Business context and reporting period
Super League Gaming, Inc. (Nasdaq: SLGG) filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2021. The company operates gaming, esports, creator-content, advertising, and direct-to-consumer businesses. Mobcrush, a live-streaming platform and Minecraft server operator, was acquired on June 1, 2021; its results are included only from the acquisition date.
Financial results and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $1.084m | $0.324m | $1.872m | $0.567m |
| Gross profit / margin | $0.551m / 50.8% | $0.208m / 64.2% | $0.997m / 53.3% | $0.334m / 58.9% |
| Operating expenses | $6.864m | $4.767m | $11.936m | $10.041m |
| Operating loss | $(6.313)m | $(4.559)m | $(10.939)m | $(9.707)m |
| Net loss | $(2.026)m | $(4.560)m | $(6.651)m | $(9.694)m |
| Operating cash flow | Not separately presented quarterly | $(9.925)m | $(8.585)m |
Revenue rose 235% in Q2 and 230% for the six-month period. In Q2, advertising and sponsorship revenue was $485,000, content sales $365,000, and direct-to-consumer revenue $234,000. Q2 revenue included $275,000 from Mobcrush after closing. Cost of revenue grew faster than revenue, reducing gross margin year over year.
Q2 and six-month net losses include a $3.073m income-tax benefit from releasing part of the valuation allowance after the Mobcrush acquisition, and the six-month results include a $1.213m gain from forgiveness of the PPP loan. These items improved reported net loss; the six-month pre-tax loss was $9.724m versus $9.694m a year earlier.
At June 30, cash and cash equivalents were $31.455m, current assets $34.076m, current liabilities $2.950m, total liabilities $2.950m, and stockholders’ equity $98.553m. The company reported no long-term debt after PPP forgiveness. Six-month financing cash flow was $33.437m, principally from stock offerings; operating cash use was $9.925m. Management said cash was expected to fund requirements through at least June 2022, while cautioning that unforeseen needs could accelerate cash depletion.
Material changes and notable items
- Mobcrush consideration was $59.855m in fair value of shares: 12,067,571 shares issued, with 514,633 shares reserved for employee options. The preliminary allocation included $19.5m of acquired intangibles and $43.518m of goodwill. The purchase-price allocation remained subject to finalization.
- First-quarter 2021 stock offerings generated approximately $33.4m net and issued about 7.52m shares. Common shares outstanding increased from 15.48m at December 31, 2020 to 35.34m at June 30, 2021, reflecting financing and acquisition issuances.
- Six-month views and impressions were 5.8bn, including Mobcrush from January 1 for this KPI, versus 808.5m; monthly active users were approximately 3.0m at June 30; gameplay and other engagement totaled about 60.0m hours versus 30.5m.
- On August 11, 2021, the company agreed to acquire Bannerfy for $7.0m: $2.45m initial consideration, partly cash and partly stock, and up to approximately $4.55m contingent on revenue and gross-profit targets through 2023. Closing was subject to conditions.
Outlook, commentary, and risks
Management described continued efforts to monetize advertising inventory, content, and direct-to-consumer products, and expected to expand advertising and content revenue as audience, inventory, and sales activity grow. The filing gives no formal numerical revenue or earnings guidance. Management characterized the Mobcrush combination as strategically complementary and anticipated it would be accretive; this is forward-looking and not a reported result.
Management cited ongoing uncertainty from COVID-19, including possible effects on advertising demand, retail expansion, and in-person esports. Revenue recognition and acquisition fair-value estimates involve judgment; goodwill and intangible-asset valuations may change. Integration of Mobcrush and the proposed Bannerfy acquisition also carry execution risks. Customer revenue concentration improved from prior-year periods, but one customer represented 15% of Q2 2021 revenue; one customer represented 13% of receivables at quarter-end. The company reported no legal proceedings and said disclosure controls were effective; evaluation of Mobcrush’s internal controls was still underway.
Important facts for investors to verify
- Whether Mobcrush integration produces the expected monetization, synergies, and profitability, and whether final purchase accounting materially changes goodwill or amortization.
- Whether revenue growth can outpace operating costs and improve gross margins, given the continuing operating cash use.
- Actual cash runway and funding needs against management’s estimate of liquidity through June 2022.
- Bannerfy closing status, final consideration, performance-based earn-outs, and resulting cash needs and dilution.
- Share-count and stock-compensation dilution, customer concentration, and the treatment of the one-time PPP forgiveness and tax benefit when assessing underlying performance.