Super League Gaming - Earnings Call - Q2 2019

Transcript

Speaker 0

Good afternoon, everyone, and thank you for participating in today's conference call to discuss Super League Gaming's financial results for the second quarter ended June 3039. Joining us today are Super League's President and CEO, Ann Hand and CFO, Clayton Haynes. Following their remarks, we'll open the call for your questions. Before we go further, please take note of the company's safe harbor statement within the meaning of the Private Securities Litigation Reform Act of 1995. The 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 of 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 and Exchange Commission for more information about the risks and uncertainties that could cause actual results to differ. I would like to remind everyone that this call will be available for replay through August 2139, starting at eight p.

M. Eastern Standard Time tonight. A webcast replay will also be available via the link provided in today's press release as well as on the company's website at www.superleague.com. Now I would like to turn the call over to the President and CEO of Super League Gaming, Ann Hand. Ann?

Speaker 1

Thank you very much. Good afternoon, everyone, and thank you for joining us for our second quarterly conference call. As I expressed on our first earnings call, we have found the process of being public company to be very empowering and it has supercharged our approach and results as I think you will hear today. We have had a busy second quarter continuing our momentum. Today, will review some of our recent corporate developments and our growing position in the wider esports ecosystem and then get into our results against the key performance indicators we laid out at the start of the year.

After that, Clayton will review our financials and we will open it up for questions. So first, a quick review of some of our commercial highlights of our second quarter as well as the past few weeks. Early in Q2, we announced a partnership with GG Circuit whose venue management software is used in hundreds of esports gaming centers around the world. The partnership will help us expand our base of venues to allow us to reach more gamers with the Super League branded experience. We added Capcom's Street Arcade Edition as our fifth game title, expanding our offering into this highly attractive fighting game genre.

We announced a partnership with NetLevel, the first nationwide fiber network for out of home entertainment. The partnership allows us to further build out our movie theater footprint on the back of their infrastructure. In June, we announced the acquisition of Framerate, one of the fastest growing social channels on Instagram and our first acquisition since the IPO. This is an important strategic step in our audience building efforts with a channel that averages over 10,000,000 video views a month where gamers of all levels can upload their personal esports highlight reels for recognition. Also, we announced two great personnel moves.

Mark Young, Founder of IGN and former COO of FOX Digital joined our Board. And just a few weeks back, Samir Ahmed became Super League's Chief Technology Officer after time at Fandango and most recently IMDB, an Amazon company as the Head of Consumer Technology. These two industry veterans will be integral to taking our platform and offerings to the next level. And today, we announced the addition of our six game titles, Tencent's Player Unknown's Battlegrounds, also known as PUBG to our esports lineup. PUBG is one of the world's top mobile gaming titles with over 400,000,000 downloads and 50,000,000 daily active users.

This means we have already reached our target of having six games in our portfolio by the end of twenty nineteen and we are not finished yet. And last week, we formally announced our rapidly expanding Super League network of digital and social channels celebrating esports and competitive gamers. I will go into this a bit more in a minute, but first let me set the table. We continue to have a great story to tell and have been actively sharing this story at investor and industry conferences with our business partners and with the wider financial press community. And what better proof is there that esports is going mainstream, that esports is something desirable and accessible to the 2,000,000,000 plus gamers on the planet and not just for the elite professionals than watching a 16 year old amateur win $3,000,000 in a Fortnite tournament in front of a sold out crowd at Arthur Ashe Stadium.

What we thought was even more amazing about that story than the fact that the winner received 3,000,000 was that every other participant in the tournament regardless of score earned a minimum of $50,000 That could have been any teenager that any of us on this call might know. But even as reporters and analysts prepare their stories about the growing prize pool money, the best kept secret in the industry is that for every hour a talented gamer plays video games, he or she is consuming the same or a greater number of hours watching others' video gameplay. Super League brings not just players together, but also the audience. So let me elaborate. As many of you know, we launched our company initially to address the unmet demand and lack of infrastructure for recreational esports and community.

We wanted to help gamers find each other and find their fields for competitive video gaming, no different from how I had the opportunity as a teenager to take tennis lessons, go to tennis camp and eventually join a team. Hence, we started with our anchor business, creating partnerships with top game publishers and physical locations, retailers like Topgolf, Cinemark theaters and esports gaming centers to provide in real life gaming experiences that speak to where and how Generation Z and millennials wish to spend their time bringing gaming and eSports into the real world. With the recent announcement of our Super League digital network, we have expanded into social media, live streaming, video on demand and website based offerings that provide gamers with multiple forms of content designed to celebrate their love of play and to support their boundless creativity. Whether through gameplay highlights, live streaming sports competitions, original lifestyle series or digital gameplay environments, Super League's audience is constantly creating, watching and engaging, making this otherwise elusive and digitally native demographic accessible on an always on basis. Super League's primary digital properties include Super League TV, a branded channel on Twitch and YouTube featuring Super League's live and digital competitions as well as original live and video on demand shows Framerate, one of the fastest growing social video networks and gaming with multiple channels on Instagram, Facebook and TikTok as well as original content series on Instagram TV and Facebook Watch.

And thirdly, Minehut, a vibrant Minecraft community in which players create their own Minecraft world and where friends can share, socialize and play together. This unique combination of digital physical audiences across a wide range of game titles, ages and skill levels and the wider content capture that we are now collecting beyond the gameplay positions Super League as not just a tournament operator, but a lifestyle and media company focused on capturing, generating, aggregating and distributing content and gameplay itself is just one form of that content across the genre of all things esports. Traditional media companies are vertically integrated. They build studios that create entertainment content and they monetize that content in multiple ways. They air a TV show and sell ad time or they syndicate it and sell it to other stations.

They stream, they sell subscriptions, etcetera. It's the same for Super League. The fundamental drivers are creating deep community engagement through our highly contextualized local experiences that when coupled with the critical mass of large digital audiences provides the depth and volume for content and offer monetization way beyond the classic advertising model. It's the powerful combination of those physical and digital nodes with Super League's platform at the hub that creates real leverage for a greater share of not just the customer's wallet eventually, but the advertiser's wallet as well. So now let's talk about revenue.

We are using our platform to monetize gamers, their gameplay and the content they generate. And there is a wide spectrum to how we monetize, but essentially falls into two buckets, brand partnerships and advertising and direct to consumer offers. Can we sell advertising against our platform? Yes. Can we license our platform to retailers or tournament and festival operators?

Yes. Can we partner with brands and publishers as we already do to create custom experiences for them? Yes. Can we sell consumer subscription offers and other e commerce? The answer is yes again.

Historically, brand partnership and advertising revenue came through our Super League owned and operated or first party physical and digital experiences where we attracted sponsorship from companies like Logitech and Nickelodeon to name a couple. Starting late last year with the ever increasing flexibility of our platform, we started to focus on platform as a service revenues with game publishers like Tencent and Capcom, retail partners like Samsung and even existing partners like Logitech as a strategy to capture greater sponsorship and advertising dollars. This is not a pure SaaS business. These are brand partners paying for a high quality brand presentation that offers live experiences as well as the downstream residual reach we can now deliver them with our digital audiences. Platform as a Service activations typically have a higher CPM and a lower cost of revenue.

Hence, they have a more material impact on our top line and a better margin profile. So let me make this a little bit more quantifiable. A typical rule of thumb is that a high quality premium advertising buy has a CPM in the range of $25 to $35 Super League's unique ability to target and create meaningful engagement between brands and gamers is in some cases extracting CPMs in the $40 to $45 range. And with our recent material audience growth via Super League TV, Framerate and Minehut, we will be able to deliver major advertisers tens of millions of impressions and views translating into larger revenues at little to no cost. While it is still early days on our content monetization, we look forward to continuing to provide more proof points of how revenue is occurring to demonstrate our potential revenue trajectory to you.

As for direct to consumer, we continue to charge players tournament fees for premium and experiences and have about 100 gamers in a beta digital consumer subscription test. But we want to find the right formula, the same way that Amazon did with Amazon Prime. For now, our primary focus is on audience development through our physical and digital network. And we know that as our audience expands, there will be ever increasing opportunities to monetize players, creators and viewers through digital offers. We have created a vertically integrated platform built around the genre of esports for all gamers and we are just in the warm up stage.

So now to our five key performance indicators. These are the same KPIs we laid out at the start of the year and are the metrics we and the Board strongly feel map the trajectory and future value of the company in this early but fast growing stage. Two of these, the number of game titles and number of retail partner venues bring more gamers to Super League. And as we bring more players into our physical and digital experiences, we gain not only new registered users, but also more gameplay hours running through our platform and ultimately that drives audience right at the top of the funnel, which has an amplification effect on potential revenue and new customer acquisition. So first, game titles, we began the year with four titles and a target of having at least six by the end of the year.

As you know, with the addition of Capcom Street Fighter V in Q2 and the recent announcement of Tencent's PUBG, that has enabled us to meet our six game title target for the full year in just seven months. More importantly, we have a healthy pipeline of more game titles in front of us. So we not only expect to beat the number, but we have also added enhancements to our platform that is enabling us in real time to start rolling out experiences ahead of formal partnerships. You will see that over the last few weeks, we have run Topgolf events across a wider range of titles, including NBA two ks, Rocket League and Super Smash Brothers to name just a few and expect to see that trend continue with more titles coming on to Super League's platform faster and reinforcing our unique game agnostic position. The second metric is retail partner venues.

Our earlier announcements of partnerships with Topgolf and GG Circuit eSports gaming centers further extended our reach with access to hundreds of locations. We ended 2018 with 46 active venues and grew to 93 total active venues through Q2. Our target for year end remains 200 venues. And while we have taken a brief pause on venue onboarding after aggressive growth in the first half of the year, we have more than enough available pipeline to meet our target. We are constantly testing and innovating with our partners for the offers that create the most player stickiness and revenue potential and will continue to roll out accordingly.

The third metric is registered users. To be clear, these are defined as people who one way or another have engaged with our platform. Some paid, some participate in free to play events or wanted to learn more about us, but we know who they are and consider them part of our player database. We ended 2018 with close to 300,000 registered users that we had cumulatively built over four years of existence and had a target of doubling that number to 600,000 by year end. At the end of Q2, we had 509,000 users registered.

And through July, I am pleased to say that we have hit 621,000 user registrations exceeding our full year 2019 target. We are pleased with this result as you can imagine, more game titles, more physical venues and more digital ways to engage with our platform notably inside of our very fast growing Minehut Gaming Forum for young teens are proving that the community and the flywheel effect is starting to kick in. Now for the next two metrics, gameplay hours and audience, we need to level set because when you hear the results, you will see that they are astounding. But with our digital channel development, the baselines have shifted. So first, let's tackle gameplay hours.

As we told many of you on the road show, we pushed one hundred and seventy five thousand hours of gameplay through our platform, which was predominantly via live gaming experiences and we aim for two hundred and fifty thousand for 2019. However, our ever expanding digital gameplay channels that provide always on gaming forums have now brought that total adjusted metric through Q2 twenty nineteen to four point nine six million hours. And keep in mind, the idea here isn't just about having a ton of hours. What hours mean is that is available content that we can repackage and distribute and monetize in different ways. So now let's close out with our fifth KPI and talk about audience and viewership because registered users and gameplay hours are just about the players.

Last year, we generated close to 1,000,000 views across our Super League branded Twitch and YouTube channels, a modest number for our nascent digital network. And we told you that at the end of Q1, we had generated close to half of our full year target of 2,000,000. And in Q2, if we had done nothing else other than just organic growth of those channels, we would have achieved our full year target and half the time expected, but we didn't just grow organically. Our inorganic growth strategy put fuel on the plane through the acquisition of Framerate and other properties and we are currently sitting with an aggregate viewership of 5,900,000 views through Q2, which through July has already grown to 11,900,000 year to date. To that end and because we know this is the leading KPI, which is where a lot of our performance flows, we are raising our twenty nineteen full year target to an aggressive 100,000,000 views.

That is starting to sound like a material sports network. As I have been out making the circuit at investor conferences, I have had the pleasure of meeting many of you. And one thing I have shared and would caution to the wider group on this call is to resist the urge to triangulate these KPIs too quickly. Every experience we offer lasts for different hours of duration. Every game title has different lengths of gameplay and every player is different in their interest to play versus watch gameplay content.

But we still believe these five KPIs we are pointing to are the right ones And we will gain significant insights as we track and grow them over time and demonstrate how they eventually translate into advertising, brand partnerships and direct to consumer value. So that's a summary of our commercial and operational highlights during the second quarter of twenty nineteen. At this point, I'll turn the call over to our CFO, Clayton Haynes, who will provide an overview of second quarter financial results, after which I'll come back on with some closing remarks. Clayton?

Speaker 2

Thank you, Ann. Good afternoon, everyone, and thank you for joining us today. As summarized in our earnings release filed earlier today, second quarter twenty nineteen revenues were $223,000 compared to $358,000 for the second quarter of twenty eighteen. As we stated on our last call, we have continued our focus in 2019 toward offering a mix of paid and free to play physical and digital events to build audience. And we continue to see the emergence of platform as a service revenue, which generally comes with a more favorable margin profile.

While we reported a decline in second quarter revenue relative to the second quarter of twenty eighteen, year to date 2019 revenues are relatively consistent on a year to date basis and we continue to see a decline in cost of revenues for the 2019 quarterly and year to date periods versus the comparable 2018 period. Second quarter and year to date 2019 cost of revenues decreased approximately 40% compared to the comparable 2018 periods due to operational efficiencies and lower direct costs associated with our revenue generating physical digital experiences. Second quarter twenty nineteen operating expenses were $5,700,000 compared to $3,800,000 in the comparable prior year quarter. Approximately $1,000,000 of the 1,900,000 increase in operating expenses was due to higher non cash stock based compensation costs compared to Q2 of last year due to the vesting of certain performance based options and warrants upon the achievement of certain operational performance targets during the second quarter of twenty nineteen. The remaining increase was driven by higher costs for personnel, marketing, technology platform development, insurance and other corporate costs, partially offset by lower depreciation and external professional costs.

Excluding non cash expenses and the cost associated with now being a public company, we have kept our cost in line with prior year focusing personnel investment on high grading staff rather than large headcount expansion. We continue to be committed to investing in OpEx appropriately to meet the top line and growth needs of the company. For the second quarter of twenty nineteen, we reported a net loss of $5,500,000 compared to a net loss of $4,000,000 in the second quarter of twenty eighteen. The increase in net loss was driven by the same factors cited earlier for the quarterly operating loss offset by lower net interest expenses due to the conversion of all outstanding convertible debt upon consummation of our IPO in the first quarter of twenty nineteen. Pro form a net loss for the second quarter of twenty nineteen, which excludes the impact of non cash convertible debt related interest charges, non cash stock compensation charges and other non cash charges totaled 3,800,000 as compared to $2,700,000 in the comparable prior year quarter.

The increase in pro form a net loss was primarily due to the same operational expense fluctuation factors cited earlier. As described in our earnings release and eight ks filed with the SEC today, pro form a net income or loss is a non GAAP measure that we believe investors can use to compare and evaluate our financial results along with other applicable KPIs and metrics discussed by Ann earlier. Please note that our earnings release contains a more detailed description of our calculation of pro form a net loss as well as a reconciliation of pro form a net loss with the most directly comparable financial measures prepared in accordance with GAAP. Looking at the balance sheet, as of the end of the second quarter of twenty nineteen, we had 16,200,000 in cash, no debt and total shareholders' equity of $20,900,000 This cash position reflects cash raised our initial public offering, closed on February 27, the net proceeds from which were $22,500,000 Cash paid and the fair value of common stock issued in connection with the acquisition of Framerate totaled $1,500,000 and $1,000,000 respectively. In connection with the accounting for the acquisition of Framerate, the company recorded intangible assets acquired and goodwill totaling $2,800,000 as of June 3039.

With that, I will turn the call back over to Ann for some additional remarks. Ann?

Speaker 0

Thank you, Clayton. In summary, I will

Speaker 1

say that our goal remains to grow our audience as fast as possible by expanding the number of games we offer, the footprint of venues and the digital channels for gaining viewership. We are confident that revenue growth will accelerate as our audience continues to grow. We believe that by working with game publishers, brand partners and retailers, we will be able to generate content and build an audience for that content through both our digital and physical experiences. Even as eSports continues to attract massive investments in teams and commitments by publishers, Super League remains one of the few pure play investment opportunities in the industry. We are well positioned to be at the epicenter of esports growth and we are meeting or beating all the KPIs we have outlined and not in small ways.

Again, just to highlight, our newly adjusted audience target is 50 times what we set out at the start of the year. We had a goal for 2,000,000 audience views and our new target is 100,000,000 by the end of twenty nineteen. In addition to our ongoing active investor outreach and analyst conversations, we will be participating in several investor conferences in the coming months, including Gateway, Goldman Sachs and Lake Street in September. We expect that the combination of executing our plan, achieving our KPIs and actively communicating these results to the investment community will result in significant shareholder value enhancement. And with that, Clayton and I will now take your questions.

Operator?

Speaker 0

Thank Our first question comes from Marc Argento with Lake Street Capital Markets. Your line is open.

Speaker 3

Hi, good afternoon Ann. Good afternoon Clayton. Just a couple of quick ones. Just wanted to obviously, a lot of success supercharging the viewership, especially with the acquisition of Framerate. When you think about 100,000,000 viewers, which is a ton of viewers relative to the opportunity from advertising CPM, could you just talk about how do you start to engage?

How do you start to actually monetize that audience? And you talked to a CPM of $40 or $40.45 dollars I'm guessing that's a little bit of a different CPM than the CPM you could potentially get with the traditional viewership. But maybe you could just talk about that engagement when we could see some revenue coming online from that business? And then I have a follow-up for Clayton after.

Speaker 1

Yes. If you look at the historic brand partner deals that we've done, we've been able to give them that high quality engagement experience. That premium experience with our physical events is what usually would garner that kind of a higher CPM. And then because every brand partner wants that kind of higher volume, lower CPM reach as well, we could go out and we could deliver that audience through influencers and in other ways to give them that aggregate package. Now that we have those digital channels ourselves, we don't have to go out and buy that reach, which is the classic strategy that most brand partner deals employ.

We actually can deliver a perfect beautiful target. So for example, in our current program right now with Sony Pictures around Angry Birds two, we can they are trying to reach a Minecraft group of kids. We have a few 100,000 kids registered to our Minehut platform engaging in gameplay. We can promote that brand activation directly to them and give them that perfect target and deliver all those millions of impressions and video views as part of our package through our own proprietary channels. So what it means is out of the gate is that now with us already owning all of that fast growing digital audience, we can now package much bigger deals to brand partners.

So the value of those deals are going to be higher. The gross margin on those deals are going to be better because we have that audience already built into our platform and can reach them. And we haven't even gotten into the advertising side of things. So when you think about the fact that in just a couple of weeks' time, we were able to generate for say Sony 4,000,000 impressions, 1,000,000 video views. Imagine if in that same Minehut channel we were dropping other just forms of just traditional advertising content, a banner ad, maybe a screen takedown.

And you are right, that's going to be a lower CPM range than what we have been able to get. But that is just a whole additional source of advertising that we have just begun to scratch the surface on. So just like most other models will tell you out there, once you have that meaningful critical mass of audience, there is a lot of ways to monetize them. And let's not even forget that ultimately we want to convert that audience into being direct to consumer paying subscribers as well.

Speaker 3

That's helpful color there. And then Clayton, just wanted to get your feeling on the balance sheet relative to cash needs. Think you said cash was just over $16,000,000 at the end of the quarter. You guys it looked like you consumed roughly $5,000,000 I know I think about 1,000,000 of that was for the acquisition. So what's kind of run rate cash consumption, at least the way you're looking at the model for the next few quarters and relative to when you can start to see some kind of uptake and hopefully some of the ad revenue here starting to flow?

Speaker 2

Sure. On a monthly basis, we're still running our cash burn rate at a little over $1,000,000 per month, so 3,300,000.0 to $3,400,000 a quarter. And so that's consistent with the trend that we recorded after the first quarter of twenty nineteen.

Speaker 4

And

Speaker 3

then do you I guess, kind of dovetailing back to my question for Ann. So do you guys see how quickly, I guess, can you see or potentially start to see engagement from selling ads and generating some type of revenue off of those impressions, just given how immense they are at this point?

Speaker 1

Yes. I mean, it's a good question. We don't provide guidance. But what I would say is that when we're starting to look at generating 10,000,000, 20,000,000 views a month, We are now accelerating all of our plans for that type of advertising revenue. Originally, we thought that was going to be more a part of our 2020 revenue story.

And I believe that before the end of the year, we will be able to at least be able to demonstrate some tangible examples of ways that we are able now that we have that critical mass to actually get into a very different type of revenue stream. And to be frank, we wouldn't have gotten there if we were still sitting on that incremental kind of 1,000,000 to 2,000,000 views. So this is a step change in viewership that should mean that we're pulling forward that advertising revenue much faster.

Speaker 3

Great. Thanks guys.

Speaker 0

You. And our next question comes from the line of Ilya Grozewski with National Securities. Your line is now open.

Speaker 5

Great, thanks. On the so obviously, registered users are ahead of plan. What is the thought process to when you will begin charging a premium from some of the users for the premium service? Thanks.

Speaker 1

Yes. So when I talked a little bit about that very small beta test that's happening right now inside of our Minehut business, that is where we are charging this small pilot of players anywhere from 5 to $15 additional a month to give them access to an additional tools to enhance their gameplay. We believe just as well when we talk about like frame rate, the fact that all those amateur players out there are giving us their own user generated highlight content. And we have already started to design some additional tools or services to allow them much like the typical revenue model or business model that you see for game publishers more of a freemium approach. For free, you get a certain level of services and then when you want to upgrade into a new expanded type of tools.

So we still have every intention of launching consumer subscription offers. We are pleased that we are already in that piloting of this first one. And our goal was to make sure that by the end of the year, we had a consumer subscription offer launched. And we told the markets very transparently that we didn't expect to be doing that until the second half of the year. So right now, we are on track for that.

Speaker 5

Okay. And then what's the timing on the game launches, the new ones you've signed?

Speaker 1

Yes. So that really depends on the game publisher strategies that are tied to other marketing programs that they have. But you should expect that in the October timeframe, you'll see Street Fighter V and PUBG spinning up. But I do want to say that even though we talk about that six game title target that we have already met for the year, you could argue right now we are already north of 10 game titles because we are already as I mentioned doing things with NBA two ks. We There is a very hot new game called Paladins that we ran a pretty exciting experience for Topgolf around.

You will continue to see us move into more sports titles, more mobile titles, more fighting genre titles. In fact, you just get on superleague.com right now, you're going to see two unique things we're doing. First is you're going to see Super League offering their own Super League branded experiences across these 10 or so titles. But more importantly, you are going to see a pretty extensive experience directory that is a home for all esports experiences happening across tons of different physical and digital locations because we want Super League to be that home base that allows players to find great esports experiences and find each other. The other thing you'll see is that we're even becoming a portal for parents.

We're telling parents about where there are esports scholarships opportunities for their kids. They're small things, but those small feature sets that we're bringing are bringing more people to our Super League site and also hopefully bringing more gamers together locally.

Speaker 5

Okay. Thanks.

Speaker 0

Thank you. Our next question comes from the line of Mike Latimore with Northland Capital Markets. Your line is open.

Speaker 6

Great. Thanks. Congratulations on all the momentum this year. On the higher viewership number, you talked a little bit about the advertising opportunity there. Does that how does that sort of flow through to the platform as a service opportunity?

Does it accelerate anything or just increase the opportunities?

Speaker 1

Yes. So I was kind of getting at this a little bit with Mark Argento's question. So if you think about it, when you look at somebody like a Sony hiring us for the Angry Birds activation or a Capcom hiring us for Street Fighter V. When we now go out and package together those platform as a service deals, we are now able to deliver them anywhere from five to 10x the type of audience target we were originally pitching them for. So the more audience you bring to those packages, the higher dollar amount those are worth.

So that audience is now one of the biggest sales tools we have as we go in and talk to these brand partners to escalate or increase the size of those deals. So it could mean that a deal that usually we would have priced at $150,000 with maybe a margin of, call it 40% is now a deal that can be priced at say $300,000 with a 50% or 60% margin, because again, we now have this built in audience. So it's directly And

Speaker 6

then on the Tencent partnership, can you elaborate a little bit on that? Did they reach out to you? Did you reach out to them? Is there any sort of new nuance here because it's more mobile focused? Just a little more color would be great.

Speaker 1

Yes, absolutely. So of course, we have great relationships with all the publishers. And because we're now in a position where we can start ingesting titles faster, you could argue many of them have over the last couple of years, we are waiting for us to be ready and now we are. And obviously, Tencent is the largest game publisher in the world. So it's not a small thing for us to be able to say that we have now joined in a commercial and business partnership with them and you know that they have access to tons of titles.

What we like about PUBG is, is it's allowing us to get another game genre under our belt because certain types of players prefer different types of genres. But absolutely, it's about as well the fact that we want to add another mobile title. We run Fortnite mobile events. We run Clash Royale mobile events, we want that third title because the trend is that increasingly mobile gaming is becoming more and more competitive. You really can play in a pretty heightened competitive game just off your phone and it's also super accessible.

We want people to be able to be gaming with us from anywhere that they are, to be able to walk into one of our venues and decide very conveniently to join into a game. And so having more mobile titles as well as adding more genres is a big piece of our strategy. And then of course, as I have mentioned to you guys before, we also really do try to think as well about not just having game titles specific to genres, but also games that people grow from and into because we want you to establish a relationship with Super League that transcends your interest in just one game title. So we want to know that, that Minecraft kid can grow into being one of our Fortnite players or maybe one of our PUBG players.

Speaker 6

Great. And then you hired a new, I guess, CTO effectively. What are some of his kind of priorities over the next twelve months?

Speaker 1

Yes. It's a great question because this is just one of the most excited hires that I've had in my career. We have really for about twelve to eighteen months been really thinking through what we need this position to be. I mean one of the core things it is, is that the real partnership with our Chief Product Officer and Founder, David Steigelfest. But we knew we not only wanted the smartest technologist in the room or in the company, but we wanted somebody who had squarely been facing in a consumer facing businesses.

A good example is just the other day, it was Sameer driving the conversation about ways we can more quickly start monetizing advertising revenue off of our digital channels because he is not just a classic CTO in the back office, he has actually been central into driving the strategies of ways to monetize massive consumer digital audiences just like he did at IMDB, just like he did at Fandango. And very candidly, he is only this is only his fourth week and it is I have noted to many people I have talked to about it, it's rare to see someone have the kinds of impact he has had in just the first month on the job. And he is definitely in kind of the top five of people that I've just witnessed, be decisive, confident and add real value in such a time. So I just couldn't be more pleased with this hire and all of the leadership team and Board feels the same.

Speaker 6

Great, great. And then just last one. Clayton, what should we have stock based comp and then D and A for the third quarter? I'm sorry, the second part of your question was? Just the stock based comp and then the depreciation and amortization number for the third quarter.

Speaker 2

Okay. With respect to stock based comp for the second half of twenty nineteen, that's going to trend at around $1,300,000 in expense based upon current outstanding grants and awards. And from a depreciation and amortization, it should be relatively consistent on a quarterly basis with what we reported in Q2 twenty nineteen.

Speaker 4

Yes. Thank you.

Speaker 0

Thank you. And our next question comes from the line of Michael Brikic with National Securities. Your line is open.

Speaker 4

Yes. Hi. I've got some questions. If they're too long or just too many, can just cut me off. First of all, from the IPO, the convertibles the preferreds converted, was there a six month lockup on that?

Speaker 1

Yes, there was. And those weren't preferred stock. That was convert that was common and converted. So everybody on our cap table was subject to the same lockup period.

Speaker 4

Got it. Great. Are you able to I'm trying to think of ways of monetizing things. And can you offer like tournaments or whatever you want to call it that have even small cash prizes. It's sort of interesting, like even on the poker sites or whatever, a very small amount of money a lot of people will play.

Is that legal? Or is that turned into gambling? Or have you looked at it? Does it make any sense?

Speaker 1

Yes, absolutely. So, originally, we had focused cash pricing more around our youth program and in the form of college scholarships. And we just recently started doing some testing of cash prizes. Now Super League has a pretty high code of conduct and a pretty high bar on sportsmanship. And so what we've resisted is anybody can go and just throw a giant cash prize at something and claim that they got millions of users.

We didn't want to buy our way to user registration. We wanted it to be legitimate, valid, targeted customers that we were going for. So no gimmicks on how we've gone and built that registered user base. We did recently do a couple of events with Topgolf where we tested small cash prizes. And we also do charge tournament fees, players pay to interim.

And we have seen some good results from it. And what we kind of like to do is try to have a good mix of a little bit of cash plus some other kind of swag to keep the experience also socially positive. But it isn't illegal. It's something that we have recently started to try out and see how we kind of get different types of results.

Speaker 4

Yes. And also maybe the paid subscribers can get into a number of tournaments for free or something like that.

Speaker 1

Exactly. That's one of the ideas we're testing for the paid subscription.

Speaker 4

Do the tournaments have like or is that a viable thing where you can actually maybe have a halftime show with some highlights of other stuff and ads and things like that? And that's another way you can look at monetizing stuff.

Speaker 1

Exactly. So historically, when we've taken down that physical screen in that venue, we've been able to drop different types of sponsor placement, maybe it's a Logitech ad. Now imagine that we could have 10 Topgolf participating in a set of events, But all the other Topgolf could be still watching those events, and seeing that there is a battle on that given night between Houston and Dallas Topgolf. We can also take all that content we're amassing, gameplay content and those highlight reels and we can start to package up weekly highlight shows that we can allow to be distributed to physical and digital channels beyond just our Super League experiences. So you've got it exactly right.

I mean, now to date, the majority of the ways that we have monetized content is running gameplay and then dropping brand sponsorship around it. The direction we're going now is we still do that, but way beyond gameplay, we can be capturing content supplied to us at no cost by the users themselves and packaging it and distributing it in a whole host of different ways to a much wider network of physical digital locations.

Speaker 4

Great. And finally, the drop in revenue, you said it had to do with timing of brand and media sponsorship activities. Can you go a little bit deeper into that? Was it delays and why? Or was it someone didn't re up?

And just give us a bit more color on that.

Speaker 1

Yes. No, it's purely a function of timing and revenue recognition requirements. So we have contracted revenues, but of course, we have to adhere to accounting policies and recognize that revenue as those programs advance. So it really is does speak to the fact that when you and this is what we've historically been is a brand partner and sponsor revenue stream company, those things are a little lumpy and are tied to the completion of those events. And so it's a timing thing.

Speaker 4

Great. Well thank you very much. Appreciate it.

Speaker 0

Thank you. Thank you. And I'm not showing any questions at this time. This concludes our question and answer session. I would now like to turn the call back over to Ms.

Han for closing remarks. Thank you. And we want to

Speaker 1

thank everyone for listening to today's call. We look forward to speaking with you at our upcoming conferences. Continue to keep your eyes out for great press. We are really proud of all the advancements we have made in just six months of being public and we know there is a lot more excitement to come. And we will speak to you when we report our third quarter results.

Thank you again for joining us.

Speaker 0

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.