Business context and reporting period
Super League Gaming, Inc. (Nasdaq: SLGG) filed this unaudited Form 10-Q for the three months ended March 31, 2022. The company operates gaming, metaverse advertising and content properties, generating revenue from advertising and sponsorships, content sales, and direct-to-consumer offers. Results include contributions from Mobcrush, acquired in June 2021, and Bloxbiz, acquired in October 2021; Bannerfy was acquired in August 2021.
Financial results and liquidity
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $3.768 million | $0.788 million |
| Gross profit / margin | $1.859 million / 49.3% | $0.446 million / 56.6% |
| Operating expenses | $9.820 million | $5.072 million |
| Operating loss | $(7.961) million | $(4.626) million |
| Net loss | $(7.916) million | $(4.625) million |
| Basic and diluted loss per share | $(0.21) | $(0.23) |
| Operating cash flow | $(6.287) million | $(4.370) million |
Revenue grew 378% year over year, while gross margin declined, which management attributed in part to higher direct costs on Mobcrush advertising revenue. Operating expenses rose 94%, including higher staffing, technology and platform costs, and acquisition-related amortization. The net loss widened 71%.
At March 31, 2022, cash and cash equivalents were $7.784 million, down from $14.533 million at year-end 2021. Current assets were $14.688 million and current liabilities $4.060 million. Total liabilities were $4.532 million; the filing reports no long-term debt at quarter-end and says the PPP loan was forgiven in 2021. Accumulated deficit was $133.208 million. Goodwill was $50.263 million and intangible and other assets, net, were $23.268 million.
Material changes and management commentary
- Advertising and sponsorship revenue increased 328% to $1.856 million; content sales increased 384% to $1.405 million; direct-to-consumer revenue increased 692% to $0.507 million. Management cited expanded advertising inventory and direct sales, live-stream and broadcast projects, and digital goods sales.
- Content revenue included $919,000 from a product-design and software-development-kit agreement completed during the quarter.
- Management reported approximately 3.0 billion views and impressions, 70 million combined monthly active users, and 222 million gameplay hours. These figures compare with 600 million views and impressions, 1 million monthly active users, and 34 million gameplay hours a year earlier; acquisitions materially affect comparability.
- Three customers represented 45% of Q1 2022 revenue, compared with four customers representing 54% in Q1 2021. Two customers represented 32% of accounts receivable at quarter-end.
Outlook, risks, financing and unusual items
- Management said cash balances and available capital-raising facilities were expected to meet cash requirements through at least May 2023. The company nevertheless reported continuing operating losses and cash burn, and stated that failure to execute its plans or obtain acceptable financing could force it to reduce or delay activities, sell assets, default on obligations, or become insolvent.
- On March 25, 2022, the company entered into an optional common-stock purchase facility with Tumim for up to $10 million, subject to conditions and share limits. Purchase prices are based on 95% of a specified three-trading-day VWAP. The company issued 50,000 commitment shares. The facility may result in dilution.
- On May 16, 2022, the company agreed to issue senior convertible notes with $4.32 million aggregate original principal, subject to an 8% original issue discount. Notes bear 9% annual interest, mature in 12 months, and are convertible at $4.00 per share subject to adjustments and issuance limits. Certain provisions allow or require redemption.
- An at-the-market offering of up to $75 million was available under an equity distribution agreement; the company reported no sales under it as of the filing date. The agents’ commission is 3% of gross sales.
- Management concluded goodwill was not more likely than not impaired at March 31, 2022, despite the company’s losses, negative operating cash flow and market downturn. No impairment of long-lived assets was reported.
- The filing identifies COVID-19 and market conditions as uncertainties. It reports no legal proceedings and states that disclosure controls were effective; no material change in internal control over financial reporting was identified during the quarter.
Important facts for investors to verify
- Whether revenue growth and the reported audience and engagement measures translate into sustained, profitable organic growth, separate from acquisition effects.
- Cash-burn trends, the assumptions supporting management’s runway estimate, and actual access to the Tumim facility, ATM offering, and May 2022 note proceeds.
- Potential dilution and repayment or redemption effects from equity facilities, convertible notes, performance stock units, and acquisition earnouts.
- Revenue and receivables concentration, collection timing, and the sustainability of the completed $919,000 customer development agreement.
- The cash-flow statement reports 2021 financing cash flow of $15.566 million, while the MD&A cash-flow table reports $33.437 million and describes stock issuance proceeds of $33.399 million plus $38,000 from option exercises. Reconcile this apparent filing inconsistency.
- Goodwill and intangible-asset carrying values, including assumptions used in impairment assessments and the significant scheduled amortization expense.