Super League Gaming, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. The filing reports results for Super League Gaming, Inc. Mobcrush results are included from June 1, and Bannerfy results from August 24, so comparisons with 2020 are affected by acquisitions.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $3.605m | $0.718m | $5.478m | $1.285m |
| Gross profit | $1.355m | $0.391m | $2.353m | $0.725m |
| Gross margin | 37.6% | 54.5% | 43.0% | 56.4% |
| Operating loss | ($6.973m) | ($4.297m) | ($17.912m) | ($14.004m) |
| Net loss | ($6.964m) | ($4.298m) | ($13.615m) | ($13.992m) |
| Operating cash flow | Not separately stated for quarter | Not separately stated for quarter | ($16.273m) | ($12.674m) |
Q3 revenue increased 402% year over year; nine-month revenue rose 326%. Advertising and sponsorships, content sales, and direct-to-consumer revenue were respectively $2.360m, $0.618m, and $0.627m in Q3. Higher revenue was led by advertising and sponsorships and digital goods, including Mobcrush’s Minecraft properties. Cost of revenue grew faster than revenue in both periods, contributing to lower gross margins. Operating expenses increased 78% in Q3 and 38% for the nine months, reflecting acquisition-related personnel and amortization, higher technology and cloud costs, marketing, and transaction-related professional fees.
Financial position and capital
- At September 30, cash and cash equivalents were $24.512m, versus $7.942m at December 31, 2020. Current assets were $29.320m and current liabilities $4.254m.
- Total liabilities were $4.805m; no long-term note payable remained. The $1.213m PPP loan was forgiven in May 2021, generating a gain.
- Nine-month financing cash flow was $33.501m, largely from $33.390m of net stock issuance proceeds. Operating cash use was $16.273m and investing cash use was $0.658m.
- Common shares outstanding increased to 35.778m from 15.483m at year-end 2020. The company also authorized a potential at-the-market offering of up to $75m, subject to effectiveness of its registration statement; agents’ commission is 3% of gross sales.
Material developments, outlook and risks
- Mobcrush was acquired for stock valued at approximately $59.855m, with $43.560m of goodwill recorded. Its reported contribution from closing through September was $2.1m of Q3 revenue and $2.3m of net loss. Purchase-price allocation remained preliminary. Bannerfy was acquired for a stated purchase price of $7.0m, including initial consideration and contingent payments tied to future revenue and gross-profit targets.
- After quarter-end, the company acquired Bloxbiz on October 4, paying $6.0m at closing ($3.0m cash and $3.0m stock), with up to $11.5m additional consideration tied to revenue milestones.
- Management said cash balances were expected to fund requirements through at least November 2022, while warning that unforeseen needs could deplete resources faster and additional financing might not be available on favorable terms. No formal revenue or earnings guidance is provided.
- Management cited growth in audience metrics: 8.6bn views and impressions and 83m gameplay hours for the first nine months; approximately 5.0m combined monthly active users at September 30. These figures include Mobcrush from January for the views metric and are management-reported KPIs.
- Key risks include continuing losses and operating cash burn, dependence on equity financing, customer concentration (two customers represented 34% of Q3 revenue and 25% of nine-month revenue), integration and execution risks from acquisitions, and uncertainty in advertising demand, including ongoing COVID-19 effects. Goodwill was $46.1m; management reported no impairment, with estimated fair value exceeding carrying value by about $17.2m.
- The filing reports effective disclosure controls and no material change in internal control during the quarter; integration-related control evaluations for Mobcrush and Bannerfy were ongoing. No legal proceedings were reported.
Investor verification points
- Track whether revenue growth translates into improved gross margins and reduced operating losses, particularly as acquired businesses are integrated.
- Verify cash burn, the stated liquidity runway, and any actual sales under the $75m ATM facility and resulting dilution.
- Review final Mobcrush purchase accounting, goodwill and intangible-asset assumptions, and the performance and cash/equity cost of acquisition earnouts, including Bloxbiz.
- Monitor customer concentration and the durability of advertising, sponsorship, and Minecraft digital-goods revenue.
- Assess progress in integrating acquired operations and completing related internal-control evaluations.