Super League Gaming, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. The filing identifies the registrant as Super League Gaming, Inc. (Nasdaq: SLGG). Amounts are in U.S. dollars.
Business context
The company operates gaming and metaverse advertising, content distribution, livestream production and direct-to-consumer offerings. Revenue comes from advertising and sponsorships, content sales, and subscriptions and in-game goods. Management reported more than 70 million unique monthly players across its metaverse gaming network. Comparisons with 2021 are affected by the 2021 acquisitions of Mobcrush, Bannerfy and Superbiz; 2022 includes fuller periods of acquired operations.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $4.508 million | $3.605 million | $12.555 million | $5.478 million |
| Gross profit | $1.789 million | $1.355 million | $5.469 million | $2.353 million |
| Gross margin | 39.7% | 37.6% | 43.6% | 42.9% |
| Operating loss | $52.081 million | $6.973 million | $68.785 million | $17.912 million |
| Net loss | $52.602 million | $6.964 million | $69.238 million | $13.615 million |
| Loss per share, basic and diluted | $1.41 | $0.20 | $1.87 | $0.49 |
Revenue grew 25% year over year in Q3 and 129% for the nine-month period. Q3 advertising and sponsorship revenue rose 50% to $3.538 million; content sales fell 11% to $553,000 and direct-to-consumer revenue fell 33% to $417,000. For nine months, all three categories increased, led by advertising and sponsorships, up 172% to $8.913 million. Nine-month content sales included $919,000 from a product-design and software-development agreement completed in Q1.
The reported losses include a noncash $42.0 million goodwill impairment charge in Q3, reducing goodwill from $50.263 million at year-end 2021 to $8.263 million. Management measured the reporting unit’s fair value at $25.2 million versus carrying value of $67.3 million, using market capitalization after the share price declined 34% during Q3. Q3 results also included $1.836 million of accrued Superbiz earnout compensation. Management reported Q3 net loss of $8.7 million, or $0.23 per share, excluding those two items; this is a company-presented adjusted figure, not GAAP net income.
Liquidity, cash flow and debt
Cash and cash equivalents were $1.143 million at September 30, 2022, down from $14.533 million at December 31, 2021. Current assets were $7.711 million and current liabilities were $11.600 million, implying negative working capital of approximately $3.889 million. Accounts receivable was $5.2 million; two customers represented 41% of receivables.
For the first nine months, operating cash outflow was $16.036 million, investing cash outflow was $1.514 million and financing cash inflow was $4.160 million, resulting in a $13.390 million decrease in cash. Financing inflows included $4.0 million net proceeds from convertible notes; common-stock issuance generated $320,000 net. The filing reports no committed credit lines or significant capital-expenditure commitments.
At quarter-end, current convertible notes payable and accrued interest were reported at fair value of $4.276 million. The notes had $4.320 million original principal, 9% annual interest, a 12-month maturity from May 2022 and a $4.00 conversion price, subject to adjustments and share-issuance limits. Terms include potential redemption requirements, including a right for noteholders to direct 50% of gross proceeds from specified equity financings toward redemption. The notes’ fair value is sensitive to valuation assumptions.
Changes, outlook and risks
- Operating expenses excluding goodwill impairment and the Superbiz earnout were $10.1 million in Q3, versus $8.3 million a year earlier. The company cited personnel and acquired-intangible amortization; technology costs also reflected cost-reduction efforts.
- Management’s stated priorities were expanding services and revenue opportunities, pursuing collaborations and selective acquisitions, and managing or reducing costs. It was exploring strategic partnerships and additional equity or debt financing. The filing provides no quantified revenue, earnings or cash-flow guidance.
- Management stated that losses, operating cash burn and limited cash raise substantial doubt about the company’s ability to continue as a going concern. Continued operations depend on executing its plans and obtaining additional capital; the filing gives no assurance financing will be available on acceptable terms.
- On October 4, 2022, Nasdaq notified the company that its share price did not meet the $1.00 minimum bid requirement. The initial compliance period ran through April 3, 2023; a reverse split or additional compliance period could be relevant, and delisting could impair trading liquidity and access to financing.
- Management cited seasonally stronger advertising in the second half, while warning of economic and advertising-market uncertainty. The company also depends on game publishers and platforms whose terms could restrict advertising or consumer offers. Revenue concentration included two customers representing 26% of Q3 revenue.
- Other notable items: the company bought the Roblox game Anime Battlegrounds X for $500,000; recorded a $423,000 write-down of Mobcrush trademark assets following a rebranding; and accrued Superbiz earnout compensation tied to revenue milestones and continued employment.
Most important facts for investors to verify
- Cash burn, near-term liquidity needs and whether additional financing is available before cash is depleted.
- Convertible-note balance, maturity, conversion and redemption provisions, and potential dilution from debt and equity issuance.
- Progress toward Nasdaq’s minimum-bid-price requirement and the consequences if the company does not regain compliance.
- Whether advertising revenue growth can continue, particularly given customer concentration, platform dependence and broader advertising-market conditions.
- The basis and sensitivity of the $42.0 million goodwill impairment and the likelihood of further impairment or acquisition-related charges.
- Whether the reported 70 million monthly players and growth in advertising inventory translate into sustainable monetization and improved operating cash flow.