Super League Gaming Inc. Q1 2023 Earnings Call
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Speaker 2: Greetings and welcome to the Super League first quarter 2023 conference call.
Speaker 2: Please note, this conference is being recorded. Before we begin, I'd like to call to our listeners that comments made by management during this call may include forward-looking statements within the meaning of applicable securities laws.
Speaker 2: These statements involve material risks and uncertainties, and actual results could differ from those projected in any forward-looking statement due to numerous factors.
Speaker 2: For a description of these risks and uncertainties, please see Super League's financial statements and MDNA for the first quarter 2023, end at March 31, 2022.
Speaker 2: In the description of these risks and uncertainties, please see Super League's financial statements and MDNA for the first quarter 2023 and March 31, 2022. Available on the CDR and Edgar.
Speaker 2: Important qualifications regarding forward-looking statements are also contained in Super League's earnings release distributed earlier this afternoon, and also available on Cedar and Edgar.
Speaker 2: Furthermore, the content of this conference call contains time-sensitive information, accurate only as of today, May 15, 2023.
Speaker 2: Super League undertakes no obligation to revise or otherwise update any statements to reflect events or circumstances after the date of this call.
Speaker 2: I'd now like to turn the conference over to Anne Hand, Chief Executive Officer. Please go ahead.
Speaker 3: Thank you very much, and thank you all for joining us today for our first quarter 2023 financial results webinar. Our session will begin later and start shortly.
Speaker 3: The video we just showed was from our IAB Playfront conference this March, where we presented the power of Super League to top advertisers and agencies.
Speaker 3: And it really drives home how highly impactful and engaging our products can be. And to end immersive marketing programs for brands that deliver off the charts ROI, enabling them to meet young audiences right where they are, their next generation gaming, that is really much more about socialization and creation. And anything they enjoy in their real life.
Speaker 3: Well, younger audiences also crave that virtual twin as well. Never did I imagine when I thought about my career that I would have the opportunity to lead a company with a vision to play a role in the forever changing way the younger generations will gather, collaborate, shop, learn, and play.
Speaker 3: So let's kick off with some of our first quarter and more recent highlights and detail some of the great strides we've made.
Speaker 3: First in terms of first quarter revenues. There are a couple of factors at play here to consider. One, we are coming off historical peak seasonality spend as advertisers put the bulk of their money to work as we know in Q4, that holiday spend time. Hence our record breaking seven and a half million quarter in Q4. However, Q1 this year was lighter than expected and exacerbated by the continued market.
Speaker 3: budget. So queue them one with light across the board.
Speaker 3: In terms of Q1 revenues, we've recorded 3.3 million in line with our historic seasonality distribution. While this appears down relative to the same quarter prior year, on a normalized basis, we were up 17%. Due to a prior year one-time non-core technology is a service payment from Verizon.
Speaker 3: We still managed to perform better than last year, given the continued market headwinds, as I've said. We still managed to perform better than last year, given the continued market headwinds, as I've said.
Speaker 3: That's that's a Q2 has shown a very good strong start, indicating that advertisers are back, and we've made notable progress over the last month, acquiring Melon, an immersive experience studio, and materially strengthening our balance sheet. That was critical. Our strategy's working and we continue to make meaningful strides that dramatically improve our position.
Speaker 3: as we look towards the horizon and our $100 million revenue target in three years. So let's pause for a moment there and come up maybe a level higher on what we see ahead of us at Super Late.
Speaker 3: Led by gaming engines and the advancement in smarter screens, the internet is changing right before our eyes and increasingly becoming a 3D experience, or as we like to call it, the immersive web.
Speaker 3: The next generation internet or Web 2 2.53 has a right, right? No matter what you call it, whether it's on the chain or off, it's more engaging, it's customizable, it's collaborative, and it's sticky for consumers.
Speaker 3: We have already proven that our immersive publishing, media, and creator tool engine is valuable and scalable. We currently reach over 100 million monthly unique players, generating well over 1 billion monthly impressions. And we're growing. And we're doing this in some of the largest game platforms in the world.
Speaker 3: We are now applying that technology and capability backbone that we've built to even more virtual world platforms, established platforms like Decentral Land, Sandbox, Fortnite, and more for becoming a multi-verse company. This diversification means more audience reach and the ability to not only meet any brand partners.
Speaker 3: And Gen Z specifically spends over seven hours a week hanging out with friends in immersive spaces.
Speaker 3: versus approximately five hours on social media. The headline here is that this is the new dominant form of digital social interaction for younger generation.
Speaker 3: As brands look to create immersive spaces as an extension of their web presence, Super League is ready to step in with our one-stop shop solution.
Speaker 3: Brands get equated with our powerful immersive engine to reach elusive young audiences and achieve campaign-oriented marketing objectives. But they stay and spend increasingly more with us because they see us having a persistent channel in these worlds is a marketing requirement.
Speaker 3: You know, it's really no different than the need to have a TikTok or YouTube channel. That's really what brands are starting to realize is this is a persistent person, a persistent permanent marketing channel to reach young gamers and young audiences.
Speaker 3: Yet that is not the end game for the company. It's not the big prize for Super League and our shareholders. It is really about where our business model is headed and what's happening now as we lend our enterprise solution to transform and modernize brand partners overall web strategy and presence beyond having a persistent channel inside these existing game classes.
Speaker 3: strong and growing as we work with some of the biggest brands in the world across entertainment, fashion, CPG and more. Brands like Disney, Mattel, L'Oreal, Mars and Skechers. We served over 100 brands in 2022 with seven customers spending an excess of $1 million through our platform in Agro.
Speaker 3: including what will be a record-breaking program with Kraft.
Speaker 3: We have seven direct sellers right now, and we know a top performer can generate three and a half to four million a year in revenue when they're optimized. And this is before we talk about the revenue streams that we also have in front of us, such as resellers and direct to consumer. So we're super happy with the effectiveness of our sales force, our internal sales force.
Speaker 3: And again, those positive trends will continue to see in the pipeline.
Speaker 3: So that's a good segue to our reseller or Global Sales Network partners. That strategy is working as well. This nascent indirect sales channel that launched last year delivered close to 15% of our total annual revenue in 2022 and represents over 20% of our revenue in Q1 2023 alone.
Speaker 3: That's up 200% versus the reseller contributions in Q1 2022.
Speaker 3: Our partners are coming up the learning curve and selling our immersive, very innovative media products. We can see as well that their deal sizes are increasing. And on top of it, they're serving as a feeder to our immersive experience in publishing pipeline. Every time we sell a immersive experience.
Speaker 3: that comes back into our pipeline controlled by our direct sales team. And so that's a pretty significant feeder system to have out there of international sales partners feeding that those immersive experience opportunities that inevitably tend to be six figure deals.
Speaker 3: And as well, resellers are accelerating our awareness with top global brand. Again, this really was a channel that didn't really, um, was available to brands five years ago. And so this is a big deal. So much of what our challenge right now out there is just education, helping these very smart, excited CMOS start to test the waters in this...
Speaker 3: right now. You're not surprised, I'm sure, it's a predominant theme in this space, especially when you look at the state of the private and public markets. This makes our multiverse approach to virtual world publishing even more poignant in today's market.
Speaker 3: To that end, we opportunistically acquired Mellon, a groundbreaking development studio renowned for creating award-winning high-profile experiences across an impressive array of global brands, including the likes of the NFL, Chipotle, American Girl, Clark's, and even Dave & Buster's. Chuck
Speaker 3: This isn't just any game development studio. Mellon's and innovator, they're creating valuable partner solutions that drive business objectives for brands.
Speaker 3: One of the most compelling examples was their Chipotle activation in October 2022, which proved immersive game experiences can drive real-life performance. In this case, download apps and retail like for like sales were those types of objectives that Chipotle wanted to see those bottom line results on.
Speaker 3: Our campaign helped deliver the number two best mobile app food sales day for Chipotle of all time.
Speaker 3: Again, this is where these younger audiences are. They're very hard to reach. And if you can engage with them in a very deep, meaningful way to build real brand loyalty, you can convert them into real life customers.
Speaker 3: This acquisition is immediately accretive and intelligently structured in alignment with shareholder interest with a nominal cash outlay and performance-based earn-out compensation incentive.
Speaker 3: Furthermore, Mellon's immersive experience capability augments our industry leading publishing media and measurement and monetization tools creating a vertically integrated gold standard, a powerhouse in our opinion in this fast growing sector.
Speaker 3: And the impacts immediate. Not only were we able to fully integrate their talented team within the first week, but we also saw pipeline synergies out of the gate. This is instantly quantifiable to our shareholders. A bigger pipeline, larger deal sizes, and very notably, improved margins. We're controlling the full value chain and that gives us the opportunity to walk up our margin.
Speaker 3: and to direct a consumer recurring revenue.
Speaker 3: Additionally, we announced an exclusive strategic partnership with LandBalt, the leading digital construction company in the Metaverse to serve as their partner as we further expand our current efforts in Abu Dhabi to the greater UAE and GCC region. Just focusing on that region alone and the type of investment they're putting into the Metaverse.
Speaker 3: to the end of the first quarter. We apply some of those net proceeds to fully extinguish our debt and pay out urn out provisions related to sub-MNA from 2021. Additionally, we have been extremely diligent with our expense reduction plan, cutting approximately 35% of our operating expense on an annualized run rate.
Speaker 3: While continuing to invest in our high growth revenue products and the resources against those product lines, with this lean agile organization, we've created material-operated leverage. What does that mean? Every revenue dollar that comes in now is of greater value. It's more efficient.
Speaker 3: In our Q4 2022 shareholder letter, I talked about being in the strongest position in our history to execute on our vision.
Speaker 3: for 2022 shareholder letter. I talked about being in the strongest position in our history to execute on our vision. Since then we've only gotten stronger.
Speaker 3: Now backed by a more focused operation, the strengthened balance sheet with no debt, more diverse revenue streams with improved marginality, and the premier vertically integrated one-stop shop solution, we have ignited our booster rocket for growth.
Speaker 3: I talk a lot about our leverage point. There's three and they remain. The first one is monetizing what we've built, what we have right now.
Speaker 3: What are the indications of that? A strong and growing pipeline, larger campaign deal sizes, as I've mentioned, continuing on our high repeats, proving that we can take a greater and greater share of advertisers' wallets and become a go-to for their marketing needs. This is driven by improved sales force effectiveness.
Speaker 3: That means higher salesperson throughput, higher wind percentages. And by the way, we're not done expanding our team. Seven strong sellers and growing. And we're excited about the way we're seeing an acceleration and how new sellers come up the curve and getting new deals into the pipeline.
Speaker 3: Getting wins over the wall and really getting confident as they go out and sell again these very innovative progressive media products and experiences.
Speaker 3: Our second point of leverage, optimizing that global sales partner or reseller network I talk about. This is important because 50% of our eyeballs or our audience are international. I love the idea that we are utilizing our partners piano.
Speaker 3: their established media sales team, their deep, deep brand relationships, to sell our international audience inventory.
Speaker 3: And we're already, again, as I mentioned, seeing some great trends there. Bigger packages, it's more consistent now that they're coming in with six figure media buys. And so we're seeing now what does it really look like when a global sales partner is really starting to get optimized, and we can use that as a benchmark.
Speaker 3: for the rest of our selling network and continue to turn that network out, frankly, to hydrate it and ensure we have the best partners out there selling those products for us in markets outside of the U.S.
Speaker 3: And then there's the third point of leverage, and that's diversifying the nature and shape of our revenue strength.
Speaker 3: And the important note here is that that's not just an idea or concept, it's happening right now.
Speaker 3: Moving more into persistent, owned, and third party annual experiences and media programs. Much like what we're doing for Abu Dhabi and Yas Island, where we're running a persistent game world, more than one. Those don't then just look like campaign dollars that land in Q4. Those are annual programs.
Speaker 3: They're nice, they're smoothed out. They can be forecasted, and they can smooth out some of that inevitable revenue lumpiness that we have when we've had a more heavily dependent ad model.
Speaker 3: So that's really exciting for us. But it also, if you think about that engine that we've built that we're applying to run other people's persistent worlds, it means that we can also run them for ourselves. Or when we run them for others, we can participate more in the full economy.
Speaker 3: So that allows us to move further downstream. So it's not just about moving out revenues and having them be more predictable, but it's also moving downstream into high margin direct to consumer, first party data monetization, ways in which we can control a greater share of the digital economy.
Speaker 3: around this persistent world or experiences that we create. And again, really change the business model from one that feels very temporal and very dependent on advertiser dollars to one that's much more about an enterprise solution for brands as they take their valuable brand and IP into this next generation of the Internet.
Speaker 3: We continue to see a clear line of sight towards growing our annual revenues to over 100 million, with a gross margin in the high 50s to low 60s.
Speaker 3: Our growth margin goal will be further supported through the acquisition of melons as I noted. But along with that we also are continuing to create innovative products, new products out there that are different and also really can achieve that really high attractive margin. We love so much especially.
Speaker 3: in the meta media products space. And there's other internal strategies too. We're not done with leaning out the organ constantly looking for ways to spend every investor dollar as smartly as possible on that path to profitability.
Speaker 3: This launchpad provides us with the ability to build a great business just by monetizing what we have now. Yet really what's in front of us is the opportunity to build something that will be even more material and leading over the next two to three years.
Speaker 3: So as you per me saying different ways already today, we're building an enterprise model for the future of the internet or the immersive web as we call it. As I stated previously, partners seek us out to help them solve their marketing challenges, but they stay with us because we offer them a solution for how to think differently.
Speaker 3: about the Web 2 Web 3 strategy for their brand. And with that, thanks for listening. And I would like to begin the Q&A session, operator.
Speaker 2: Thank you, Anne. We'll now begin the question and answer session with questions from super leagues covering analysts.
Speaker 2: If you would like to ask a question, please press star one on your telephone t-pad.
Speaker 2: A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment that may be necessary to pick up your handset before pressing the star keys. Once again please press star 1 if you would like to ask your question at this time. Please hold while we pull for questions. Please hold while we pull for questions.
Speaker 2: Once again ladies and gentlemen it's star one if you wish to ask a question at this time and we did have a question come in from Jack Fender Art from Maxim Group Jack your line is lies
Speaker 4: Okay, great. Hey guys, I appreciate the update.
Speaker 4: And in great to hear you're still on track to that 100 million revenue target. And it sounds like you've had quite a bit of a good action since we last spoke last quarter. So maybe start on the direct seller side in. I think I heard you have seven direct sellers and top sellers can generate over 3.5 million per year when they're optimized.
Speaker 4: Can you give us a general context maybe how many direct sellers you had entering last year or even last quarter and then just kind of what your future targets are for those direct sellers? Yeah, that's a great question, Jack. So, you know, right now we still have a few additional open positions that we're recruiting against. So really in many ways we have so much available inventory and opportunity and we're really one of...
Speaker 3: experience space and so we really like the fact that they can jump up that learning curve faster and also frankly they've already got the pipelines they've established and built in those brand relationships. They can just port right over to us. You know two of our top performers last year were hitting that kind of three three and a half million dollar mark so we know.
Speaker 3: that that is achievable, especially when you look at the fact that our catalog of what we can do for brands has just grown exponentially. And so we feel like that's a very reasonable target. And so, you know, that tells us that if we have 10 sellers up and running fully optimized, they should be able to deliver 30.
Speaker 3: If that's what they can achieve in a year where they are just getting onboarded.
Speaker 3: And you're again talking about sales chains that have never sold these kinds of products before. This is very different from what they sell usually in their day job. There's nothing to say that we couldn't expect another, you know, six, eight, ten more from them this year as well. And so those are the kinds of chunky building blocks that give us up.
Speaker 4: A lot of confidence, even with Q1 being a bit soft, which again, we weren't singled out there, but it doesn't change our view that we're going to have another step change revenue year. Okay, fantastic color there. I appreciate that. And then I'll maybe ask one more, and I'll hop back into Q. I'm...
Speaker 4: You mentioned the first quarter being seasonally slower than normal and yes, I've seen that across my other companies in the ad space. But you just say 2Q advertisers are back and you continue to work towards that 100 million revenue target. So can you just give us an idea of maybe what to expect for the second quarter directionally and just what kind of gives you confidence?
Speaker 4: You touch on that pipeline of 42 sticks bigger deals. I'm sure that's part of it. And then your direct seller comment as well. But just one gives you confidence that advertisers are back in why they're looking to super league with those ad buckets. Thanks.
Speaker 3: Yeah, I mean, look, in general, there's probably gonna be most companies out there that have a heavy digital advertising dependency that aren't gonna say advertisers are back, right? Why do I feel like they're back? They're back because we've always known that our products stand out. They stand out from a performance point of view, but it is actually where the audience is. I think we spoke about this maybe Jack on the last call or maybe it was afterwards.
Speaker 3: campaign. It's not performing anymore. They're not getting the performance results, but it's also it's not where their audience is. As kind of evidence with some of my remarks where I talked about the shift, you know, kids are now in these immersive spaces more than they're even on social media as we know it. I would just call this the next generation of social media, but I think the reason that we're feeling it is because we know that we're kind of a little bit at the top of the stack.
Speaker 3: We're not kind of some of the throwaway digital marketing that's not doing well. We are the stuff that they see and I really want to put their dollars into and they're excited by it and the innovation. And again, the fact that they can reach that elusive audience. So what we've seen and this is just our best measure is we have a weekly revenue call.
Speaker 3: And our top sales leaders are there and they're telling us about what came in the pipe that week. The size of the deals and you can feel that the tempo has shifted over the last, you know, called it 45 days. And so we feel that's why we feel comfortable that we're still going to have another step change revenue year while we haven't given formal guidance. And it's going to be a good tube view.
Speaker 3: So, would I like advertisers to be back like with lighter fluid on their advertising dollars? That would be wonderful. But we right now are not feeling any caution about our Q2 performance. Again, we don't formally give that guidance, but.
Speaker 4: You know, we're at a stage where we've already kind of got more than you know a good kind of five million underpends So if we're only kind of you know Halfway through we're feeling good Okay, great and I said that was my last question maybe just one quick follow-up Um the the deals in the pipeline the 42 six-figure deals
Speaker 4: Do you just have a sense, can you just remind us how you measure the pipeline and kind of what, um...
Speaker 4: what the duration of the pipeline is or how much visibility you have into those campaigns being executed. Are those near-term? Is that a near-term number or is that a general what you've had verbally committed? Thanks. Yeah that's that's the current pipeline of deals we're chasing.
Speaker 3: Now, what does make them more forward or for-castable in many ways? And obviously, we kind of, we wait that pipeline and measure those deals and probability wise as they advance. So as we're down to maybe there's only one other competitor or we've been given a verbal, we move it to a higher probability in the pipeline.
Speaker 3: real short term, hey, I've got a new movie release coming out next week, let's, let me throw 50k at you. And look, we'll take those deals too. And we do. But when people are asking us to run programs that have an immersive experience attached no different than what we did for Mattel with Barbie's Dreamhouse recreating.
Speaker 3: a gameplay experience and they bought our media products. Those things have a little bit longer lead time and they're big and chunky. They're kind of like tent poles for Mattel. That means we're getting a line of sight much further out. Just by the size of deals alone and the fact that they are a combination of experiential and media means that we're able to see a good two quarters out, if not more. you
Speaker 3: Now, once we start running things that are annual like programs, like what we're doing for Yos Island and others, again, those are annual contracts. So that even gives us more of that ability to look forward.
Speaker 4: Okay, really great color there, Anne. I appreciate the time. I'll hop back into the queue. Thanks.
Speaker 4: Thank you. And it looks like we've reached the end of our question and answer session. I would like to turn the floor back over to Anne for any further comments. Well, I just want to say thank you so much for hanging out with us today. It's always a pleasure to be here.
Speaker 3: to have these touch points and to get to connect with some of our analysts. Be on the lookout for us at upcoming investor conferences and as well you'll see more and more of Super League getting out there at key marketing conferences and thought leadership in this space because again we're super excited about the leading position that we're building.
Speaker 3: and just stay tuned for more good news. Like I said from the beginning of this call, our strategy is working. Thank you.
Speaker 2: You may disconnect your line at this time and have a wonderful day. Thank you for your participation.