Thank you for standing by, and welcome to Snail, Inc.'s second quarter 2026 earnings conference call and webcast. I would now like to turn the call over to Stephen Shinmachi with Investor Relations.

Thank you, and good afternoon, everyone. Welcome to Snail, Inc.'s second quarter 2026 earnings conference call and webcast. Joining us for today's call are Snail, Inc.'s Chief Executive Officer, Hai Shi, Chief Financial Officer, Heidi Chow, and Senior Vice President, Director of Business Development and Operations, Peter Kang. The company's second quarter 2026 earnings press release was filed earlier today and is available on the investor relations section of Snail, Inc.'s website at www.snail.com or the SEC's website at www.scc.gov. During this call, management may make forward-looking statements regarding future events and the future financial performance of the company. Actual events or results may differ materially from our expectations, and forward-looking statements are subject to certain risks and uncertainties. Please refer to the company's Form 10-Q that has been filed with SEC and other SEC filings. The company makes these forward-looking statements as of today. It disclaims any duty or obligation to update them or to release public updates or revisions to any forward-looking statements to reflect any change. and its expectations or any change in events, conditions or circumstances on which any statement is based. Additionally, on today's call, we refer to bookings and EBITDA, which are non-GAAP financial measures and provide useful information for the company's investors. You will find the 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 will turn the call over to Peter Kang Senior Vice President and Director of Business Development and Operations of Snail. Sir, please proceed.

Thank you and good afternoon, everyone. Thank you for joining us today to review our financial and operational results for the second quarter ended June 30th, 2026. Over the last several months, we have made encouraging strides across our gaming pipeline and diversified content roadmap through DLC releases, console launches, Chow, Chow, Chow, Chow ASC sold approximately 574,000 units with average DAU of approximately 105,000 and peak DAU of approximately 131,000. ASA sold approximately 1.2 million units with average DAU of approximately 120,000 and peak DAU reaching over 155,000. and across ARC Mobile, average DAU was approximately 129,000, while total downloads exceeded 13 million. We are also pleased with the progress we have made in executing our ARC content pipeline. Starting in May, we released the ARC Fantastic Tames Season 1 Pack, which included three DLC creatures. Burlback, Cerberax, and Enigmasaur. Burlback was available at launch, while the latter two creatures are scheduled for release during the third and fourth quarter, respectively, to extend the pack's content cadence through year end. And more recently, early July marked the return of the iconic Genesis Part 1 DLC to ASA. and the Unreal 5 Engine Experience. In tandem with Genesis, we released ARK Tides of Fortune, a new premium expansion that transformed the Genesis Ocean into a massive map-wide natural frontier. And alongside these two DLC releases, we also shadow dropped ARK Dragontopia. Content for the Dragontopia DLC will be released in phases throughout 2026, with DOC owners expected to receive included content updates throughout Q3 and Q4. Together, these launches further expanded the ASA experience and established a strong foundation for the additional ARC content planned through 2027. Beyond ARC, we officially launched Bellrite on PlayStation and Xbox during the second quarter. Tellwright originally launched in 2024 as an Early Access Steam title and has since achieved over 1 million lifetime units sold, over 46.4 million playtime hours, and maintained a very positive Steam rating for the past two years. The strong and established Steam following carried into the console launch as well. Following the launch on console platforms, Bellwright reached the top five paid games list on Xbox and earned strong early user ratings on both PlayStation and Xbox. Additionally, during the first 30 days after the console launch, combined console DAU demonstrated positive early engagement, suggesting console monetization potentials. During a relatively measured second quarter for new game and content releases, Felrise Sales helped support our overall performance. More importantly, its success reinforces our confidence in expanding beyond the Arc IP. Our rich history in the sandbox survival genre continues to support our broader diversification strategy, and we remain focused on growing this portfolio as we evaluate New Investments and Pipeline Opportunities. Operationally, we are pleased to report a new initiative through our subsidiary, Eaglefold, which is focused on the development of our new AI technology. Just last week at the AI4 conference, we introduced the AI Ranch Initiative and unveiled a new product called the Non-Human Player, or NHP. At its core, NHP is an AI companion designed for gamers. Unlike traditional NPCs or scripted bots, NHP is intended to behave, learn, and adapt like a real human teammate to ultimately create a personalized and dynamic AI partner through a player's gaming journey. What makes NHP unique is its approach to understanding games. Rather than relying on scripts, APIs, or game modification, NHP observes the game the same way a human player would. It watches the screen, interprets what is happening in real time, understands players, objectives, environments, and user interfaces, develops a plan, and then executes actions through standard keyboard and mouse inputs. Over time, The technology is designed to learn from each user's play style and preference, creating an increasingly personalized companion experience. Our vision is for NHP to accompany users across multiple game titles, helping them not only enjoy games more, but also improve their skills and shorten the learning curve when entering new games. We believe this technology has the potential to address several common challenges faced by both casual and hardcore gamers. These include difficulties finding reliable teammates, frustrations with inconsistent multiplayer experiences, the repetitive nature of content grinding, and the time required to learn increasingly complex games. NHP is being developed to serve as an AI partner that adapts to each player's individual goals and preferences to help elevate the overall gaming experience. To illustrate the concept, imagine a virtual pet that can play chess against you, learn how you play, and help you improve your game. That is the type of personalized consumer experience NHP aims to deliver. This new initiative reflects a broader effort to expand Snail's growth platforms while staying anchored in the communities, creators and gameplay experiences that define our core business. As we move through the second half of the year and into 2027, We are pairing this new initiative with a clear slate of gaming content designed to sustain engagement, broaden our portfolio, and support long-term revenue diversification. As we look ahead to the rest of the year, our gaming content pipeline is well-defined. Across ARK, we have phased releases planned for the Fantastic Games Pack and Dragontopia DLC throughout Q3 and Q4. In addition, ArcMaker, our content creation tool, and the return of survival of the fittest are slated for launch in the second half of 2026. At IGN Live in June, we unveiled a teaser trailer for ArkMaker as we continued preparing for the tool's official launch and also released new details about the upcoming Ark animated series ahead of Part 2's return to Paramount+. We're also pleased to share updates across the PixArk franchise. In addition to PixArk Worlds, which we unveiled in March, We recently announced the upcoming PixArc TerraCrypt DLC. TerraCrypt marks the largest paid DLC expansion for PixArc and is planned to introduce more than 200 hours of gameplay, 80 new creatures, and a vast new environment designed to extend player progression and exploration opportunities within the PixArc universe. We were pleased to showcase a playable demo at the China Joy event as we are preparing to launch the DLC this fall. With much of the upcoming ARC content centered around ASA, we are pleased to include Pixar's largest paid DLC expansion into our pipeline as well. Lastly, we are pleased to highlight continued progress across our three highly anticipated AAA titles in development. For the stars, Nyan Sutra Immortal and Nyan Sutra Musha. In April, we released a new developer diary for For the Stars, offering an in-depth look at the upcoming game's development progress, new pre-alpha footage, and unreleased concept art. We also plan to showcase For the Stars at the upcoming Gamescom event later this month, alongside ASA, Bellwright, Honeycomb, and another internally developed AAA title. In addition, Nyan Sutra Immortal headlined our attendance at the ChinaJoy event. Making its public debut at the event, we released a new trailer alongside the game's official Steam page, marking a significant moment in the title's development cycle ahead of its release. As a reminder, the two Nyan Sutra titles currently in development builds on established Eiji Wushu IP. which has a loyal fan base in China. Nian Sutra Immortal will aim to deliver an open-world sandbox cultivation experience aligned with current Chinese gaming market trends and preferences while introducing a new experience to that established community. To reiterate, the three AAA titles in our pipeline continue to represent a significant growth driver for Snail These titles mark an important step in diversifying beyond the Arc IP and establishing new, lasting franchises at a larger scale than we have historically pursued. As we advance these projects towards launch, we are focused on building durable communities, expanding our addressable audience, defining ourselves as a multi-franchise developer and publisher, and positioning Snail Thank you, Peter, and good afternoon, everyone.

Thank you all for joining us today as I reveal our financial results for the second quarter and six months in June 30th, 2026. Net revenue for the quarter was 19.7 million compared to 22.2 million in the same period last year. The decrease was primarily due to a 4.2 million decrease in sales of ASA, 1.8 million decrease from ASE, 400,000 decrease from Arc Mobile, 200,000 decrease from Saughty TV, and 200,000 decrease of other various titles, offset by a 1.5 million revenue increase from Bellwright and 2.8 million changing deferred revenues. Net revenue for the six months ended increased 11% to 47 million compared to $42.3 million in the same period last year. The increase was primarily due to a $3.6 million increase in sales of Bellwright and a $5.3 million change in deferred revenues, partially offset by a decrease in ASE revenue of $2.7 million and a decrease of $1.4 million attributable to lower sales of ASA. Net loss for the quarter improved to loss of $3 million compared to a net loss of $16.6 million in the same period last year. The improvement is primarily due to the absence of the $14 million income tax provision recorded in the prior year and the improvement in gross profit, partially offset by higher G&A and R&D expenses. Net loss for the six-month period improved to a loss of $900,000 compared to a loss of $18.5 million in the same period last year. The improvement was primarily due to the absence of the $12.4 million income tax provision recorded in the prior year period, which resulted from the valuation allowance recognized against the company's deferred tax assets. together with a 6.5 million improvement in gross profit. EBITDA for the quarter was loss of 3 million compared to a loss of 2.4 million in the same period last year. The slight decrease was primarily due to an increase in net income of 13.5 million and a decrease in depreciation expenses of 100,000 offset by an increase in the provision of income taxes of $14 million. EBITDA for the six-month period increased 88.8% to a loss of $600,000 compared to a loss of $5.8 million in the same period last year. The increase was primarily due to a decrease in net loss of $17.6 million, offset by a decrease in provision for income taxes of $12.4 million. Total units sold for the quarter were $2 million compared to $2.1 million in the same period last year. The slight decrease was due to a decrease in sales of ARK franchise IP by 200,000 units. partially offset by an increase in sales of Bellwright of 100,000 units. Total units for the six-month period increased 500,000 to 4.2 million compared to 3.7 million in the same period last year. The increase was primarily due to increased sales of ASA of 1 million units and an increase in Bellwright sales of 200,000 units. partially offset by a decrease in ASE sales of 700,000 units. Bookings for the quarter was 21.8 million compared to 27.1 million in the same period last year. The decrease was primarily due to lower sales of ASE and ASA, partially offset by booking generated from Bell Wright. Bookings for the six-month period decreased slightly to $48.7 million compared to $49.4 million in the same period last year. The slight decrease is primarily due to lower sales of ASE as the title continued to mature and consumer demand shifted towards ASA and its related downloadable content, upset by increased sales of ASA and Bellwright. which benefited from promotional pricing during that period. Lastly, as of June 30th, 2026, unrestricted cash was $13.3 million compared to $8.6 million as of December 31st, 2025. To review our detailed financial statements, please refer to the earnings press release and the Form 10-Q file with the SEC. We would like to emphasize that our Q2 results reflect the timing shift of our Title Fortune and our Genesis Part 1 Ascendant, both of which launched in early July rather than in June of 2026, as originally scheduled. As a result, the related contribution moved into the third quarter. As a reminder, We expect to recognize approximately 11 million from our deferred revenue balance in connection with the launch of Genesis Part 1 Ascended DLC, in addition to sales from Tyson Fortune in the third quarter of 2026. Additionally, we launched the Our Fantastic Team Season 1 pack in May 2026. Because the pack includes three creatures, that are being released in phases. We do not recognize all revenue generated from the DLC in the second quarter. One of the three creatures was delivered to DLC owners at launch, while the remaining two are scheduled for releases in Q3 and Q4. Accordingly, we recognize one-third of the sales related to the fantastic Tames Pack in Q2 and expect to recognize the remaining two-thirds as the additional creatures released in Q3 and Q4 respectively. Our Dragontopia shadow drop in July 2026 alongside Ties of Fortune and Genesis Part 1 ascended. Owners of the Dragontopia DLC will receive included content updates throughout Q3 and Q4. Thus, Similar to revenue recognition treatment for the Our Fantastic Team Season 1 pack, the Dragontopia revenue will be recognized in phases during Q3 and Q4 as those content updates are delivered to DLC owners. The portion of revenue associated with content that has not yet been delivered is and will be reflected in our deferred revenue balance through Q3. The successful July launches of these DLCs, together with the robust gaming pipeline Peter previously outlined and additional planned content releases in Q3 and Q4, position us well to build momentum through the remainder of the year. Lastly, turning to our stablecoin initiative, Our USDO coin continues to make encouraging progress towards launch readiness. We have been building the platform infrastructure required to support wallet management, minting and burning, blockchain transfers, and KYC verification. We are also engaging proactively with regulators, and our money transmitter license applications have been submitted across multiple states. Our vision for USDO includes multiple distribution channels operating in parallel. We are also evaluating a real-world on-ramp through the deployment of crypto ATMs in California to start. As with our exploration of AI, we believe stablecoin technology represents an opportunity to extend our technological capabilities into new markets and develop additional revenue streams that can strengthen the business over time. The July DLC launches, the schedule rolled out of additional DLC content, a robust gaming pipeline, new business initiatives, together with the continued progress on USDO give us multiple avenues to build momentum through the remainder of 2026. This concludes our prepared remarks. We will now open the line for Q&A. As a reminder, some answers during the Q&A session may be answered in Chinese by our CEO before being translated into English. Operator, please proceed.

Thank you. As a reminder, to ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. One moment for questions. Our first question comes from Michael Kopinski with Noble Capital Markets. You may proceed.

Thank you for taking the questions. Good evening, everyone. Q2 was the first quarter under the reduced ARC licensee fee structure. And I know that you quantified that there would be approximately one and a half million of quarterly savings How much of that was realized in the quarter? And maybe you could just talk a little bit about whether or not you're at this point retaining that savings or are you reinvesting it elsewhere in the business?

Hi, Michael. Thanks for the question. So in Q2, as you mentioned, from April of 2026, We started to have, we save on the licensing fee of approximately $500,000 on a monthly basis, which is about $1.5 million. We are actually, you know, for the money that we save, of course, we are reinvesting that into our future games as well, our in-home development. But the savings definitely improve on our company's gross profit, as you can see from Q2. Chow, Chow, Chow, We have to recognize our revenue according to accounting standard codification 606. When we have a performance obligation that we have not met yet, we will have to defer the revenue. So some of our game, when we have a content that we have not released it yet, so we will have to record that as a deferred revenue. Once the game is released, that will turn the deferred revenue to revenue. A big portion on our balance sheet right now related to deferred revenue are actually a component from the ASA release. When we released ASA back in 2023, there was also five maps that were attached with the ASA. Genesis 1 and Genesis 2 were part of the map. We, Genesis 1 was released in beginning of July of 2026. So which means that we, because of a few days of delay, we were not able to recognize that in Q2 as revenue, which it was, as of right now, we didn't know it got released. So it will be recognized as Q3 revenue in related to Genesis 1.

Gotcha. Thanks, Heidi. And a quick question here on the gross profit. Margins obviously are higher, but the Q2 operating expenses also increased. I was wondering if, you know, obviously it sounds like your second half is going to be really strong on the revenue side. I was just wondering if you can maybe give us some thought about how the expense run rate looks for the second half and maybe the current R&D levels. Are they kind of approaching the peak as these AAA titles advance further? through the development at this point?

Yeah, yeah. Most of our investment to our future development game are closing to the end right now. So we also not anticipated to have significant amount of increase in the future quarters for the new games that we will be launching. Our GNA expenses is also consistent quarter over quarter. So we're expecting consistent GNA expenses and also R&D expenses. We're not expecting any significant changes quarter over quarter.

And if I can just put one last one in. On your stablecoin, what are the next hurdles at this point for rollout?

In regards to our stable coin right now is for management. We are already submitted our application to the various states that we choose to conduct business in those states. The application has already been submitted. We're waiting to hear back from the state upon their review of the application.

Gotcha. All right. That's all I have for now. Thank you.

Thank you, Micah.

Thank you. This concludes Snail, Inc.'s second quarter 2026 conference call. If your question was not taken, please contact Snail, Inc.'s IR team at snal at gateway-grp.com. Thank you for your participation.

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