Snail, Inc. — FY2023 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2023, and compares results with FY2022. Snail develops and publishes interactive games; the ARK franchise generated 87.8% of FY2023 revenue. ARK: Survival Ascended launched in October 2023. The filing reports 90.7 million ARK console and PC installs and average combined daily active users of 416,479 on Steam and Epic, up from 305,376 in 2022.
Financial performance and liquidity
| Metric | FY2023 | FY2022 |
|---|---|---|
| Revenue | $60.9 million | $74.4 million |
| Gross profit / gross margin | $12.6 million / 20.7% | $21.3 million / 28.6% |
| Operating loss | $10.3 million | $1.6 million |
| Net income (loss) | $(9.1) million | $1.0 million |
| Operating cash flow | $0.5 million | $(3.4) million |
| Bookings, non-GAAP | $85.7 million | $63.7 million |
| EBITDA, non-GAAP | $(9.7) million | $(0.7) million |
Revenue fell 18.2%, while bookings rose 34.5%, mainly reflecting ARK: Survival Ascended sales and substantial revenue deferrals for future DLC. The company deferred about $22 million of Ascended DLC revenue in Q4; deferred revenue totaled $34.3 million at year-end, including $32.5 million in non-refundable payments. Cost of revenue declined 9.1%, but more slowly than revenue. R&D rose 71.1% to $5.1 million and advertising and marketing rose to $1.6 million.
At year-end, cash and cash equivalents were $15.2 million, with an additional $1.1 million restricted. Current assets of $56.7 million were below current liabilities of $71.3 million. Total debt was $12.2 million before discounts and $11.9 million net of discounts; the debt schedule lists $9.5 million of payments due in 2024. Operating cash flow was positive despite the net loss, supported principally by a $24.8 million increase in deferred revenue. Cash, including restricted cash, declined $2.9 million during the year.
Material changes and unusual items
- Revenue declined, but ARK sales increased by $32.7 million; lower mobile sales and prior-year one-time platform payments and deferred revenue contributed to the overall decline.
- The ARK1 license is with SDE, an entity controlled by the spouse of Snail’s founder. Following the launch of ARK: Survival Ascended, the agreement provides for a $2.0 million monthly license fee, a 25% royalty on Ascended revenue and a 40% royalty on ARK: Survival Evolved revenue, subject to stated termination and other terms. Related-party license and royalty costs were significant.
- The filing reclassified certain server-hosting costs between cost of revenue and general and administrative expense. Management said the prior-period errors were not material; the reclassification changed presentation, not reported net income.
- The company recorded a $2.4 million income-tax benefit. Deferred tax assets were $10.2 million net; their realization depends partly on future taxable income from game releases.
- A settlement with Angela Game included a $1.5 million upfront payment, recorded principally as deferred revenue, plus ongoing payments. A separate lease lawsuit seeks damages exceeding $3 million; the company disputes the claim, INDIEV filed for bankruptcy, and no loss accrual was recorded because the potential loss could not be quantified.
Outlook, risks and contingencies
Management outlined 2024 plans including ARK DLC and Nintendo Switch expansion, an ARK Mobile upgrade, premium mods, and a planned second-quarter Early Access release of Bellwright. These are plans, not financial guidance; the filing provides no quantified revenue or earnings forecast.
Management said year-end unrestricted cash and expected receipts were expected to support operations beyond the next 12 months. However, it expected not to meet a quarterly debt covenant for the three months ended March 31, 2024 and was working with its lender. Year-end covenant breaches had been waived for FY2023. Subsequent to year-end, Snail repaid $3.0 million of its revolving loan, the $0.8 million short-term note and the $1.5 million vendor note; it also made payments on convertible notes. The company intended to extend or replace debt arrangements, but success was not assured. It has an equity-line facility of up to $5 million, which could dilute shareholders if used.
Key risks include dependence on ARK and third-party game licenses, concentration in digital platforms and customers, related-party arrangements, near-term debt and covenant risk, competition and game-release execution. Management concluded internal control over financial reporting and disclosure controls were ineffective at year-end because of material weaknesses involving income taxes, expense classification, settlement and revenue allocation, and IT segregation of duties. Remediation is underway. The auditor gave an unqualified opinion on the financial statements but did not attest to internal-control effectiveness.
Most important facts for investors to verify
- Whether 2024 debt maturities and covenant compliance were resolved, and whether any new financing or equity-line sales were required.
- Cash collection and offset progress for the $13.5 million gross receivable from related party SDE, and terms and payments under the ARK licenses.
- Conversion of deferred revenue into recognized sales as DLCs and other releases launch, and whether those releases meet management’s expectations.
- Customer and platform concentration, including the filing’s credit-loss allowance increase and payment delays at a platform partner.
- Progress in remediating material weaknesses, and developments in the lease litigation and other contingencies.