705		)		1,202,303
	Net (loss) income	(4,083,895		)		(983,831		)		(7,056,492		)		4,819,936
	Net (loss) income attributable to non-controlling interests	(4,464		)		70,466				(5,683		)		63,176
	Net (loss) income attributable to Snail, Inc. and Snail Games USA Inc.	(4,079,431		)		(1,054,297		)		(7,050,809		)		4,756,760
	Comprehensive income statement:
	Other comprehensive income (loss) related to currency translation adjustments, net of tax	18,707				(31,199		)		21,027				(82,402		)
	Total comprehensive (loss) income	$	(4,060,724	)		$	(1,085,496	)		$	(7,029,782	)		$	4,674,358
	Net (loss) income attributable to Class A common stockholders:
	Basic	$	(879,665	)		$	(1,054,297	)		$	(1,522,005	)		$	4,756,760
	Diluted	$	(879,665	)		$	(1,054,297	)		$	(1,522,005	)		$	4,756,760
	Net loss attributable to Class B common stockholders:
	Basic	$	(3,199,766	)		$	-			$	(5,528,804	)		$	-
	Diluted	$	(3,199,766	)		$	-			$	(5,528,804	)		$	-
	(Loss) income per share attributable to Class A and B common stockholders:
	Basic	$	(0.11	)		$	(0.03	)		$	(0.19	)		$	0.14
	Diluted	$	(0.11	)		$	(0.03	)		$	(0.19	)		$	0.14
	Weighted-average shares used to compute income per share attributable to Class A common stockholders:
	Basic	7,901,145				35,000,000				7,914,096				35,000,000
	Diluted	7,901,145				35,000,000				7,914,096				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 SubsidiariesCondensed Consolidated Statements of Cash Flows(Unaudited)

	For the Six Month Period Ended June 30,	2023				2022
	Cash flows from operating activities:
	Net (loss) income	$	(7,056,492	)		$	4,819,936
	Adjustments to reconcile net income to net cash (used in) provided by operating activities:
	Amortization - intangible assets - license	-				250,000
	Amortization - intangible assets - license, related parties	1,057,971				3,701,959
	Amortization - intangible assets - other	402				448
	Amortization - loan origination fees	20,726				12,557
	Depreciation and amortization - property and equipment	233,170				307,108
	Stock-based compensation expense	385,365				-
	Gain on lease termination	-				(122,533		)
	Gain on paycheck protection program and economic injury disaster loan forgiveness	-				(174,436		)
	Loss on disposal of fixed assets	-				2,433
	Interest income from shareholder loan	-				(580,878		)
	Interest income from restricted escrow deposit	(21,389		)		-
	Deferred Taxes	(1,887,705		)		-
	Changes in assets and liabilities:
	Accounts receivable	1,794,458				4,730,110
	Accounts receivable - related party	(389,042		)		(2,505,580		)
	Prepaid expenses - related party	(2,500,000		)		(4,375,000		)
	Prepaid expenses and other current assets	234,940				(984,632		)
	Other noncurrent assets	(2,903		)		(15,944		)
	Accounts payable	(701,488		)		1,323,972
	Accounts payable - related party	(307,052		)		(222,536		)
	Accrued expenses	1,131,886				363,240
	Interest receivable - related parties	(992		)		-
	Interest payable - related parties	-				1,994
	Lease liabilities	(98,822		)		(69,188		)
	Deferred revenue	(765,599		)		(3,021,554		)
	Net cash (used in) provided by operating activities	(8,872,566		)		3,441,476
	Cash flows from investing activities:
	Purchases of property and equipment	-				(5,256		)
	Repayment on Pound Sand note	-				1,496,063
	Net cash provided by investing activities	-				1,490,807
	Cash flows from financing activities:
	Repayments on promissory note	(46,517		)		(38,759		)
	Repayments on short-term note	(2,916,666		)		(2,083,333		)
	Repayments on revolving loan	(3,000,000		)		-
	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
	Cash dividend declared and paid	-				(8,200,000		)
	Purchase of treasury stock	(257,093		)		-
	Payments of offering costs in accounts payable	(92,318		)		-
	Net cash used in financing activities	(6,312,594		)		(363,985		)
	Effect of currency translation on cash and cash equivalents	21,095				(63,694		)
	Net (decrease) increase in cash and cash equivalents, and restricted cash and cash equivalents	(15,164,065		)		4,504,604
	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	$	4,074,120			$	21,058,719
	Supplemental disclosures of cash flow information
	Cash paid during the period for:
	Interest	$	568,908			$	339,710
	Income taxes	$	270,802			$	828,012
	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 finance activity during the period for:
	Refund of dividend withholding tax overpayment	$	1,886,600			$	-
	Gain on paycheck protection program and economic injury disaster loan forgiveness	$	-			$	(174,436	)