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Nov. 15, 2021, 5:39 p.m. EST

10-Q: SUPER LEAGUE GAMING, INC.

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(EDGAR Online via COMTEX) -- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

References in this Quarterly Report on Form 10-Q to "Super League Gaming, Inc." "Company," "we," "us," "our," or similar references mean Super League Gaming, Inc. References to the "SEC" refer to the U.S. Securities and Exchange Commission.

Forward-Looking Statements

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated condensed financial statements and the related notes included elsewhere in this interim report. Our consolidated condensed financial statements have been prepared in accordance with U.S. GAAP. The following discussion and analysis contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), including, without limitation, statements regarding our expectations, beliefs, intentions or future strategies that are signified by the words "expect," "anticipate," "intend," "believe," or similar language. All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. Our business and financial performance are subject to substantial risks and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. In evaluating our business, you should carefully consider the information set forth under the heading "Risk Factors" included Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2020, as well as in Item II, Part 1A of this Quarterly Report on Form 10-Q (this "Report"). Readers are cautioned not to place undue reliance on these forward-looking statements.

Overview

Super League Gaming, Inc. /zigman2/quotes/202401484/composite SLGG -5.70% is a leading metaverse and creator economy platform at the intersection of gaming and pop culture focused on tools and offerings that empower creators, energize players, and entertain fans. Our solutions provide incomparable access to an audience consisting of players in the largest global metaverse environments, fans of hundreds of thousands of gaming influencers, and viewers of gameplay content across major social media and digital video platforms. Fueled by proprietary and patented technology systems, our creator-centric offerings include content tools that power live stream multicasting, a leading metaverse advertising platform, a social media banner monetization platform, and a virtual cloud-based video production division, Virtualis Studios. Combined with vibrant in-game Minecraft communities, a network of highly viewed channels and original shows on Instagram, TikTok, Snap, YouTube, and Twitch, and an award-winning esports invitational tournament series, Super League's properties deliver powerful opportunities for brands and advertisers to achieve impactful marketing outcomes with gamers of all ages.

We generate revenues from (i) advertising, serving as a marketing channel for brands and advertisers to reach their target audiences of gamers across our network, (ii) content, curating and distributing esports and entertainment content for our own network of digital channels and media and entertainment partner channels and (iii) direct to consumer offers, including digital subscriptions, digital goods, gameplay access fees and merchandise sales. We operate in one reportable segment to reflect the way management and our chief operating decision maker review and assess performance of the business.

Matters Affecting Comparability

Acquisition of Mobcrush Streaming, Inc. On June 1, 2021, the Company completed the acquisition of Mobcrush Streaming, Inc. ("Mobcrush") pursuant to which the Company acquired all of the issued and outstanding shares of Mobcrush (the "Merger" or "Mobcrush Acquisition"). Mobcrush is a live streaming technology platform used by gaming influencers who generate and distribute original content to fans and subscribers across the most popular live streaming and social media platforms, including Twitch, YouTube, Facebook, Instagram, Twitter, and more. Mobcrush also operates Mineville, one of six official Minecraft servers in partnership with Microsoft. Upon completion of the merger, Mobcrush became a wholly-owned subsidiary of the Company.

Acquisition of Bannerfy, Ltd. On August 24, 2021 (the "Bannerfy Closing Date"), the Company completed the acquisition of Bannerfy, Ltd., ("Bannerfy") pursuant to which the Company acquired all of the issued and outstanding common shares of Bannerfy. Bannerfy is an intelligent technology platform that enables digital video and live streaming creators to collaborate with tier one sponsors on their social media channels including YouTube through scalable and custom premium placements.

In accordance with the acquisition method of accounting, the financial results of Super League presented herein include the financial results of Mobcrush and Bannerfy for the period from the applicable closing date of the acquisition transaction to the end of the current period presented herein.

-21- Table of Contents

Executive Summary

During the nine months ended September 30, 2021, management continued to focus on monetization with respect to our three primary revenue streams: (1) advertising revenues, (2) content revenues, and (3) direct to consumer revenues. In addition to the strong key performance indicator ("KPI") performance during the periods presented, as described below, we: (i) continued our focus on our premium advertising model for future monetization of our rapidly growing premium advertising inventory, and increased revenues generated from programmatic display and video advertising units; (ii) continued to focus on the monetization of our original and user generated content library and remote production and broadcast capabilities, which emerged as a component of revenue in 2020; (iii) continued to focus on the monetization of the gamer and creator through direct-to-consumer offers, including increases in sales of digital goods, primarily with our Minehut digital property, and the continued rollout of our micro-transaction marketplace; and, (iv) continued to unlock new ways that our content production technology can extend beyond esports, into other entertainment formats representing revenue growth opportunities in the current and future periods. We expect to continue to grow our adverting pipeline across various verticals with the capability to provide brands and advertisers with targeted, high-quality integrations that warrant premium costs per impressions ("CPM") advertising rates.

In addition, we completed our acquisition of Mobcrush, effective June 1, 2021, and continued with the required integration activities, including integration of our sales, engineering and product teams, which we believe will enable us to provide brands, advertisers, and other consumer facing businesses with significant audience reach across the most important engagement channels in video gaming - competitive events, social media and live streaming content, and in-game experiences.

With the acquisition of Mobcrush, we have the potential to reach more than 25 million players per year, three million players per month, with over 400,000 players per day. In addition, we have the potential for a U.S. monthly viewing audience of 85 million, which would create a top 50 U.S. media property according to measurements used by Nielsen. Annually, on a combined basis we have the potential to generate 7.7 billion U.S video views, annually, across live streaming platforms, two billion views on social media platforms, and enable 60 million hours of gameplay on owned and operated platforms. Collectively, we believe the combined companies could generate and distribute over 200,000 gameplay highlights across streaming and social channels per month.

In addition, in August 2021, we completed the acquisition of Bannerfy and focused on the integration of the two companies. The acquisition of Bannerfy reinforces our commitment to helping creators monetize their fan base as they seek to turn their passion into their livelihood and provides brands with access to additional premium inventory from creators through Super League, to establish organic connections with their fans and followers. Based in the United Kingdom, and having already onboarded a strong roster of European gaming creators and brand partners, and as the first international acquisition by Super League, Bannerfy represents another path to expansion of our advertising and sponsorship partner base.

Other Developments

On October, 7, 2021, we announced the acquisition of Bloxbiz Co. ("Bloxbiz"), a dynamic ad platform designed specifically for metaverse environments. Bloxbiz's initial deployment enables brands to advertise across popular Roblox game titles and helps Roblox creators with monetization and game analytics. Bloxbiz's advertising platform reaches more than 25 million monthly active Roblox users across a collection of more than 75 curated, brand-safe games. In-game ads take the form of creative billboards that complement the gaming experience, allowing for natural discovery without interrupting gameplay. The ads are measured through Bloxbiz's advanced technology, which verifies viewability in a 3D space and provides aggregated audience geographic, language, and device data. The acquisition allows us to execute on our strategic plans to extend our existing and expanding presence and reach in the metaverse.

In August 2021, we announced the launch of Pixel Paradise, the world's very first Minecraft Bedrock Server designed from the ground up to prioritize roleplaying while bringing your imagination to life with your friends. In Pixel Paradise, players take a vacation from player vs player competition and are whisked away to an island where creativity and resourcefulness are the most critical skills. Completing tasks will require players to learn how to manage their currency, optimize their resources, and pursue helpful communications with their existing and new friends. For players seeking a little more action, Pixel Paradise offers mini-games based on popular Minecraft game modes. Pixel Paradise is the newest release by InPvP, an official Microsoft Minecraft partner enjoyed by more than 22 million players annually.

-22- Table of Contents

Registered Direct Offerings. During the three months ended March 31, 2021, we offered and sold to certain institutional investors an aggregate total of 7,516,253 shares of common stock in registered direct offerings pursuant to our effective shelf registration statement on Form S-3, which was originally filed with the Securities and Exchange Commission on April 10, 2020 (File No. 333-237626). We received aggregate net proceeds of approximately $33.6 million, after deducting offering expenses.

Impact of COVID-19 Pandemic

The novel coronavirus and actions taken to mitigate the spread of it have had and are expected to continue to have an adverse impact on the economies and financial markets of many countries, including the geographical areas in which the Company operates. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted to amongst other provisions, provide emergency assistance for individuals, families and businesses affected by the coronavirus pandemic. It is unknown how long the adverse conditions associated with the coronavirus will last and what the complete financial effect will be to the Company.

Commencing in the first quarter of 2020, in response to the COVID-19 pandemic and the related uncertainty, advertisers and sponsors across the board inevitably paused to reset their marketing strategies, and as a result, all companies with business models that include sponsorship and advertising revenues felt the impact of the pause in advertising spend industry-wide. In addition, in the first half of 2020, as a result of COVID-19, we felt the impact of the deferral of some of the programs in our pipeline and related revenues to future periods. The majority of our gameplay hours and other engagement occurs digitally, online, so while our "in real life" gaming is a premium and important aspect of our brand, the shift away from retail locations is not expected to have a significant impact on our overall business model over time, which is largely digitally focused.

Although we were impacted by the general deferral in advertising spending by brands and sponsors resulting from the COVID-19 pandemic for a significant portion of fiscal year 2020, we reported significant quarter over quarter growth in revenues in the second half of fiscal 2020, and the first half of 2021 and we expect to continue to expand our advertising revenue and revenue from the sale of our proprietary and third-party user generated content in future periods, as we continue to expand our advertising inventory, viewership and related sales activities.

Notwithstanding the growth in revenues and in user engagement metrics discussed herein, the broader impact of the ongoing COVID-19 pandemic on our results of operations and overall financial performance remains uncertain. The COVID-19 pandemic may continue to impact our revenue and revenue growth in future periods, and is likely to continue to adversely impact certain aspects of our business and our partners, including advertising demand, retail expansion plans and our in-person esports experiences. For a discussion of the risk factors related to COVID-19, please refer to Part II, Item 1A. "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2020.

-23- Table of Contents

Results of Operations for the Three and Nine Months ended September 30, 2021 and 2020

The following table sets forth a summary of our results of operations for the three and nine months ended September 30, 2021 and 2020: (dollars in thousands):







                                       Three Months                                         Nine Months
                                    Ended September 30              Change              Ended September 30              Change
                                     2021          2020          $           %          2021          2020           $           %
        REVENUES                  $    3,605     $    718     $  2,887        402 %   $   5,478     $   1,285     $  4,193        326 %
        COST OF REVENUES               2,250          327        1,923        588 %       3,125           560        2,565        458 %
        GROSS PROFIT                   1,355          391          964        247 %       2,353           725        1,628        225 %
        OPERATING EXPENSES
        Selling, marketing and
        advertising                    2,818        1,476        1,342         91 %       6,236         4,005        2,231         56 %
        Engineering, technology
        and development                3,113        1,430        1,683        118 %       7,215         5,109        2,106         41 %
        General and
        administrative                 2,397        1,782          615         35 %       6,814         5,615        1,199         21 %
        Total operating
        expenses                       8,328        4,688        3,640         78 %      20,265        14,729        5,536         38 %
        NET LOSS FROM
        OPERATIONS                    (6,973 )     (4,297 )     (2,676 )       62 %     (17,912 )     (14,004 )     (3,908 )       28 %
        OTHER INCOME (EXPENSE),
        NET                                4           (1 )          5        N/A         1,219            12        1,207        N/A
        Loss before benefit
        from income taxes             (6,969 )     (4,298 )     (2,671 )       62 %     (16,693 )     (13,992 )     (2,701 )       19 %
        Benefit from income
        taxes                              5            -            5        100 %       3,078             -        3,078        100 %
        NET LOSS                  $   (6,964 )   $ (4,298 )   $ (2,666 )       62 %   $ (13,615 )   $ (13,992 )   $    377         (3 )%
        








        Comparison of the Results of Operations for the Three and Nine Months Ended
        September 30, 2021 and 2020
        Revenue (dollars in thousands)
                                       Three Months                                         Nine Months
                                    Ended September 30,              Change             Ended September 30,              Change
                                    2021            2020          $          %           2021           2020          $          %
        Advertising and
        sponsorships             $     2,360       $   299     $ 2,061        689 %   $    3,279       $   373     $ 2,906       +779 %
        Content sales                    618           378         240         63 %        1,273           817         456         56 %
        Direct to consumer               627            41         586       +900 %          926            95         831       +875 %
                                 $     3,605       $   718     $ 2,887        402 %   $    5,478       $ 1,285     $ 4,193        326 %
        


Revenue for the three months ended September 30, 2021 increased $2,887,000 or 402%, compared to the three months ended September 30, 2020. Revenue for the nine months ended September 30, 2021 increased $4,193,000 or 326%, compared to the nine months ended September 30, 2020. For the three and nine months ended September 30, 2021, two customers accounted for 34% (19% advertising and sponsorship; 15% direct to consumer) and, two customers accounted for 25% (12% advertising and sponsorship; 13% direct to consumer) of revenues, respectively. For the three and nine months ended September 30, 2020, two customers accounted for 43% (28% advertising and sponsorship; 15% content sales) and four customers accounted for 54% (40% advertising and sponsorship; 14% content sales) of revenues, respectively.

-24- Table of Contents

The increase in revenues for the three and nine months ended September 30, 2021 primarily reflects (1) strong increases in direct sales and programmatic advertising revenues, on our owned and operated, and our partner's digital channels, reflecting increasing monetization of our expanding premium advertising inventory, relative to the prior year comparable periods, (2) increases in revenues generated from our live stream, remote production and broadcast related content sales activities, and (3) increases in direct to consumer revenues, primarily driven by digital goods sales revenues for Mobcrush's Mineville and Pixel Paradise Microsoft Minecraft server properties. The increase reflects Mobcrush related advertising and sponsorship revenues, content revenues and direct to consumer revenues totaling approximately $2,074,000 and $2,350,000 for the three and nine months ended September 30, 2021. Excluding the impact of the Mobcrush Acquisition, total revenues for the three and nine months ended September 30, 2021 increased $813,000 or 113%, and $1,843,000, or 143%, respectively.

Advertising and sponsorship revenues for the three and nine months ended September 30, 2021 increased $2,061,000, or 689%, and $2,906,000, or 779%, respectively. The increase for the three months ended September 30, 2021 was primarily due to a 320% increase in our direct sales advertising revenue generating customers, driven in part by the full quarter of Mobcrush revenues, and an 87% increase in the average revenue per customer during the three months ended September 30, 2021, as compared to the prior year comparable quarter. The increase for the nine months ended September 30, 2021 was primarily due to an 189% increase in our direct sales advertising revenue generating customers, driven in part by four months of Mobcrush revenues, and a 200% increase in the average revenue per customer recognized during the nine months ended September 30, 2021, as compared to the prior year comparable period. Revenues for the three and nine months ended September 30, 2021 included Mobcrush related advertising and sponsorship revenues totaling approximately $1,449,000 and $1,566,000, respectively. Excluding the impact of the Mobcrush Acquisition, advertising and sponsorship revenues for the three and nine months ended September 30, 2021 increased $612,000 or 205%, and $1,340,000, or 359%, respectively.

The increase in advertising and sponsorship revenues for the three and nine months ended September 30, 2021 also reflected an increase in programmatic display and video advertising revenues within our Minecraft digital property, Minehut, of $36,000, or 68%, and $224,000, or 226%, respectively, compared to the prior year comparable periods, during which our programmatic advertising revenue programs were in the early stages.

Content related revenues for the three and nine months ended September 30, 2021 increased $240,000, or 63%, and $456,000, or 56%, respectively. The change was primarily driven by an increase in our live stream, remote production, broadcast and gameplay related content sales activities during the three and nine months ended September 30, 2021, including broadcast and or gameplay projects with Endemol Shine North America, a division of Banijay, AVY Entertainment (DBA Tempo Storm), Aftershock Media Group, Topgolf Entertainment Group, Hitbox, LLC d/b/a Next Generation Esports and GenG.

Direct to consumer revenues for the three and nine months ended September 30, 2021 increased $586,000, or greater than 900%, and $831,000 or 875%, respectively, compared to the comparable prior year periods.

Direct to consumer revenues, prior to the acquisition of Mobcrush, were primarily comprised of revenues generated from our Minehut digital property, which provides various Minecraft server hosting services on a subscription basis and other digital goods to the Minecraft gaming community. Minehut revenues, while in the early stages of development, continue to grow period to period, increasing 101% and 136% for the three and nine months ended September 30, 2021, respectively, compared to the prior year comparable periods.

Mobcrush generates direct to consumer in-game platform sales revenues through the sale of digital goods, including cosmetic items, durable goods, player ranks and game modes, within our Mineville and Pixel Paradise gaming servers, which leverage the flexibility of the Microsoft Minecraft Bedrock platform, are powered by our InPvP cloud architecture technology, and represent two of the seven official Microsoft Minecraft partner servers. Revenue is generated when transactions are facilitated between Microsoft and the end user, either via in-game currency or cash. Direct to consumer revenues for the three and nine months ended September 30, 2021 included Mineville and Pixel Paradise revenues totaling $545,000 and $703,000, respectively.

Although we were impacted by the general deferral in advertising spending by brands and sponsors resulting from the COVID-19 pandemic for the first and second quarters of 2020, and throughout fiscal year 2020, we reported significant quarterly revenue growth in the second half of fiscal 2020 and in the first, second and third quarters of 2021, compared to the comparable prior year periods, and we expect to continue to expand our advertising revenue and revenue from the sale of our proprietary and user generated content in future periods, as we continue to expand our premium advertising inventory, viewership and related direct sales activities.

Cost of Revenues (dollars in thousands)

Cost of revenues for the three and nine months ended September 30, 2021 increased $1,923,000, or 588%, and $2,565,000, or 458%, compared to the 402% and 326% increase in related revenues, respectively, for the same periods. The increase in cost of revenues was primarily due to the increase in related revenues for the periods presented. The greater than proportionate increase in cost of revenues was primarily due to the inclusion of a full fiscal quarter of Mobcrush related direct sales advertising revenues with higher direct cost profiles during the three and nine months ended September 30, 2021 and a decrease in original content sales revenues during the three months ended September 30, 2021.

Cost of revenues includes direct costs incurred in connection with the satisfaction of performance obligations under our revenue arrangements including internal and third-party engineering, creative, content, broadcast and other personnel, talent and influencers, content capture and production services, direct marketing, cloud services, software, prizing, revenue sharing fees and venue fees. Cost of revenues fluctuate period to period based on the specific programs and revenue streams contributing to revenue each period and the related cost profile of our physical and digital experiences, and advertising and content sales activities occurring each period.

-25- Table of Contents

Operating Expenses (dollars in thousands)

Refer to the table summarizing our results for the three and nine months ended September 30, 2021 and 2020 above.

Noncash stock-based compensation expense for the periods presented was included in the following operating expense line items (dollars in thousands):







                                  Three Months                                            Nine Months
                              Ended September 30,               Change                 Ended September 30,             Change
                               2021
                                               2020          $           %            2021            2020          $           %
        Sales, marketing
        and advertising    $        288       $   272     $    16           6 %    $      708       $    668     $    40           6 %
        Engineering,
        technology and
        development                  41            51         (10 )       (20 )%           98            199        (101 )       (51 )%
        General and
        administrative              307           147         160         109 %           803            703         100          14 %
        Total noncash
        stock
        compensation
        expense            $        636       $   470     $   166          36 %    $    1,609       $  1,570     $    39           2 %
        


Selling, Marketing and Advertising. The increase in selling, marketing and advertising expense for the three months ended September 30, 2021 was primarily due to an increase in personnel costs associated with the acquisition of Mobcrush and the integration of a total of 26 former Mobcrush employees, effective June 1, 2021, sixteen of which are included in our commercial and product functions. In addition to the impact on personnel costs arising from the Merger, the change reflects a net increase since the end of the prior year comparable quarter of approximately six net full-time employees in connection with the increase in our inhouse direct sales and marketing team, focused on monetization and personnel in our creative and content functions. The increase in selling, marketing and advertising expense also included the amortization of partner, customer and advertiser related intangibles acquired in connection with the acquisition of Mobcrush totaling $503,000. The change also reflects an increase of $183,000 in digital marketing expense in the third quarter of 2021, compared to the prior year comparable quarter, during which lower marketing costs were incurred due to the impact of the COVID-19 pandemic.

The increase in selling, marketing and advertising expense for the nine months . . .

Nov 15, 2021

COMTEX_396991291/2041/2021-11-15T17:38:38

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/zigman2/quotes/202401484/composite
US : U.S.: Nasdaq
$ 1.82
-0.11 -5.70%
Volume: 198,855
Jan. 27, 2022 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$69.05 million
Rev. per Employee
$122,667
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