Q2 2023 Super League Gaming Inc Earnings Call
Speaker 2: Greetings and welcome to the Super League second quarter 2023 conference call. Please note this conference is being recorded.
Speaker 2: Before we begin a light to caution listeners that comments made by management or in this call may include forward-looking statements within the meaning of applicable securities laws. These statements involve material risks and uncertainties and actual results could differ from those projected in any forward-looking statements due to numerous factors.
Speaker 2: For description of these risks and uncertainties, please see Super League's financial statements and MDNA for the second quarter 2023 and the June 30th, 2023 available on the Cedar 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, August 14, 2023. Super League undertakes no obligation to revise or otherwise update any statements to reflect events or circumstances after the date of this call.
Speaker 1: So that.
Speaker 1: Thank you for watching!
Speaker 1: Not.
Speaker 1: And.
Speaker 2: Thank you, and now I'd like to turn the conference call over to Anne Henn, Chief Executive Officer.
Speaker 3: Hello, and welcome to our quarterly call. There's a little bit of lag in that video, but hopefully you could still get a sense of the remarkable results that we deliver for some of the biggest brand partners in the world. So, let's go ahead and kick off. I'll start by saying that setting records is starting to become a thing here at Super League. From our continuing growth of monthly unique player reach,
Speaker 3: Topping 127 million last month, to yet another record setting quarterly revenue. These best sub-req2 revenues saw a nice sequential uptick from Q1, growing 51% sequentially to just over 5 million. And we're just halfway through the third quarter and expecting yet another quarterly record delivery north of 6 million in revenues.
Speaker 3: based on the strengths of early bookings. And again, we're only halfway through the quarter. That is worth a pause. Our strategy is working and operating leverages kicking in. We're proving we can take a greater share of advertisers while it's proven through larger deal sizes and continued high repeat percentages. A little Hercules Clinton did these 3 trying to distribute looping?? that look very unique even 5th six months after hopingil doing so. Best tech els
Speaker 3: Our sales force effectiveness is increasing as indicated by higher total revenue wins per seller. And we have signature clients like Hamilton now and Yas Island where we're delivering immersive experiences that are not just short-term campaigns but persistent virtual worlds that change the size and distribution of our revenues to be more recurring.
Speaker 3: forecastable in nature. That's a big change because that doesn't have us looking like an ad model anymore. And we think that's something that investors are really going to embrace, that smoothing out of revenues and that greater predictability. We've built a leading, scalable, vertically integrated publishing machine across some of today's largest digital social platforms.
Speaker 3: the ad dollars are still catching up. In-game advertising is expected to be a $56 billion industry by 2024, and young consumer behaviors are shifting as well. 47% of Gen Z expects to discover brands first in immersive environments.
Speaker 3: And that immersive content, 2D or 3D, increases engagement by 252%.
Speaker 3: Hence, we offer brands a new high-performing marketing channel, a solution to their underperforming traditional digital ad channel. The future, really, of digital advertising.
Speaker 3: Even if you look at the recent earnings calls for meta and row blocks, they validate what we see and what we do here at Super League. Row blocks is revenues are growing 15% year on year. They continue to show strong new user growth, along with an increasing segment of 17 to 24-year-old players.
Speaker 3: Proving that Roblox as well isn't a platform necessarily that U.A. Jado and you'll note that they don't call themselves a gaming platform. They're social platforms.
Speaker 3: And Meta is now recognizing that there is a necessary transition space between the 2D web using the screens we all have in our lives today, our laptop screens, our phone screens, our TV screens, and their point of view on a fully immersive 3D metaverse that requires a VR headset.
Speaker 3: This now makes them a real key partner for us to explore a strategic partnership because now that they're embracing a 2D transition, they have an opportunity to deliver a lot more users to their metaverse world because it would be much more accessible. And summary, this is all fueled by spatial computing. The technology that has origins in these social gaming platforms exists and can now transform the docs.
Speaker 3: web experiences beyond the platforms we operate in today.
Speaker 3: Now, let's move on to some Q2 and subsequent operating highlights.
Speaker 3: As I mentioned, LabCorder, M&A and consolidation are ongoing themes in our emerging industry, and our leading position makes us a magnet. To that end, we opportunistically acquired Mellon in a very shareholder-friendly, intelligently structured deal. Mellon, now branded as SL Studios, is a groundbreaking development studio.
Speaker 3: It's renowned for creating award winning high profile experiences across an impressive array of global grants and clean the likes of the NFL, Chipotle, American Girl owned by Mattel, Clarks, and Dave and Buster.
Speaker 3: The Chipotle activation alone is one that when I talk about with investors, I get a lot of excitement and reaction from it because I think they can feel as well how groundbreaking it is for us and our opportunities that lie ahead. That activation provided us with a particular point of differentiation beyond just delivering material off the charts digital engagement.
Similarly, our June activation with Clark Schoo brand created a two-way street between the digital and physical worlds, driving real-life customers into an immersive Clark's digital world to try out new shoe styles and then back to the store for purchase. We believe being a leader in measurable digital to physical conversion is a game changer for brands and again, a real distinction point for Super League. Finally, it is a note that this accretive acquisition raises our in-house publishing capability, which we expect to improve our publishing margin profile while further augmenting our vertically integrated one-stop shop. And in this nascent ecosystem of immersive experiences and media products.
Together, we've already launched programs in the UAE specific to virtual tourism and see abundant opportunities in this vertical alone across the UAE and greater GCC. We have a powerful narrative combining the two companies' notable successes, and we share a common vision regarding the evolution of the immersive technology and how it will rapidly fuel a more immersive web. And then there's the biggies, the billion dollar titans in our space that can change our fate. That's exactly how we feel about our recently announced strategic partnership with Roblox. Yes, Roblox appreciates the role we play in complementing their business objectives.
and employ us in a very coveted position as a key partner. So with what we would argue, at least in Super League's point of view, is the most significant social digital platform in the world. While we continue to reach those 100 million plus monthly active players in roadblocks alone through our distributed network of game world,
This partnership gives us access to their astounding audience reach in the hundreds of millions to sell our immersive experiences and dynamic content along with their innovative ad in inventory.
The added inventory augments Superleg's powerful Indian solution, and we believe will result in not just larger deals sizes, but also a larger overall sales pipeline, as Roblox refers brand partners our way.
It's having really, truly an extra salesperson fueling our pipeline, but a salesperson on steroids, so to speak.
And then there's the business that we're in right now. Every week we're creating powerful, high-impact, immersive experiences for brands through our technology and capabilities. One of the coolest experiences we launched recently was in partnership with InnerScope Records, the world leader in music entertainment. For the Imagine Dragons, live in Vegas, who will watch party on Roblox.
This exclusive digital event marked the first ever music documentary Watch Party on Roblox and created an innovative way to bring an immersive concert watch party to life and activate their massive fan base.
And while creating a virtual replica of Barbie's dream house is still very near and dear to my heart, that was something we delivered late last year, delivered 60 million visits in just 30 days, especially in a time of Barbie Mania, so to speak. That was a zeitgeist moment for sure, but now we have Hamilton.
It is a privilege to bring the biggest Broadway hit ever in history into the metaverse of last week's launch of the Hamilton Simulator, a revolutionary way to experience and bring to life the show's groundbreaking music through innovative design and iconic artistic set pieces, new and existing fans alike can now immerse themselves into an adventure inspired by history.
with themed activities and interactive discovery of the magic of Hamilton. As we know, Hamilton is a once in a generation cultural touchstone. And the experience further demonstrates that anything that exists in the physical world can have a virtual twin to reach new younger audiences and prove that learning about American history can be gamified.
in a way that makes education more fun and memorable. The results so far speak for themselves. Our Hamilton World has already experienced over 100,000 visits just in the first day alone. An average play session is about 27 minutes with a 97% light rating. Those are staff that go way beyond the typical roadblocks game.
And the press has fueled that interest with over 400 pieces of coverage reaching a potential audience of about 6.5 million readers.
And now we will provide you a little bit of a sample of some of the Hamilton experience. Could you play the video, please? Okay.
Thank you.
The positivity, the synergy, and the momentum of our best-in-class sales leadership is palpable. We continue to maintain a high-repeat percentage of 70% for our immersive experiences and products. This indicates that we're not only delivering on advertisers ROI, but also this new marketing channel is increasingly becoming a standard go-to for their marketing campaigns. As well, we continue to attract new verticals beyond entertainment, toys, and gaming, with notable growth in the categories of fashion, beauty, automotive, financial services, tourism, brands like Mabelie, Lego, Sony, H&M, Procter & Gamble, and many more, all put add dollars to where-
that we are chasing in the pipeline as we continue on.
We're seeing our top sellers now setting a benchmark of $4 to $5 million in annual sales capacity. At that rate, our eight-person domestic sales team, separate from our international resellers, separate from our business development partnerships, has a capacity of up to $40 million in annual revenue. And that's just if we stood still, but we're not. Further evidence is that our sales leverage is kicking in. Our win rates are trending upwards to north of 50%. We are increasingly becoming the preferred partner for the brands we serve. But as I said, not standing still. We're expanding.
In the second quarter of 2023, excluding significant non-cash charges, we reduced our pro-former operating expense roughly 30% compared to the prior year quarter. This was achieved through a 71% reduction in our cloud services and platform technology costs, as well as reductions in personnel marketing and other corporate costs. This more optimized structure underscores our commitment to focusing on top-line revivatives, pulling forward break even in profitability and increasing our operating leverage. The successful completion of 24.4 million capital rates, including 10.3 million in the second quarter, has helped us eliminate all debt and shore of our ballot sheet during the period.
And we have enough going for us that we are confident we can address our short-term and long-term working capital needs as we have done so historically. Our revenue growth is being well received by investors that have historically stood by us. Looking ahead as we enter the seasonally strong second half of the year for us, we couldn't be more excited to deliver yet another record-breaking second half for 2023.
That completes the review of the second quarter and corporate update. And so now operator, let's go ahead with Q&A. Certainly, when I'll be conducting a question and answer session, if you'd like to be placed in the question Q, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question Q. You may press star two if you'd like to remove your question from the Q4 participants using speaker equipment it may be necessary to pick up your hands that before pressing star one. One moment please, what many poll for questions. Our first question is coming from Scott Bug from H. T. Wayne, right? Your line is now live.
Oh, and thanks for taking my questions. First one for me, it's great that you guys are seeing larger average deal sizes. I'm curious if this is a trend that's specific to what super lead can offer? What does it reflect? You know, kind of...
easing of some of the macroeconomic headwinds that we've seen over the course of the past six or nine months? I think it is 100% more about what Super League can offer.
There's no doubt that advertisers have started to loosen up the spend again in Q2 and you saw things improve across, you know, other kinds of digital platforms as well. But this is about the fact that we can be a one stop shop to deliver digital experiences plus immersive media products.
And by extension, other products, I have a sales leader in the company who talks about is it's kind of like we own Disneyland. And it's not just about the fact that we make the great rise, but we kind of get to control the pathways and even the gift shunts that we can pitch to advertisers because we can hit all of their ROI objectives.
not just the experiential ones. So I think it is 100% due to the fact that we are that into insolutions of mine bill. And so it's a little bit about when you launch a new server, you get a spike of excitement. And then you have to continue to keep optimizing those servers and approach those businesses in different ways. It is important, though, to note that we do believe the more that we're running, poorly immersive game worlds in a persistent way for the Hamilton and the Yacht Islands of the world, we do believe the bigger opportunity for us on direct a consumer, which is a very attractive high margin revenue stream, is when we deliver those programs.
that will start to negotiate those deals in a way where we have a potential to participate in the consumer monetization of those worlds. Today we're being paid to design, develop, and operate and optimize them. So that is one type of really publishing revenue. What we would like to see is we become more sophisticated and have more deals like that under our belt that we can have.
of our revenue portfolio.
I mean, completely, you know, as I said, you know, we're seeing here only halfway through Q3 and we're talking already about having a line of sight to north of 6 million. That's pretty great. So indefinitely again, beats last year's Q3, which was a record setting quarter. And then as you know, you know, we did about 7 1 1 2 1,000,000 last year in Q4, which again was our largest quarter ever, not just Q4, our largest quarter ever in the history of the company because that's what, you'd expect with that seasonality. And you know, when I talked earlier about the fact that our, we're seeing off the charts delivery from some of our top sales executives.
Hamilton or Yaw S Island or increasingly some of these other game worlds 12 months out of the year or in a persistent way that's going to smooth that revenue out and I think you know investors will be happy with that because I think that does give us a chance to start to have a little bit more predictability.
and not be quite so subject to that seasonality. Look, we don't mind it in Q4. We're going to take as much of those ad dollars they want to put to work at the holidays as we can get. But wouldn't it be nice if a big chunk of our revenues as well were kind of spread throughout the year and felt more recurring in nature as well?
And the reason that also, you know, what's happening, you know, why do we think advertisers will get there and start having more persistent channels in these worlds? It's no different than when they were first trying to understand, you know, what is Facebook, you know, 15 years ago and why do I have to advertise there? Then they saw the massive audience.
persistent ad channel. It's a persistent chunk of their annual spend and they sprinkle it accordingly throughout that year. What's happening is once these advertisers are getting a taste of what we can do for them, like the Barbie example, you know, they don't turn off Barbie's Instagram account 11 months out of the year. But we only ran the Dreamhouse for one month.
And really what we try to convince Mattel and other clients is now that you've seen that off the charts engagement, how can you start thinking about the ways that you could have used that Dreamhouse channel all year long to achieve all kinds of campaign objectives.
the time guys. Thank you very much and congrats on the quarter. Thank you.
That can next question is coming from Howard Halpern from Taglitz Brothers. Your line is now live.
Good afternoon. In what you just talked about with Barbie, is that something with data analytics packages that could eventually be an offering for you guys?
That's a really good question. Yeah, we think that, you know, one of the things that makes us unique with the tech and the capability backbone that we built is the fact that we really understand these players and the way they wanna engage around brands and the way that they convert.
attribution is the key. It's like the Chipotle example into real life drivers of P&Ls for these brands. And so between the data and the opportunity as well to start to really be paid on conversion, we think are two places that for others who try to do the best they can to kind of mimic what we do.
and usually that's just going to be a traditional service ad agency who's kind of going out and hiring a Roblox game developer, maybe buying some of our media products or Robloxes. You know we are distinctive again because we're a one-stop shop as acknowledged by that Roblox strategic partnership but equally we do see that the data, the insights
is an area that is improving attribution, that conversion pace are points of distinction.
Okay, and when you talk about deal size and the length of the deals increasing, how do you look at it over the next couple years that that could end up driving gross margin? Yeah, so I would say on the margin side, I mean we continue, you know, as I said, you know, think of us as having this beautiful, rich,
I want to achieve. We can pull from that menu and deliver and beat a lot of those engagement numbers. But we have a plethora of high margin offerings inside of there. So we can cobble together the right programs that meet those goals, but also tap into
You know, frankly, the products that we have that deserve those types of strong margins because they are the highest value generating. And so we'll continue to expand and look at at margin, but I would say the margin opportunities also improve with these longer programs because of what I mentioned earlier that it'll allow us to instead of just being hired on a temporal basis.
of some of the direct to consumer monetization as well. And direct to consumer monetization inside the virtual world platforms tends to be about a 70, 80% margin product. So that in itself could be a meaningful chunky way to walk up our overall average margins as a company. OK, well, thanks and keep up the good work.
Thank you. Thank you. Your next question today is coming from Jack Codero from Maxim Group. Your line is now live. Hi, this is Jack Codero's calling in to Jack Vetter. Congrats on the solid quarter, and thanks for taking my question. You guys get some great commentary and a shareholder letter about the capacity of this new direct selling team. I was wondering if you could give any additional color on specific sales headcount. Have you expanded there? I think I heard you say eight, so that would be one more sequentially. And then on that 32 to 40 million number, that sounds like sort of like a goal run rate based on the capability of top performers. I was wondering how do you think about that in terms of how to unlock that?
And so there's certainly a learning curve when you're pulling people who are coming maybe from more traditional media sales to now kind of understand how to sell these immersive both experiences and media products. That said, we're seeing a faster learning curve or ramp up as we bring in a new salesperson, they're gaining up that curve faster. And a lot of that is having those more seasoned senior salespeople above them that can kind of play that mentoring role. The other thing that we're noticing is, as I mentioned, our couple top sellers last year that delivered two and a half, three million are now gonna hit four or five, even maybe more million this year. So we now know what capacity, a new bar for capacity looks like.
We do chair in our sales talent. You know, look.
This type of a sales effort, it's not traditional media sales. It's much more about brand and partnership development, and especially when you look at the nature of the recurring deal, but also the size of the deal. I mean, brands are trusting us with, in this case, in some, you know, millions of dollars. And so...
It really takes a very seasoned experience relationship builder. And so what you're seeing in those eight strong that we have now is some churn where we've high graded some folks. In fact, we poached two fantastic sellers from an agency called Super Awesome.
Which is tended to be, you know, the main agency we're going up against often when we're winning some of these bigger programs. They're purely just a service ad agency, but they've been out, so they don't have our tech and capability in-house. They can't publish game worlds. They don't have our dynamic content ad products, but...
They were going out and kind of being a middleman. And so they had a bench of salespeople who were out still selling that nature of those programs, even if they didn't have the in-house capability and tech to deliver it. So that was a real kind of big boost for us in bringing in people who already had some experience in the space. Now the question then becomes.
Well, then why not add for more salespeople? And that's why our cost-cutting efforts have been so important. You know, we never wanted to take a hit on the top line, but we really tightened and focused our product strategy, made sure that we're putting the proctin engineering heft of the company into the areas that have the highest growth opportunity for us.
And what that also has done, leaning out other parts of the org, including some of the corporate cost structure, is allowing us to redirect a higher percent back into the sales team, the people who are customer and revenue facing. And so you'll continue to see us very opportunistically grow that team faster.
Do you have any directional thoughts on how your segments are evolving? How will that $100 million break out between your different segments in the future? Yeah, it's a really good question. As you can see, we had a 250 plus percent jump in our publishing content studio revenue this quarter. So that just shows that these immersive experiences now that we're doing for brands are chunkier and bigger in nature. So again, instead of us just selling a lot of media products, we're now really kind of taking a leadership position as the place to go to to create the highest engagement.
I want the investors to understand is first to understand that the publishing line plus the advertising products line, those things are really we separate them because they have a little bit different margin profile to them. But they're essential they work together our strong point of view is the way we deliver the best programs for brands is when we do both. That's what makes us that end to end solution. And so often I tell investors, you should almost look at those. They're different capabilities. They're different products, but they always nine times out of 10.
But at least for the publishing and advertising, what investors I think should be looking for most next year, as far as the change in revenue is to start to see, instead of those two powerful legs of revenue working together for short term objectives for delivering brand campaign goals that we should see more and more YAS Islands than Hamilton.
And that is a very powerful change in the business model and then coupled with us digging into new revenue streams like data and direct to consumer, which again can have really attractive margins to help that overall margin profile.
That's awesome. And I actually have one more question, if possible. Given your comments on kind of these new emerging verticals, you know, you said fashion, are you seeing any specific industries that have like particularly sticky customers? Is there
certain industries that you know given their their single dollar of ad spend towards Super League is it a little bit more efficient and therefore those customers are coming back more than others? Do you have any comments there?
Well I definitely think that fashion and beauty it makes perfect sense. You know you can first test with your digital self or avatar new looks, styles, new makeup trends, new hairstyles, new fashion looks and you can even purchase.
those things for your digital self. And then that encourages you to now want to translate that into your physical life. So I think it makes sense that because so much is built inside these immersive worlds around your own avatar and how you customize yourself, how you want your digital self to occur, you're decorating yourself effectively.
with hair and makeup and clothing anyway, just to be really distinguish your digital avatar from others. And so those areas make perfect sense. I think the one that I'm really excited about, I mentioned a little bit earlier is virtual tourism. When you think about...
you know the typical dot com experience for tourism is a bunch of stock photos right um but you know if you want to think about visiting the real yass island in Abu Dhabi wouldn't it be cool to do a fly through a sea world or right around the f1 track
Well, that's exactly what the immersive world that we've built for Yoss Island enable is both for kids and parents to be able to experience the virtual experience and then hopefully converting them into real life visitors of this amazing recreation island. And so I think that one just makes so much sense ever since.
that's trying to say, what can we do to attract more visitors to our city as a whole, and maybe one of their biggest attractions is some signature courses or other types of activities. So we have noticed that tourism seems to just be a no-brainer because wouldn't it be a lot better to first experience do a fly through versus just looking again at some of those stock photo images? The nice thing too on virtual tourism is that you can see that it starts where we're building these virtual worlds inside a platform like Roblox or Sandbox, a place that already has the engine to create that virtual tour and fly through an experience.
But again, as I mentioned earlier in the call, spatial computing technology being used in gaming can be used for a website today. And you don't need a VR headset to be able to go to, I don't know, call it, merdlebeach.com, and to be able to see that you can have that same kind of immersive way to explore it. So when we talk a lot about the immersive web and it being here right now, we're saying the tech is there, it exists.
And this is the opportunity we now have to take a brand from saying, come over here and build immersive worlds where all of these Gen Z and Alphas are living. But then in those conversations, now let's talk to you about what is your web strategy as a company? What could Barbie.com look and feel?
Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over to Anne for any further closing comments.
Well, thank you. I'll be a bit repetitive here, but I consistently talked about super league being in the strongest position in our history to execute our vision. Our rocket ship to the immersive web has never had a more focused operation. A clean balance sheet with no debt.
We serviced over 100 brands last year. So in my view, liftoff is complete, and it's now about acceleration and scale as we march towards 100 million in revenue over the next few years. We'll continue to act on all opportunities to further streamline our cost structure and expand into higher margin products to turn that important corner to profitability in short order.
While our roots and success are in the creation of immersive digital experiences and products inside some of the world's largest open world gaming platforms today, our future is in building the premier publishing engine for the immersive web.
Thank you so much for your time and please reach out to our IR team if you have any other questions or comments.
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