Q1 2020 Earnings Call

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Ladies and gentlemen, please standby Super League gaming to financial results for the first quarter well begin momentarily. Thank for your patience in please standby.

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Good afternoon, everyone and thank you for participating in today's conference call to discuss Super League Gaming financial results for the first quarter ended March 31st 2020.

Joining us today are super leaks, President and CEO and NCM, Inc.

During the remarks, well open the call for your questions before we go further please take note of the company Safe Harbor statement within the meaning of the private Securities Litigation Reform Act of 1995 statement provides important cautions regarding forward looking statements. The company's remarks. During today's conference call will include forward looking statements.

These statements along with other information presented that does not reflect historical facts are subject to a number risks and uncertainties actual results may differ materially from those implied by these forward looking statements. Please refer to the company's recent earnings release and to the company's reports filed with the Securities Exchange Commission for more information about the risk.

And uncertainties that could cause actual results to differ.

I would like to remind everyone that this call will be available for replay through Mark may 21st 2020, starting at <unk> PM Eastern time Tonight.

Webcast replay will also be available via the link provided in today's press release as well is on the company's website.

But you don't be Toby Dot Super League Dot Com now I would like to turn the call over to President and CEO Super League gaming and EM.

Good afternoon, and thank you for joining us I think I can speak for everyone. When I say that I can't believe how much the whole world has changed or how many times I personally used the phrase Crazy times since our last earnings call on March 12, as you May recall, we addressed cobot 19 head on in that call and predicted.

Frankly, we were hoping the gaming would prove as it has historically to be fairly recession resilient.

As the World is turned upside down for nearly every industry and every human on the planet, we have a fortunate silver lining and the gaming space, which Super League is beginning to capitalize on.

What else did we know on March 12, well, we knew when you knew that we would need to bring in some more capital to fund our growth and we assure g., we would do that and the shareholder friendly manner as possible like all companies just one week after earnings call. We heard this message blaring cashless king regardless of covert stick.

We have impact on your respective industry.

Please to report that we secured over 6 million to new equity capital yesterday.

You can imagine that there were a variety of financing options being presented to the company over the last two months and many of those came when our share prices depressed as we wrote the waves of the greater market pullback.

We believe this financing gives us what we were looking for straight equity invested by a few high quality shareholders with no warrant overhang.

Maintaining our clean balance sheet with no debt and priced above the average trading price for the five prior closing dates let alone the last 30 clothing days.

As I said, we're pleased to been able to do this in this environment and hope you agree.

This gives us nice runway through year end and plenty of time to execute on a more strategic fundraise. They can get us not only commercial acceleration, but also put us on a path to profitability.

This is no different from what we've been saying strategic seven Dustin Super League historically from large attached to Viacom as they see the commercial value to their own businesses and writing the trend of recreational gaming more compared to be sports and the thirst for new fresh content.

And our recent surgeon player and viewer engagement and a covert world coupled with our recent announcement.

Regarding our proprietary fully remote production capabilities make sense, not just interesting that possibly essential to fill the live programming content Boyd as a result of cobot.

Like sports on hold for the foreseeable future and our patented technology is not just the temporary solution, but a viable new way of working for Hollywood and all types of media and entertainment companies.

So let's break it down first our player and viewer engagement and then the impact an opportunity for our business model. So first our metrics in March we began to see the surge of engagement on our digital gaming channels, both in players and gaming hours plus viewership an impression and as each week path we were beating.

All time weekly records in 2018, we had a cumulative 300000 players playing roughly 1.8 million gameplay hours and our views and impressions were negligible by the end of 2019, we had materially beating the K P eyes, we laid out in our IPO Roadshow and ended with 1 million registered users.

Nearly approximately 15 million annual gameplay hours, and 120 million views and impressions.

At the start of this year I said that we will be thrilled to reach 2 million users by year end and 30 million gameplay hours doubling those metrics and to triple our views and impressions to 360 million.

Well just through four months of 2020, we have reached 1.6 million registered users 16 million gameplay hours again that note that that is more than the full year of 2019.

And 225 million views an impression.

In fact in just a month of April alone, we did more impressions in the full calendar year of 2019.

It is one thing to say gaming and Super League or resilient to the current fair the world, but the data implies we are powered by the current state of the world.

So investors are asking me is this just temporary my response is simple gaming was already bigger than TV three times the size of the global film box office and that was all before cobot. The trend had already cross from Fad to mainstream and permanent has gaming is the dominant form of entertainment for Gen season millennials.

So what they called it do it validated gaming any sports and is accelerating the growth and deepening gamer engagement and stickiness and for to the started to create meaningful critical mass on our platform.

So to recap through April 2020.

Registered users 1.6 million up over 60% year to date.

Engagement hours 16 million engagement hours compared to 15 million for the full year 2019.

And viewer impressions 225 million in the first four months as the year compared to 120 million for all of 2019.

So now let's talk about our business model.

Most of you know we have been primarily a sponsorship driven up revenue model and began at the end of last year and early this year to build up our own direct sales team to further monetize this rapidly growing advertising inventory we are amassing.

So what is that met during cold it.

We saw what even the Giants like Facebook saw in March in early April. The first reaction was it advertisers took a bit of a pause to reset and that makes sense.

Clearly for US we didn't lose any material deals our partnership a 10 cents oneplus, bringing pub GE mobile tournaments to life proceeded as usual just now from the comfort and safety of players held.

In fact, the majority of our gameplay hours were already digital so while our in real life gaming is the icing on our cake the shift away from retail locations didn't impact our business model that have to the business. The cake was not impacted.

And for our emerging advertising model the on strategic partnerships are ever expanding AD inventory currently trending at four to five times. The size of last year allows us to continue to attract super premium cpms for our superior slots well now offering a much wider array of AD products, while we want to maintain.

Scarcity value, we also don't want to Miss out on good revenue opportunities.

We can now speak to a wider side of advertisers and offer a wider variety that products ranging from relatively low cpms one to five dollar range all the way up to the Super premium inventory and corresponding cpms, which have been or hallmark with this search and impressions, we can afford to bring down the weighted average CPM with.

Diminishing on the customer experience.

And what I'm most proud of is how our sales team as household we got in front of cobot, and our engagement surged to position ourselves as a new and different marketing channel for advertisers and then unprecedented time and the results are evident our sales pipeline is larger and healthier and cobot, we have rebounded with 50% more total opera.

Ladies and a 40% increase in average deal size for mid to late stage opportunities.

So next on top line growth. We had told you that we would start to monetize the game or this year and we launched an alpha of our monthly subscription offer in mid December but it was tethered to physical retail locations. So we pivoted and pivoted fast well subscription is being reshaped to be purely digital we didnt feel we could wait on our.

Direct to consumer revenue ambitions, we quickly got into digital good micro transactions, starting with the marketplace and our proprietary 24, seven gaming channel mine <unk> Dot com.

We have over 1 million registered users and are hitting record with our last 30 days trending at over 600000 unique players up three X since January 2020.

Just a month back we lots and they've seen record high days a $1500 in revenue from pain players for these goods it ranged from pennies up to a few dollars.

Not bad in our view given it was a revenue stream that didn't even exist on her last earnings call and there's more to come in addition to the relaunch of the monthly subscription offer that will be purely digital we are adding marketplace functionality to our branded social channels under frame rate.

Thirdly, and accelerated uncovered world, we have fast forwarded our opportunities to generate more revenues through content production and distribution deals.

Through mostly generate user generated content, we have proven this content can generate material viewership on our own digital channels and not large content libraries of interest to others to fill their content channels as well a few examples of how we currently produce high engagement tournament experiences and distribute livestream and video on demand content for us and.

Others.

First let's stop start with top golf they want to stay connected to their retail members while their locations are closed and they own a great video game called World Golf Tour.

We run amateur virtual tournaments for them, but is not just about the handful of players that participate it's about the large audience of viewers that top golf couldn't reach on their own digital channels to keep engagement with their customers. During this time.

And we recently ran exciting program for Gen. G professionally sports team that wanted to connect to their fans with the prestigious 125 year old pen relay track and field event postponed due to the pandemic. They hired us to replicate the University of Pennsylvania is iconic Franklin field within Minecraft and allowed gamers to compete in the city.

He's a virtual events.

And snap, Jeff snapshot disorder, their third content series from us.

We do all of this with the physic without a physical content studio, but through our proprietary fully remote and virtual content production capabilities.

It is funny, how sometimes how it that of technology you build for your own you become something of a hidden jewel, especially when the world is in a crisis. Let me take you back in time for a minute to then bring it back to our current opportunity.

In 2015, we want to do something with the big screen. When we were running events with our Investor Center, Mark and those theaters.

We wanted to players and parents Sibley in some friends, who came along that's something that would make the experience more immersive and fun to watch even if you don't played out specific game. So why not take advantage of the big scene and that Thunder a sound system.

So we weren't CBS or eat E.S.T.N., we didnt have the big production budgets to roll up trucks, a satellites relays and switchers and pay for cameraman all the things you typically need for a compelling live sports broadcast so we had to make our own version of our jumbo Tron, but do it affordably.

We started building what we call our virtual production, but a set of cloud based automated tools that can accept hundreds of simultaneous remote streams from players and talent, while adding in commentators, allowing for directors producers and audio engineers to join but here's the key everyone is remote.

All those seeds plus our lives statistics database, along with a bit of AI that intelligently cure rate says feeds all while overlaid real time sound and graphics. The result is a livestream back to the physical then use big screen offering a high quality engaging broadcast for all.

This technology that can make a retail then you come to life is the same technology, we use for all of our digital content productions. So now back to current day, our technology can be a powerful production tool to help media companies. So the current content void left by Cove, It and it's not just about east sports traditional sports are on.

On hold in the U.S.

Everything from the U.S. open to your local tennis court from the N.B.A. season tier local parks basketball court, everyone is growing tired of reruns and our production tools go beyond these sports in traditional sport video game extensions. It can help bring the audience into a professional baseball game. When the stands are empty it can bring.

That game shows and talk shows.

We can take what our historically complex high cost broadcast with multiple distributed strains and deliver an integrated lie for life to tape show, it's proven scalable and it's a flexible turnkey solution and most importantly, a very affordable couples that complement if not replacement that offers real economies of scale.

Ill from turgid as traditional broadcast costs.

So sure things have changed for every woman Cove. It but we responded swiftly seemed very are unique and sustainable window of opportunity and will be a better company on the other side.

Employees have been working remotely for eight weeks now and the thing that surprised me. The most is how well. They responded to this new shared experience in our work from home World productivity, Decisiveness, and urgency and focus on the bottom line have never been higher if anything I've had to keep a close eye on people finding their off button through at all but I think the energy.

The enthusiasm is directly linked to the genuine excitement we feel to see Super League finally, having its moment.

So before I hand over to Clayton the headlines engagement is massively up as I mentioned, we did more in April on views and impressions than the full year 2019, So we're well on our wait to see an afford a fivex improvement on last year.

After the inevitable pause from advertisers our sales pace pipeline is larger and healthier with larger ever do you average deal size prior to coven.

We didn't like code, but stop us from making 2020 the year, we start to monetize the game or through direct to consumer offers and we launch micro transaction market places within a few weeks for what is already a strong and growing revenue stream and we're just getting started.

We unlocking new ways, our content production technology can extend beyond de sports into traditional sports and other entertainment formats for an exciting inside of emerging large scale deals.

And then the last eight weeks, we have become a 100% remote everywhere company, meaning every single rule, including our few SLG G content studio staff are working from home and can remain that way, we are leaner nimbler and complex for whatever the world throws at us.

We did the hard work last year to build up material digital audience and this has served us it's not just a complement to our live events business, but also a hedge plus you never needed to get on a plane or go to a large stadium to be a part of Super League. We were always about providing the local cul_de_sac or quad for each sports and that enters online for now and when ready.

Okay, we can add in real life back to our portfolio of offers.

At this point I will turn the call over to our CFO Clayton, who will provide an overview of first quarter financial results after which I will come back on with some closing remarks Clayton.

Thank you had and good afternoon everyone.

In summary, our revenues were relatively flat quarter to quarter and down modestly compared to a year ago as we undoubtedly spell the initial impact of the deferral.

Of activities by brands and advertisers as the Cobiz night gene pandemic unfolded during the first quarter of 2020.

Our cost of revenue was higher relative to the prior year quarter, while our average margin remained consistent with Q4 2019 trends.

And our operating expenses were lower on a GAAP basis, leading to a lower GAAP operating loss when compared to prior year quarter.

As summarized in our earnings release filed earlier today first quarter 2020 revenues were 243000 compared to 249000 for the first quarter of 29 G.

A slight decrease reflects the impact of the general deferral in advertising spending by brands and sponsors during the early stages of stages or the covered making pandemic be impacted rich hasn't badly been felt by all companies that have advertisement sponsorships that's a key revenue stream.

As Ed mentioned, we categorize our revenues into two main buckets sponsorship and advertising revenues and direct to consumer revenues.

Sponsorship and advertising revenues, which includes ground sponsorships for our owned and operated properties along with our more customized brand partner programs and traditional advertising and third party content licensing comprised approximately 94% revenues for the first quarter up 2020 as compared to 96% of.

Revenues in the first quarter of 29 team.

[noise] direct to consumer revenues were primarily comprised of subscription and digital goods revenues related to our minds digital property.

We continue to emphasize free to play events and experience is consistent with our strategic focus on increasing the volume up new gamers and spectators introduced into our customer funnel to increase the number of registered users on our platform and drive consumer conversion.

Going forward, we intend to continue to offer a combination of paid in free to play experiences with the continued focus on wrapping up overall direct to consumer monetization.

First quarter 2020 cost of revenue increased 58% to 117000 compared to 74000 in the comparable prior year quarter, while revenues were relatively flat quarter to quarter.

This was driven by a higher number of life events in the first quarter up 2020 compared to the prior year quarter and lower cost ran sponsor revenues recognized in the first quarter of 2019.

As discussed on prior earnings calls cost of revenues can fluctuate period to period based on the specific programs and revenue streams contributing to revenues each period and the related cost profile of our physical and digital experiences and advertising and content sales activities occurring each period.

First quarter 2020, operating expenses were 5.3 million compared to 6.3 million in a comparable prior year quarter.

The decrease was primarily due to reduction in noncash stock compensation expenses, which decreased approximately 2.2 million in the first quarter of 2020 due to the vesting of certain IPO related employee performance based options and warrants in the first quarter of 29 key.

Noncash stock compensation charges for the first quarter up 2020 decreased to 700 in 2000 as compared to 2.7 million in the first quarter of 2019.

The decrease was partially offset by an increase in selling marketing and advertising expense as we continue to build out our marketing team to drive future monetization consistent with the plans we shared with you on our fourth quarter 2019 earnings call.

First quarter sway 20 also reflected higher technology platform infrastructure costs, primarily related to storage and cloud services.

And higher public company related insurance and other corporate public company expenses due to a full fiscal quarter a public company expenses in the first quarter up 2020.

Parents, you when current public company expenses for only one third our one month of the first quarter of 2019.

On a GAAP basis, which includes the impact of non cash charges net loss in the first quarter of 20 25.1 million or 60 cents per share compared to a net loss of 16.1 million or $2.68 per share in the comparable prior year quarter.

In addition to the noncash compensation charters described earlier net loss for the first quarter of 2019 included noncash interest expense related to convertible debt outstanding at December 31, 28 key totaling 9.9 million.

All principal and interest related to the company's convertible notes were automatically converted to equity upon the close of the IPO in the first quarter of 2019.

Excluding non cash compensation charges non cash interest expense and other non cash charges. Our pro forma net loss was 4.1 billion compared to 3.4 million in the comparable prior year quarter.

As described in our earnings release, an 8-K filed with the as you see today.

Former that income or loss is a non-GAAP measures that we believe investors can use to compare and evaluate our financial results along with other applicable capesize and metrics discussed by an earlier.

Please note that our earnings release contains a more detailed description of our calculation of pro forma net loss as well as a reconciliation of pro forma net loss with the most directly comparable comparable financial measures prepared in accordance with gap.

Looking at the balance sheet as of March 31, 2020, we had 4.8 million in cash no debt and total shareholders' equity of 9 million.

Our current monthly net cash burn rate continues to be and the 1.1 billion to two to 1.2 million range.

In response to the uncertainty associated with covert 19, we did execute cost cutting activities on April 2020 that will serve to keep our monthly burn relative consistent after 1.1 to 1.2 million range on a go forward basis.

Additionally, we continue to work with our functional leaders within the organization to identify additional cost savings areas.

As Dan mentioned yesterday, we announced that we entered into securities purchase agreements with institutional investors for the purchase and sale of 1.8 million shares of common stock at an offering price of $3.50 per share pursuant to a registered direct offering price at the market under NASDAQ rules.

The net proceeds of the offering will be approximately 6 million after fees and offering expenses.

The closing of the registered direct offering is expected to take place on or about may 13th subject to the satisfaction of customary closing conditions.

The offering was made pursuant to an effective shelf registration statement on form S. Three previously filed with the FCC.

Additionally, as detailed in an 8-K filed by Super League on May seven we applied for and obtained approval for a potentially forgivable loan from the U.S. small business administration, resulting in net proceeds of approximately 1.2 million pursuant to the paycheck protection program enacted by Congress under the carriers that but Pete.

Pilon provides for specific use working capital to the company and matures in 2022.

With that I will turn the call back over to and for some additional remarks and.

Thank you Clayton.

I think one of the best examples I can offer about how Super League as using our technology to create compelling comedian content for the 2.6 billion strong everyday recreational gamers.

But it has a real opportunity to extend to mainstream gaming content consumption as well so what do I mean by that.

Well I often have said that my dad will likely never watch and Overwatch or league of legends professional tournament being broadcast on E.S.P. yet.

But he is also searching for content he's missing the masters and the P.G. a.

Would it be turned on the TV. This Sunday in Salt life golf virtual golf, So similar to our top golf tournaments button assessments, we drop in Jordan speech.

And he doesn't when I get from des Moines wins I.

I think my Dad, just my watch that I think many of us what.

We believe Super League has an opportunity to show how virtual sports can be natural and complimentary extensions of live physical sports and to us that has a far more wide reaching audience than just the sports fans and competitive gamers around traditional titles.

That makes the promise of being an easy sports star not just aspirationally, but also accessible and mainstream.

With that we remain focused on driving revenue growth, we are well positioned to be at the epicenter of E sports growth and we continue to form new partnerships and alliances with the widening array of strategic partners that are coming to realize the growing power of our platform.

And we continue to believe if we execute our plan and optimize our opportunities we will build significant shareholder value.

With that Clayton and I are happy to take your questions operator.

Thank you as a reminder to ask a question you want me to press Star one on your telephone.

Good question for Sebaski. Please send ball, we can probably kuni roster.

Our first question comes from Brian Kinstlinger with Alliance Global Partners. You May proceed with your question.

Hi, great great. Thanks, and thanks for taking my questions and solid PPI he's.

We didn't here you talked in so many different subjects, we didn't hear anything about China.

And with China, no longer under stay at home rules economy their opening what's the latest progress you're making on the one they seem to me games partnership is the transformation of theaters began.

Is it not forgotten how long might get cake, yeah. It's a great question. Thank you for bringing that up actually if I was just having a board called the other day and I said it it's kind of fascinating to see how we continue to have weekly meetings with our partners in China, namely Wanda and things are continuing to move at a clip we never expected to be running event.

Or large seem really in the first half of the year, we knew that we need to do the market planning work to look at what would be the the ideal games to launch with and the right kind of format CNO, we have a lot of flexibility in our platform and we really haven't missed a beat in fact, if anything it feels like maybe much like what I see inside super like that.

Added level of urgency and excitement in focus we're feeling that in China with our partners and the beautiful thing is is China is the biggest market of gamers on the planet and Wanda has a very large reaching loyalty program. So basis of customers that are loyal to Wanda cinema.

In malls and right now can't go to them and we have ways to really engaged with them all their at home as well and so I'm aware, we're pretty excited that even if we stay in the early days more focused digitally that we havent slow down those efforts at all but I do want to caution and say just like we have on another call.

I was when asked that you know again, we never intended to see you know big revenues coming out of China for 2020. It was about locking in the big partnerships picking the game portfolio and doing that real proper market testing I'm. So that we are really kind of in more of a rollout phase in 2021.

Great. That's follow up it's great to hear about micro transactions are you able to provide any industry metrics, if not maybe some reasonable long term targets or.

Micro transaction value per subscribers.

You know what it's a really good question, we have we see different stats right. You know we've seen stats ranging from the fact that the average Gamer and North America spends anywhere from $50 amount up to $130 a month I'm in purchasing gaming content.

Now you need to break that down a little bit what does that mean, the primary dollars that they're spending on gaming content, our when they're buying things and game. So maybe you're in fortnight and you're buying you know a new scan or a dance and those are micro transactions on the other interesting thing is is that they're spending I'm close to $30.

As a month basically giving donations to their favorite streamer. So that's when they are actually watching someone else's gameplay content and they're being either entertained or their learning from watching that that streamer and so they make donations to keep that streamers content in that side alive.

So I can't pinpoint for you exactly but I do think that you know when you look at the fact that we've got a one point sixmillion base of registered users. We're just starting to attempt to monetize through micro transactions over 50% of them that are in mind that dot com right now I'm fairly active you know, even if we're able to.

Got you know just a dollar a month you know at some kind of person of convergent come conversion. It starts to become a pretty exciting business units on its own but it is just four weeks and then so but it's certainly something I'll give some thought to about some ways. We can start to peg some benchmarks and think a little bit.

More about what that that shape of growth could look like.

Great last thing I'll get back into queue, you hire you highlighted the pressure on advertising in general but also.

The desire or be your.

Beginning to take advantage of increased game play any increased pipeline that is four to five times the size of last year, how should and what do you want to communicate to investors about how that and what that means the revenue ramp from where we are one Q.

Yeah, I mean, it's kind of inevitable that you're going to have a little lag between the inventory and then lining up the sales pipeline and converting those deals into paid deals. So you know one thing that we did say 10 investors and for Q as we said hey. This this kind of surge we're seeing an AD inventory is kind of in new.

City and so what we did in December and January is we hired up a a direct sales team underneath our global head of brand I'm partner and sponsorship. So we now have you know when we talk about the fact that we have a 50% increase in sales opportunities and our pipeline you know that's pretty excited.

So that is the hard work of this new direct sales team pounding the pavement and really getting a much kind of wider diverse mix of advertisers, usually we would have a a longer lead time to convert some of our high I'm more strategic partner deals because those are kind of big top down meaty deals that often had one two years of length.

On them so they they just our longer sales cycle. So what you're gonna start to see is that as these new leads come into the pipeline. We should also see our conversion funnel decreasing. So are you know the length of time, but I would say you know you should expect a few month lag. So if we were able to pivot so fast.

And to really get you know in March as a response to co bid a reset the pipeline and now see a 50% increase in it than I think within another couple of months, you're going to start to see the fruits of that labor as we start to monetize more of that that ever expanding inventory.

Great. Thanks, Good luck.

Yes.

Your next question comes from Mike Latimore with Northland Capital markets. Please.

Please proceed.

Hi, Thanks for taking my question is falling on for Mike.

My first question is regarding unrealistic.

What is the key milestones this year.

That's good.

I'm sorry, there's a little echo with your question could you ask it again, it might be or a speaker phone.

Well one of the key milestones this year invention they've got good.

I'm still having a hard time listening to it.

I'm sorry.

Sorry.

Oh, what are the key milestones this year.

Venture debt.

So I think I heard you, saying what are the key milestones for the year.

Hmm for 2020.

Yes.

Yeah no. Good question. So yeah, so really I mean look last year, we pointed to five K.P. eyes.

And this year, what we're focused on is is saying Hey, you know, it's really you know we've refined it even tighter we've we've got a good portfolio of game titles. So we're really focused on top of the final viewership and impressions how do we convert those Ah gamers into registered players are users now keep in mind, we don't need hundreds of millions.

The players right, we want hundreds of millions of viewers viewer. So one player can generate how much viewership around them, but we still think it's important to to measure that registered user and then the third thing is ultimately is engagement hours because that tells you how much time, they're engaging and giving us a larger share of they're not just their wallet.

But their time now of course, we will be remiss not to say, there's a fourth important metric is topline growth. Its revenue you know, we we said from the beginning. This is you know early stage and it's we're really need to be focused on growth and and you can see that it's working right. Our 2019 significant outperformance on our.

K P eyes, we laid out the started the year, what's happening right now with this unique window. We're in we're delivering against those but we we listen to our investors at conferences and and they do you know, let us know that nothing's gonna be topline growth and so I would say those are really the four milestones or metrics that are most critical.

Uh huh.

So what youre right.

So when you.

That's one of the contribution.

Yeah, well, one thing that you'll notice and then I'll, let Clayton jump in and talk about you know brand sponsorships and platform as a service revenue for the quarter, but the key thing that that we've done is is that we recognize when we went out in early 2019.

We were breaking out the difference between brand partners that were sponsoring our own owned and operated offers versus brand sponsors are partners that were paying us to run something customized for them, which we called platform as a service and we realized that why and doing that we were actually just making.

The net.

For cloudy or confusing for investors and it was being done unnecessarily wouldn't really there. They're just two different types of a similar types of activate and.

And so when we talk about running for 10 cents, a pub GE mobile tournament and bringing in a sponsor like one plus to US both those things really are at their heart brand sponsorship activation. So we've now started to just make it simpler for investors understand we've just started for 2020 going forward to just.

Lump those two line items together, because there really kind of one in the same so with that Clayton do you want to answer our brand sponsor platform as a service revenues for one Q.

Sure sure. So for the first quarter 2020, just taking a look back.

Maybe we were categorizing things are in the in the prior year on the body.

Since of the revenues for fiscal 2020, you were what we have traditionally were categorizing has as platform.

Platform as a service.

And that compares to 81% in the prior year quarter and 16% in the prior year quarter was relates to what we typically would categorize that spread sponsors.

So really the headline is brand sponsorship platform as a service continues to be our primary revenue stream just as much as we we had in 2019 and described I think the difference is really two dimensions, one is inside brand sponsorship.

You're gonna start to see more short term smaller, but activations that are more and more like traditional advertising revenues. So you know that say a company, whose launching a new game, who comes in and and quickly buys up a week of inventory I'm one of our digital.

Channels to for a game launch Sunset of these larger long term top down strategic partner deals like with 10 said these are a selling out that inventory still it what's a pretty decent premium C.P.M.. So that's a new kind of line and type of advertising revenue and then the second bucket of revenue is that.

As we move into direct to consumer in those micro transactions. We were just speaking about earlier. So one is monetizing advertisers and then the other as monetizing the actual player themselves.

Thank you.

Thank you.

Thank you. Another reminder to ask your question you'll need to press Star one on your telephone. Our next question comes from Dr. Cohn with Stephens. You May proceed with your question.

Hey, guys. Thanks for taking the question Oh I just wanted to dig in or give a quick follow up on micro transactions in my heart. How does that were at water players actually buying can you just get like an example of that.

Yeah, absolutely. So we now have about a three different features active in our marketplace that we've identified a long list of additional types of micro transactions. So just a couple of examples.

Parent has decided to create a private virtual room inside my not for their kids to still be engaging with their friends from maybe their their school at class or maybe the kids across the street that they can't play with because you want to know who your kids are playing with.

You don't want them, playing with a bunch of strangers online I'm right. Now you can invite you know a certain number of friends for free, but if your son or daughter once to expand and invite 10 15 20 friends enter that virtual room or realm, then you need to upgrade your server. So you need to start paying a monthly fee to upgrade it and now.

For example is once you're in your your private realm.

You might want to decorate it put up a banner or in your arena or maybe want to run a specific tournament and you want leaderboards to appear.

Those are the types of micro transactions that you can purchase.

Got it and then.

You talk a little bit about the pattern that you guys, one and maybe how quickly should we start to see monetization from that.

He'd like specific customer wins, so far that you can highlight Debbie. Thanks, Yeah. I think you were asking that because it's it's good to put it in context. So you know when I talked about flashing back to 2015 in the movie theaters. Yeah that was the first of several patents, we filed and it's the first one that is gotten through the Q and is.

Isn't that allowed state, which is a tremendous milestone for us and in that one what's happening is really a couple of different things. The first thing. It's doing is if you think about a game like Minecraft, which is what we ran a lot of our youth. These sports leagues around there is no spectator view, there's no drone that can fly up high above the field and give.

View that like Super Bowl do you that that a drone does when you're watching the Super Bowl game.

And yet if you're you know parents are friends and the audience or watching live stream matches or Vo de on our channels. You know if you're if you're watching your son or daughter match, you don't really know what you're watching that if you don't have that spectating deal. So that case early on we were we were dropping and cameraman.

We were dropping and players and instead of them plane, we had them teleport and create a camera like view of the game. So those are those kinda earliest most crude forms of how we were using it then we started to run tournaments, where we had thousands of matches happening consecutively and we ask the question will win so many are happening at once.

Which one do you feature on the big screen, if they're happening across the country simultaneously and so we started to use the same intelligent kinda viewer to start picking the best matches, so kind of like when NFL Red Zone, you see kind of six matches being featured that was another way we use that technology.

Oh, Gee too to intelligently cure rate feeds.

It's more important to note and I've said this really openly and during the IPO Roadshow and subsequently.

It's it's relationship to the other patents filed that really there's a visual I've used a lot in investor decks that that has this picture of the virtual production Booth and all those simultaneous live stream feeds coming in and all the real time live high quality broadcast that are coming out of that cloud based set of automated.

Tools back into venues back into digital channels and Theres additional patents around that virtual production booth that when you then blended in with this first Patton that we've received allowance on is really our secret sauce. It's why we are hired to do these types of events not just because of covert coven world. We can do it fully run.

But because we can also do it super affordably and so that capability. We have is it's not just that we run tournaments, we don't want to be just a tournament operator, it's because you get more when you when you do business a Super League you also get a really affordable turn key.

Life event broadcast to feed back to your channels.

Got it. Thank you now now to that end I just to kind of finish a little bit of of your your question. Yes in coal that we've seen a different type of deals start to come into our partner in sales pipelines.

We've got professional sports teams, who are struggling with how are they going to connect to their fans at their season doesn't play.

We have use leaks across the country that are asking questions like gosh, if the kids aren't going to get on the field. This year are there other ways for them to stay connected to learn about teamwork and collaboration you've got media companies that have upfronts coming you know and late summer and you probably already saw some of the news reports coming out yesterday.

That if there isn't live sports or fresh content, but those AD dollars against then these advertisers are going to pull back and so we're pretty excited because the so much of the the have to the conversations that have started to come our way inbound have really been about a whole different.

The way, we can capitalize and use this technology for others.

Thank you.

And our next question comes from <unk> Davidson with National Securities. You May proceed as I am.

Hi, how are you.

In terms of the toward a bit it seems to me that there should be.

Easier way to bought anti some of these thousands and thousands of people play Georgia. This even if it's a and in smaller about dollar to dollar just enjoy the tournament and so forth to be that seems like a very easy point of.

Revenue in terms of growth as well as for example, you were just talking about a modest as they should some of this new media.

Even like sleep wake caps, which you believe it or not is almost a $250 million your business. There isn't any this year, but these kids are so grades each other's lives that they want to see contacts and so forth. There's so much now because of koby that theres. So this new technology so much easily.

Optical too and what are the other questions. They have is in terms of your.

And how salesforce are they on commission or are they on salaries. The reason why matthijs because.

There's so many professional television reps out there and so forth and so I'm just curious how you guys just.

Right.

That's a better sales people to raise drugs for advertisers so forth.

Yeah, Yeah, I'll start with your last one first so we.

We I mentioned on other calls that we were fortunate to I'm. You know we have a wonderful board member Mark John who is the founder and CEO of IDN and then sold IDN. After he took a public to Fox for hundreds of millions of dollars and became the CEO of Fox digital.

And and he was the one as we were really seeing that surging of engagement and kind of three kids, who said it's time. It's time you get ahead of that you need this direct sales force to start getting ready for this volume and so with his help we brought in advisor a woman who had run sales that IDN for him and then had run the wesco.

Twitch sales team and we asked her to do a few things first to have an objective lens on our AD inventory to quantify it to independently price. It you know just to get that kind of expertise in on how we were thinking about the opportunity and then she also helped us recruit that.

Came in part of that was thinking about comp structures and I've run a lot of sales teams in my career and pretty typically those are variable comp structures. You know you'd like to think that everyone is doing there are good for the the countries like.

They keep being you know the company first but certainly that is the predominant way that and and this kind of space, especially that sales leaders and managers are compensated. So we do have a variable comp structure that is associated with kind of eating with what you kill right and then your other question as.

Good one because you're right. We've got all this engagement and so on one hand I'm proud.

When the search kicked in you know where I think only one weekend to working from home. So let's call. It. It's you know March 2020 Threerd.

And already we're having a conversation about accelerating these micro transactions.

And almost a notion of like look like the world just turned on its had let's not mess around anymore, let's not ever think it let's just start doing it and lets trust that we'll get a good response from the players.

So it to your point I mean, there is something to be set for more like let's just do more or less accelerate why not and we have at times before charge nominal fees like you said, the one to $2 to $5 to join one off tournaments and a lot of our tournaments online used to be.

The appointment based and in some cases, if they were in a physical then you. They were geographically based true too so that really kind of narrowed down your addressable market.

What you're starting to see it Super League. It starts with mine had but you'll be seeing it and the coming weeks is really persistent gaming and once you get into persistent 24, seven gaming and that Theres always ways to be engaging on Super League I think that's where that we bring back our digital subscription offer because then it's really time to say, okay look I can.

Gets a basic offering here, but if I really want to level up then then I then I can you know take that next upgrade so the only reason that we're not doing the kind of okay. Let's just charge somebody a buck for joining a tournament you know Tonight is because frankly, we have our eyes on a much bigger price that we think we'll be starting here in the next.

30 to 60 days, but but you're right. We've got engagement and lead the time is now to figure out even in the smallest ways how to monetize it.

Said, you have no ambition of charging like a yearly fee, mostly see even if it's nominal and so forth data. That's that's your subscription offer that is that is exactly what that is it's a monthly subscription yeah and then Mike I have another question. So in terms of all your engagements how much of your gamers art international versus <unk>.

Messick and and advertising is I bet, you as well bring it in terms of international investing and so forth Evertec had yeah right. Now we are I I'm. Good this is rough but I'm going to say that were about 60 40.

North America International and much of that 40% is UK Europe based.

And.

And I would say that the.

The general belief is that the more that you have global reach the more value you are to advertisers. So certainly as we've started to have a more meaningful international reach you know you think about a big brand you know.

I'll just make a for instance, the Coca Cola.

You know they want global reach they've got their bottlers in every major country and typically they're looking for opportunities to really leverage their dollars globally and that's also where you see the AD budgets and the allocations get bigger and richer. We also know that generally speaking you know when you look at traditional professor.

No sports broadcast rights or exponential when something becomes international and global no different than like Dnbi, a blowing up in China. So so globals generally speaking a good thing for our business model.

How much of that 40%. So how much would you think that is in terms of stuff people and it's 60 40 and that would also with the other question is with your gauge made with it movie theater chain in China, where there would be just said Naturals addition to this international team.

Oh, yes, so Wanda in China definitely gives us that big global accelerator right.

And so it's it's it's hugely helpful and when I say 60, 40, and again I'm, just giving you kind of rough numbers, but that's kind of the split of that 1.6 million registered player base.

And then the last question exists and it's kind of excessive question. So you just raised or somebody is over so in terms of your burn rate somebody on the books, you're talking about 910 months of operating expenses as it stands out without any revenue coming in is that about a fair estimate the way because of your growth, where you're actually probably going to burn more than you would only because it's a good sig.

But it's still kind of a.

As finite about that fair to say right now because I've revenue.

Well, we certainly don't feel like you know sixmillion plus our P.P.P. money that its finite I mean, we you know take a lot of comfort and being able to bring that that those monies in and you know above the market based on our five day average little doubt that.

Yeah.

No no no I'm with you. So so then the question is is you're right. We've always talked about this larger strategic raise right that that we believe that the power of a strategic likes many that are already on our cap table that can really bring with it some kind of commercial acceleration that was always the goal and I did talk about.

That even like in the the three and four Q calls that that was the ultimate fund raising or capital raise to it really accelerate our growth and so nothing has changed with that that is we have never taken our foot off the gas Matt.

But very candidly I do I did feel already going into March as that if there was an opportunity to take interim capital that was shareholder friendly that it would be the right thing to do that would give our shareholders a little bit of comfort that we could execute our strategy correctly and bringing the right kind of investor strategically.

And I certainly think in coal the time I I would feel negligent if I didnt examine all of the opportunities to bring some cash in and so I have to tell you as I mentioned and they the call I. You know we saw all kinds of deals I can't put in front of us and many of which I don't think anybody.

On this call would've thought were attractive for the company and so we've worked really hard. The last couple you know months really to to ferret through all of those and and you know when we landed on something that we thought was attractive with quality investors. It felt like the right absolutely right thing to do now that said to your point we have.

Have done Sun belt tightening with coal that but you you you kinda nailed it but we've also had the surge of engagement.

And so it's kind of with the were a little bit between a rock in a hard place because our engagements that 50, 60% and yet we're still doing it with the same you know head count or a little bit less so we've done the belt tightening where we can and we're going to continue to do so I'm you know, we don't need a big office anymore, there's a lot of things.

Things that were in motion were renewed renegotiating our server contracts now on one hand, we have a lot more volume on our servers, but equally we've got to try to keep those infrastructure costs and check as well and so we're looking at every one of those items and trying to see if there are opportunities to instead of holding our burn with the.

A surge engagement that we could have opportunities to bring it down to maybe extend runway a little bit more. So we are in good shape you know through through the ended the year.

I asked to tell you something I've never seen company that has such potential growth is literally years I can maybe 11 different sheppard ever.

Yes, the grabbing values I mean, she credible to growth that you haven't study. It was just spectacular I was just sooner burn rate would go up because of this potential yeah.

Yeah, and then yet you de it doesn't feel right to do that either so that's I mean, that's where I know I said it earlier and I I've just I've been working for I. I had you know I don't I hate to even admit it but I hit 30 years and June at I've run a lot of big organizations I've dealt with a status.

Yeah, I've done a lot of dealt with a lot of remote working staff.

I just the maturity that this young team has shown the kind of conviction to fight for their job site for Super League fight for profitability I've never had you know our staff talk so much about revenue [laughter], which usually in young companies you know, it's everybody wants to talk about.

The growth in like the bottom line isn't always the most exciting conversation.

I think that the crisis has you know as I said will be a better company on the other side will be leaner, but will also I think be more mature.

Thank you very much I, just want to say that Jordan as horrible crisis. This is where I get a lot of covered so this is the one exciting cited growth opportunities. She has a long time in terms of risk reward for the company. Good luck.

Thank you I appreciate that.

Thank you at this time. This concludes our question and answer session I would now like to turn the call back over to Mr. Chen for closing remarks.

Alright, thank you so much and.

Oh gosh I just like the thank everyone for listening to todays call. You know, we really appreciate you I'm standing behind the stock and continuing to give us support I'm you know hopefully, we'll keep bumping into each other if not in real life at conferences, we'll continue to to have virtual conferences and look.

<unk> reporting our second quarter results in August. So thanks, again, I hope you have a great day and I Hope your family and friends are safe and well.

Thank you ladies and gentlemen, this concludes todays call teleconference. You may disconnect. Your lines at this time. Thank you for your participation.

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