Super League Gaming, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. The filing identifies the registrant as Super League Gaming, Inc.
Business context
The company operates gaming networks, advertising and monetization tools, content channels, and direct-to-consumer gaming services. Revenue comes from advertising and sponsorships, content sales, and direct-to-consumer offers. Its 2021 acquisitions of Mobcrush, Bannerfy, and Superbiz expanded its advertising inventory, creator network, and metaverse offerings; therefore, comparisons with 2021 are affected by changes in the acquired businesses included in each period.
Financial results and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $4.279 million | $1.084 million | $8.047 million | $1.872 million |
| Gross profit | $1.821 million | $0.551 million | $3.680 million | $0.997 million |
| Gross margin | 42.6% | 50.8% | 45.7% | 53.3% |
| Operating expenses | $10.564 million | $6.864 million | $20.384 million | $11.936 million |
| Net loss | $8.720 million | $2.026 million | $16.636 million | $6.651 million |
| Basic and diluted loss per share | $0.24 | $0.07 | $0.45 | $0.28 |
- Q2 revenue increased 295% year over year, led by advertising and sponsorships, which rose to $3.518 million from $0.485 million. Direct-to-consumer revenue increased 102% to $0.473 million; content sales declined 21% to $0.288 million.
- For the first six months, advertising and sponsorship revenue was $5.374 million, content sales $1.693 million, and direct-to-consumer revenue $0.980 million. The six-month content figure included $0.919 million from a product design and software development agreement completed in Q1.
- Q2 cost of revenue rose 361%, faster than revenue, and gross margin fell. Management attributed the margin decline partly to a full quarter of Mobcrush-related influencer marketing revenue, which carries higher direct costs.
- Cash and cash equivalents were $7.069 million at June 30, down from $14.533 million at December 31, 2021. Current assets were $12.997 million and current liabilities $9.487 million.
- Cash used in operating activities was $3.9 million in Q2 and $10.247 million for the first half. First-half investing cash use was $1.221 million; financing provided $4.004 million, primarily from convertible notes. The company ended June with $7.069 million in cash.
- At June 30, the balance sheet included $4.019 million of current convertible notes at fair value. The notes have $4.320 million original principal, 9% annual interest, and a 12-month maturity; conversion and redemption terms may result in dilution or cash repayment obligations.
- Total assets were $86.127 million, including $50.263 million of goodwill and $22.664 million of net intangible and other assets. Stockholders’ equity was $76.168 million; accumulated deficit was $141.928 million.
- Common shares outstanding were 37,043,778 at June 30 and 37,417,313 as of August 13, 2022.
Material changes and unusual items
- Operating expenses increased 54% in Q2 and 71% for the first half, reflecting higher personnel, technology and platform costs, and amortization of acquired intangible assets. Stock-based compensation was $1.0 million in Q2 and $2.099 million for the first half.
- Q2 2021 net loss benefited from a $1.213 million PPP loan-forgiveness gain and a $3.073 million income tax benefit related to a valuation-allowance release. Excluding those noncash benefits, management said Q2 2021 net loss would have been $6.3 million, or $0.23 per share, versus $8.7 million, or $0.24 per share, in Q2 2022.
- In May 2022, the company issued senior convertible notes with $4.320 million original principal and received $4.0 million net proceeds. It also had a $10 million common-stock purchase agreement with Tumim and a separate ATM facility of up to $75 million. Actual equity sales under these facilities were limited during the reported period.
- The company purchased the Roblox game Anime Battlegrounds X for $0.5 million in Q2, capitalized as an intangible asset.
Outlook, risks, and contingencies
- Going concern: Management concluded that recurring losses, operating cash use, and reliance on additional financing raise substantial doubt about the company’s ability to continue as a going concern. Management is pursuing potential strategic partnerships and equity or debt financing, but stated that financing may not be available on acceptable terms, or at all.
- Outlook: Management’s stated priorities are revenue growth, expansion of services and advertising opportunities, strategic partnerships, and cost management. The filing provides no quantitative revenue, earnings, or cash-flow guidance.
- Management reported more than 70 million combined monthly active users, approximately 3.0 billion views and impressions, and 242 million gameplay hours in Q2. These are company-reported operating indicators, not financial results.
- Two customers accounted for 46% of Q2 revenue; three customers represented 52% of accounts receivable at June 30. The company also disclosed dependence on game publishers and online platforms, whose terms could affect advertising and direct-to-consumer activity.
- Convertible-note provisions include potential cash redemptions, default remedies, and conversion terms; the company’s stock-purchase and ATM arrangements may also require share issuance and dilute existing holders.
- The filing reports no legal proceedings and no material change to most risk factors from the 2021 Form 10-K, but adds platform and publisher dependence as a risk. Management said disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Key facts for investors to verify
- Whether revenue growth and reported user, view, and gameplay metrics translate into durable monetization, particularly after accounting for the effect of acquisitions and customer concentration.
- Whether gross margins can recover as the business scales, given the higher direct costs associated with some advertising and influencer revenue.
- Cash runway, operating cash burn, and the company’s ability to obtain financing; review the going-concern disclosure and the full terms and status of available financing facilities.
- Potential dilution and cash repayment exposure under the convertible notes, Tumim purchase agreement, ATM facility, and outstanding equity awards.
- The assumptions supporting the carrying value of goodwill and acquired intangible assets, which together represented a substantial portion of reported assets.