Q3 2019 Earnings Call
Revenues in the corner with varying direct costs profiles.
However, on a year to date basis.
Most of revenues remained relatively flat despite the 28% increase in related revenues due to the realization of operational efficiencies, resulting in lower direct cost for Super League physical until experiences during the year to date 2019 period.
Third quarter 2019, operating expenses were 4.6 million compared to 3.6 million in a comparable prior year quarter.
The increase was primarily due to our continued focus on highgrading, our staff rather than large headcount expansion, including a net increase in engineering headcount to support the company's technology platform development.
And and increase in technology platform infrastructure costs insurance and other corporate public company expensive.
We continue to be committed to investing in <unk> appropriately to meet the top line and growth needs of the company.
On a gap basis net loss and the third quarter of 2019 was 4.4 million or 52 cents per share compared to a net loss of 5 million or one dollar and nine cents per share in the comparable prior year Porter.
Noncash charges in the third quarter of 2019 included 737000 in noncash stock based compensation expensive.
Pro forma net loss, which is which excludes the impact of noncash debt related interest charges and 2018.
Noncash stopped compensation charges and other noncash Chargers worth three was 3.7 million for the third quarter of 2019, compared to 2.6 million and the comparable prior year quarter.
The increase in pro forma net loss was primarily due to the same operational expense fluctuation factors cited earlier.
As described in our earnings release, and eight K. filed with the S.C.C. today pro forma net income or loss is a non gap measure that we believe investors can use to compare and evaluate our financial results along with other uplift double K.P. eyes and metrics discussed by an earlier.
Please note that our earnings release contains a more detailed description of our calculation a pro forma net loss as well as a reconciliation oh perform a net loss with the most directly comparable financial measures prepared in accordance with gap.
From my balance sheet perspective, we ended the third quarter of 2019, what 12.6 million in cash no debt and total shareholders equity of 17.2 million.
With that I will turn the call back over to and for some additional remarks and.
Great. Thanks Clayton.
In summary, we're excited has ever about the opportunities we see in front of us to grow that business for well positioned to be at the epicenter of these sports for the widest set of competitive gamers.
Materially, beating all K.P. eyes, we set out at the start a year, we expected the combination of executing our plan and achieving our K.P. eyes will result in significant shareholder value enhancement.
There is one thing that I want to make sure that all of you understand about Super League and that's a fact that we are positioned very differently than a lot of the other sports players out there we own our customers and we always have so while you hear a lotta people talking about <unk>, we are very uniquely positioned to some.
One who already has been amassing over several years.
Buried deep community of gamers.
Yes, we have solid be to be partnerships, as well, which provide us leverage in modernization its own right, but the gamers aren't just coming to super like the transaction, they're coming to engage to share and to belong as our platform continues to become more multi dimensional we can fill in more and more of a competitive gamers entrust becoming.
A girl to their gaming life.
And with that Clayton and I will now take your questions.
Thank you operator.
Thank you as a reminder to ask a question you would need suppressed star one on your telephone so which are your question press the pound key please stand by while with <unk> roster.
Our first question comes from Mark Argento from Lake Street Capital. Please go ahead.
I am equate and or a couple of questions one of the drill down a little bit.
In regards I mean subscription offering that you launched prime offering for who'd just said it was 799 a month.
Yeah people young you in a little bit and tell us what what is.
Employer costs for subscriber getting.
For for the the monthly fee.
Yeah. So as I mentioned were initially starting that.
These as an offer an enhanced offer these gaming centers that I spoke about and I I do want to clarify the reason that that is extremely by intention even though prime is intended over time to be something that people can access and find value from at home too, but when we talk to some real experts and the subscription business.
What they talked about as the challenge that so many companies have and launching subscription from zero.
And when they heard that we had an opportunity to take that captive audience of those 1.6 million registered users that those gaming centres. Those 200000 monthly uniques. They got really excited about the idea of in a way almost starting with a locked in customer base. So the way that we have designed prime out of the gate is speaking <unk>.
Ugly to those people that are already coming and are loyal users of those gaming centres. So usually those people walk in they sit down behind a P.C. scream and they start game play.
Once Super like League Prime is launched in their gaming center, they'll now come in and they'll see Super League branding they'll see they're Super League account, which is their player profile, but it's also managing their loyalty points and rewards and they'll also be prompted to upgrade that loyalty account to a prime account.
So out of the game they will become Super League registered users, but then on top of it we will have a way to upgrade them to the paid subscription so much like a freemium motto like you see so much in the gaming industry for $7.99 a month that player we'll get to free game play hours.
Month at that gaming Sinner, typically I gave me centres charge at a minimum $5 an hour. So that's $10 a value out of the gate.
Will also earn S.P., which is the name of our loyalty point system at F. five x. acceleration, so they'll earn points faster for their game play and then there are additional other types of member benefits that really we believe when package together out of the gates hopefully makes it a bit of a no brainer to upgrade and.
See immediate value there is a local vault that occurs. So this is the local gaming sinner, operator, who puts free things into the evolved for people to take that's not our liability. This is their incentive or marketing program to get more people to to keep coming back to their location versus compared to.
Gaming Center, so you might be able to get a mountain dew or a piece of pizza with your points, but then Super League as well has a super vault, which is where you'll see all kinds of neat items things that we're getting from the professional teams from a lot of our brand partners that are just added things that gamers can really save loyalty points up to earn.
So there'll be that extra access to the super vault as well, which we think will make the loyalty program have a lot of sticking us to it.
And a big objective that we have is obviously to ensure that a lot of that vault is really free marketing for brands and so it's not us per carrying those items for the most part those are things that actually brands are using our vault as a way to advertise and reach our players.
But I don't know, it's probably a little premature, but when you think about the gross margin profile, putting putting aside pills for acquisition and all that just now costs of good looking is this a prime awkwardness you thought about what kind of gross mugging, but might look like if you get it ramp up.
I mean, certainly we've always felt that consumers subscription should have a very strong margin profile to it right. So early on and we certainly are being kind of margin obsessed right. We really want to get traction we want to start to understand the lifetime value of our players. We really this this approach of starting first with this captives.
And so these gaming centres does mean, a pretty low to know customer acquisition costs, which is great. But certainly we're trying to make the offer attractive that said, we're very conscious about the unit economics of a subscription and not making sure that it is profitable out of the gate, even if it's in a small way and then we know that we can figure out ways to further and.
Hansen grow that margin, but we we want to invest in it the gate right. We want to really get some quick adoption and take up and really use this beta launches a way to really get smarter and smarter about how to fine tune. It. So not only is it super compelling to the gamer, but equally that it. It does exactly was intended to do which is to be a material.
Piece of revenues for us going forward and absolutely to flow cash back to the company.
<unk> last question for me you guys done a really nice job.
Laid out 2019 to your wrist kind of trying to create scale try to crude increased users looks like all about taking place you pivot towards Mama position.
You know what are the one or two things we need to really be focused on here is it yeah <unk>, yeah that kind of the streaming game play out a frame rate what.
What are the thing you know the the lowest a low hanging fruit in terms of the ability to actually start you know charging for a T.T. that we could look look for in the next couple quarter.
Well I mean, certainly I've put some some metrics out right I've given you some proved points of when we've been able with life experiences to reach you know 100 dollar plus C.P.M. real real brand integrations. We've done this year that have been digital only so therefore super low costs related to them and I've been able.
To extract out 40 to $50 C.P.M., even when we go out to brands now with this new AD inventory that we have this much greater inventory that we've just developed with all that digital reach.
Because it's such a premium by as I mentioned, it we're not going out and saying Hey take this off our hands for one or two Bucks. This is still were were pricing. These deals that 15 2020 $5 C.P.M. So you know some some people a math math of digital audiences and then right out of the gate start commoditizes in their inventory we've been much.
More selective in top down so today we've used.
About one per cent of her available inventory with these very strategic brand partnership. We're just moving down to that next here what are relevant brands. We can bring in in monetize that inventory, but it's not at just about slapping irrelevant logos that cheap cpms, we don't need to do that I think we're going to have a much better.
Brand and strategy five by maintain that premium quality lands. If there were two things I'd say keep an eye on.
You know.
I gave you a point of view, let the floor of our advertising inventory was worth when I said that if I just fully just sold it out at 15 Bucks a C.P.M. today. It was about 5 million a value you can see how much exponentially we've been growing that digital audience. So as that grows that number.
Gross I didn't set for you the ceiling.
That inventory.
And keep in mind again that AD inventory is in addition to those brand partner sponsorship revenue stream. The second thing is let's keep an eye on how we start to prove that we can monotypes the game or themselves.
Great. Thank you.
Thank you on next question comes from lower Martin from need them. Please go ahead.
Hey on all the brand question <unk> partnership with teaching circuit poor Rhino <unk> Randy in around.
So 600 game.
A better yeah. So yeah, it's great question so.
We think the world of the guys Gigi circuit and knew that there was a pretty powerful way we could take their be to be software that has really become integral to the operations of these these gaming centers and partner at with really what's where so much of Super League.
Experiencing capability, which is we know how to design great experiences for gamers, we have a very strong brands that has a very kind of strong point of view on inclusive positive gaming, we have the sales and marketing expertise to bring sponsor revenues and other things like that to to bear to even design what would it.
Consumer facing subscription offer look like and so there came a point in our relationship where we realize that they're capability plus ours was like that perfect marrying of be to be needs to be to see and so what you'll see when you see the branding at the on the screen that those physical venues is we've made a decision.
And to to lean into the Super League brand because that's the stronger brand when it comes to the consumer side. So even a player who has an upgraded to prime and those centers is still going to be collecting S.P., which are super points and they're still going to have an opportunity to go into our super vault.
To engage with Super League to participate in our programs prime as a way to accelerate and Gary and gain even greater access to super like.
Super helpful for brand development, and then I have a question for yourself, so I'm looking at the balance sheet.
And it looks more like your cash from operation or a loss of 10 million and it looks like you have 12 million on the ballot. She can you talk about that and how you think about your balance sheet.
Oh, what your options are going forward to a lot.
Certainly certainly.
See I was you indicate our our current burn rate on a monthly basis is between 1.1 and 1.3 a million per month.
You know I've and outlined a a much as far as say it's cause concern we continue to make progress on many of the front.
Toward growing or revenue and putting ourselves in position to improve our cash flow.
We certainly expect a new revenue sources to contribute to our cash flow and better at some point, we will be a castle positive now while.
We don't give guidance with respect to that and then we're not providing a timetable regarding the timing of being castle positive we remain confident in our ability to monetize.
Oh, the opportunities, we have and has laid out today.
You know that said the management in the board or cognizant of our current cash position in our cash burn rate.
And certainly other young company young public company.
Option to raise capital is always on the table, especially if additional capital in our judgment, but we believe allows us to take advantage of opportunities to increase our revenues or otherwise it has the value of our business.
At the end of the day the board management are consistently a assessing the adequacy ever capital and are considering several options. So in our currently focused on monetizations and growth of the business going for.
Okay <unk>. So one last question just about a recession do you guys think that's businesses recession purposely go under recession over the next pick a number three years is this a business recession proof you think.
Laura I Love that you asked that question.
You know they always say that sales of lipsticks spike during recessions, it's affordable right. So gaming is affordable and accessible.
That's why gaming is has such explosive growth today. It doesn't take the same investment of traditional sticking ball sports and everybody can be a lebron today, you can download fortnight for free on your phone and you can work hard to level up and so I think that gaming in general and and what Super.
<unk> is offering is I'm not just extremely accessible but it's also recession proof.
Isn't that how your oldest the average age and teaching set circuits pattern, you think of <unk> <unk>.
Yeah. That's a good question because we do have our youth product in mind, <unk>, which is a kind of tend to 16 year old demo. We like the fact that we're getting gamers young and that were seen as a very family friendly safe brand more and most of our gaming titles, though are in that classic 16 to 30 year old suites.
Pot and inside the gaming the Gigi circuits centres, it's really a classic college student. So I'd say 18 to 24 is is kind of the sweet spot there.
Super helpful. Thanks, guys. Thank you very much thank you.
Thank you I'm next question comes from my clad more from North on Capitol Police procedure.
Great. Thanks, Yeah, I mean, your your view using a registered users grew you know fairly dramatically sequentially in the corridor.
Certainly you know tracking while ahead of expectations, even a quarter ago. I guess can you just give a little more detail on sort of what drove that was that she really specific initiatives was it just you know demand for content or any any more inside so what drove the outperformance sir.
Yeah, so really over the last six months, we've seen a pretty consistent trend I think on the last call. I report that were seen about a thousand sign up today. Most of what was really driving that originally was mine hut. We were getting just tremendous growth and have you know a few hundred thousand registered users on.
That platform alone and again, that's a 24 seven game play and you know as I mentioned kind of Facebook like social platform for kids play Minecraft. What has been nice is that we've now started to see two new additional sources coming into registered users. One is running more of these digital or.
Larger scale physical tournaments like the fortnight tournament right, so and that and you physically had to be near one of our gaming venues, but that's certainly has brought in some new users into the final and then the other is starting to see some <unk> version from viewership you know if audiences the top of the final some more that were building strong audio.
Answers on frame rate or Instagram channels and through Super League T.V. starting to drive some conversion there. So for example, you know with some of our programming on Super League T.V., we actually use the actual program itself to generate people to join the tournament's they have to register to do that and then that's their opportunity to potentially be feature.
On our you tube or twitch channels with their game play. So we're kind of using the lure of getting your chance to be featured in programming as a way to drive registration.
As far as viewership goes it really comes you know down to again, just the power of how quickly we've been able to expand those digital channels. You know when we bought frame rate. It was averaging about 9 million views a month.
We've been able to you know double that but more importantly, you know we now have a dedicated frame rate dodgy G. channel for fortnight, we'd just launched one for call of duty. So we're really starting instead of it just being a generic <unk> channel for all game play highlights were starting to now break it into sub channels that really speak to specific.
Game titles.
It makes sense good and then you you sort of isolated.
Potential revenue floor for your for advertising and youth dedicated some you know.
Pretty experience people to address that I guess, you know what are the next steps on kind of getting to maybe that floor level and you know and and how long do you think that might.
Yeah. So you know if you think about it some people said well gosh. If you have all this you know viewership why were you my typing. It earlier, so just as a point of reference.
Remember that on the last call I reported that through July we had 11 million views for the full year.
Which was still beating our target for 2019, but now I'm reporting that through today, we have 96 million. So this is a new really good kind of problem to have as soon as we started to see that explosive audience grows really you know we've got a great Board director was a lot of experience on.
Media and content Modernisation, specifically to gaming and March on his the former C.E.O. and founder of I.G.N. and also C.O. of Fox digital.
That's when we started to realize okay. We need to now start looking at this very differently. So in bringing in those two sales executive to advise us it's really about first understanding what is all the inventory we've just a math because actually if you look at owning like a 24 seven gaming channel like mine had.
There are tons of places, where we can be bringing brands into that that don't look like classic advertising real estate. So the first thing we've been doing is doing that audit.
The second thing we've been doing is refreshing some of our sales materials, because when I'm out selling to the C. of lodge attack or the head of the gaming business about being a top down brand partner or sponsor that's a different audience than when you sell to media sales team.
And so we're now using are trying to explain this inventory with a very different type of buyer and so we've refresh those materials to speak to that audience and then the other powerful thing that our advisers have helped US do is not only start defining what is a sales team that need to look like to maximize the value of this and then too.
Sorry.
But equally they're opening up their own rolodex.
Of what brands. They think are interested in reaching this type of game or targets. So I can't you know.
Can't define for you when will start achieving that type of a floor and just classic ad sales.
But we put all the the things in place this year, so that we're going to start 2020 strong.
<unk> and then just last last quarter you you gave the the past revenue for the court or I don't know if you want to do that every quarter, but if you. If you have it's you have the pads reminisce for.
Yeah from a a cue 320 19 standpoint, the plot from as a service revenue was 176.
And keep in mind through that that really the difference between brand sponsorship revenue.
And when I called it kind of brand partner custom programs. You know early on we were the first users are consumers of our platform and so for marketing reasons and brand development, we started running events and experiences Super link brand it and we started and at times, we would bring sponsors along the way.
Way with us.
We then got to point at the beginning of this year, where it's so much flexibility and the platform that we could turn to somebody to like lodge attack and say well what do what do you want it to be he wants to be a C.S. go tournament do you want to be league of legends do you want it to run over four weeks or four days or four hours and so once we started to be able to create custom.
Programs for these partners, we started to realize that we could start to have a lot more variety and bring a lot more brand partners and and those platform is a service deals do have really strong margin profiles against the reason why will impart that brand partner is paying for a lot of the cost of revenues associated with.
Delivering that program, but also to our platforms become more efficient turnkey and so that's why you're seeing the trend line, we like which is revenues are improving relative to 2018. The cost of revenues are declining that makes for better margins.
<unk> Okay. Thank you.
Thank you.
Next question comes from Alan plea from National Security.
Hi could you expand a little.
Help me understand for your advertising strategy How're, you can take care to cross with all your.
Or if you're thinking in these terms of all the kind of high balls, you have to large amount and therefore get higher C.P.R.M.'s or to what degree it'll be targeted for specific type of.
There's or activities.
Yeah, our experiences it it's more the higher cpms come with the Richard more narrow targeting.
You know when a a movie studios about to release, a new kids movie. They don't really want to blast something across all our gamer properties. They want to know that they're reaching tend to 14 year olds.
When a company like Lodge attack is wanting to reach a gamers.
Actually want P.C. gamers, because they want somebody who needs to buy a new gaming mouse or keyboard a mobile fortnight gamer isn't isn't perfect of a target for them as maybe that league of legends P.C. Gamer and so we're finding that it is our ability to provide that very specific targeting.
That extract set higher C.P.M. rate, it's really no different than somebody does a banner AD on E.S.P.N. Dot com right and you don't really know if that person got out from their desk and walked over to go get some food you don't really know you probably had a one and a thousand shot at hitting a gamer with that type of a banner AD placement those aren't.
The kinds of integrations, we're doing we're able to give brands that direct bull's eye, but then also very immediate and measurable result.
Okay, I do and then could could you give us a maybe a hypothetical what you might think about.
Conversion rates.
Your your viewers are people that go to these centers, what you think might be reasonable for conversion rates to to subscription plans and what that could represent.
To be honest I, just think that given that the beta launches November 18th that that would not be wise I mean, we're hopeful that we have a captive audience as I've said a few times today, we think that we've designed and offer that they're going to like but the whole point of the beta is too as we do this.
Very phase roll out first in North America, and then globally that we find tune as we go and we improve improve those conversion rates and you know where we're bringing in.
Real talent, who knows how to drive subscription programs and really know how to look at that tunnel and really figure out those conversion strategy. So I just think it's too soon to tell to to give a point of view on that but we remain you know kind of cautiously very optimistic that we've we're launching this the right way.
Okay. Thank you very much.
Thank you.
Next question comes from.
Alliance cable.
Please proceed.
And thanks for taking my question served.
The there was a question about the average age of someone a G.G. when I'm curious about.
Given the obvious.
Free two hours that a member would get on a paid subscription is what did the average hours an active member Spanish at G.G. per month.
We do have yeah, yeah, we do have some data.
And we know a lot about who those current users are how many hours their plane and it's it's kind of as you'd expect it's a bit of a of bell curve. You've got this power player Who's you know engaging in anywhere from six to eight hours a week. So this has become like a core part of the.
Their entertainment lifestyle, then you've got the kind of person who's popped in for one single event and hasn't returned for the month, but the the the bulk I would say or averaging more and that kind of two to three hours a week. So it's one night of their entertainment.
But you know there than doing other things and gate at home.
I'll get two hours free per month right not per week.
That's right so that the kind of sweet spot is someone's plane, you know call. It anywhere from eight to 10 hours a month that typical user and this will be a way to get to free hours right no.
You mentioned that you know you'd start debate in the United States can you breakdown of how many show each are in G.G.U.S. versus international and.
Think it's November 18th are they all going to be turned on then it won't be a gradual process of bringing type eyesight on.
Yeah, absolutely gradual there's about 200 of the 600 footprint in North America.
And we are doing this roll out in waves. So we have a couple of locations today already testing the technology and then the idea is that we take we have kind of.
But we kind of call. The top 25, which are just really kind of top tier locations, but also very progressive operators and they are going to be our first wave roll out in beta and then the ideas. After a couple of weeks debatable roll out to the remaining U.S. footprint.
Last question I have is <unk> munch from now both the U.S. in the international G.G. Beta testing goes very well your next move to find another partner that has a captive audience, a gamer I center or would it be to think about going direct too.
Consumers at their homes.
Yes, very much the ladder going direct to consumer that their homes, but also I do believe that we're on the tipping point of being able to take the solution that we have for retail brick and mortar and extend the definition of what a gaming center could be in the future. So much.
Like most people wouldn't have thought of cinema theaters are top golf says he sports arenas and Super leagues technology is has made that possible I believe that we will be able to continue to grow that retail footprint and less traditional types of retail environment and that will be another way too you know acquire.
Players acquire customers and bring them into prime and into our final but absolutely. The goal is is that Super League Prime it's something available to people wherever they game.
Great. Thank you.
Okay.
Last question comes from Mike.
<unk>.
Thanks, I understand the the the <unk> evaluate your network that scrolling exponentially, but as you look into 2020, what what T.T.I.'s, maybe far away or become more important or additional to the five they use now.
Yeah.
It's a really great question and I can't say that together with the rest of the management Board we've locked in on those we know that the K.P. eyes. We set up this year. We believe were the right ones and really created the right rally cry, but also focus in the organization. It's interesting now that game titles kind of becomes irrelevant.
Because once you're sitting with 2030 game titles and now that we have access to all the game tells being played in these distributed venues we have more than enough coverage. You know, we're really getting the lion's share of competitive gamers out there with that size of a portfolio. So I don't think Super League needs to have 100 or a thousand titles I think the <unk>.
Hardest thing is like any good investor it's about portfolio management, how do we keep kind of moving the portfolio around so that we have the right mix of mobile titles P.C. consul different ages different skill level and kind of wherever there's like guys just going on gaming titles I mean, certainly.
No.
Audience grows top of the funnels will still be critical.
I think retail venue growth is going to get really interesting because of the way we've been able to advance the technology. This year. So we used to always talk about you know our chance to be a truly scale Hubble retail solution and I think the breakthrough we've had in the last few months and to be able to report that we're now you know we have five.
Word active venues you know I couldn't have even imagine that back in January and so I think that's made.
That K.P. I, even more interesting partly because of what I mentioned in in the call that it's because it's the flywheel effect, it's the way to grab players, but we also grabbed game play hours now we're grabbing more titles through it so I'm pretty excited about that so audience retail expansion and then I'll just keep coming back to like users and by that I mean.
<unk>.
Come in freemium, and let's convert you into prime.
Yeah.
Alright, thank you.
Thank you.
At this time was concludes documenting a question and answer session and I'd like to turn the call back <unk>.
Alright, well, we'd like to thank everybody for listening today's call. We look forward to speaking with you at our upcoming conferences or when we report on our fourth quarter results.
Please don't hesitate to to reach out to US anytime you have any questions on your do really appreciate your time today, we know it's valuable so thank you.
Ladies and gentlemen, this conclude today's teleconference. You make disconnect your lines at this time. Thank you for your participation.