Super League Gaming - Earnings Call - Q4 2020

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 fourth quarter ended 12/31/2020. Joining us today are Super League's president and CEO, Anne Hand, and CFO, Clayton Haynes. Following their remarks, we will 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. The statements, along with other information presented that does not reflect historical fact, are subject to a number of risks and uncertainties. Actel filed with the Securities and Exchange Commission for more information about the risks and uncertainties that could cause actual results to differ. I would now like to remind everyone that this call is being recorded and will be available for replay through March 2021 starting at 8PM eastern time tonight. A webcast replay will also be available by the via link provided in today's press release as well as on the company's website at www.superleague.com.

Now I would now like to turn the call over to mister Tu, president and CEO of Super League Gaming, Anne Hunt. Go ahead, please.

Speaker 1

Good afternoon and thank you for joining us on this momentous day for our company. I can't begin to tell you the palpable enthusiasm and confidence flowing from our all staff Zoom this morning when we shared our latest news of the proposed acquisition of Mopcrush, a wildly stark contrast to one year ago when we completed our fourth quarter twenty nineteen earnings call and saw the world go into lockdown. But that challenge that upended the world transformed Super League for the better. We saw a surge in engagement that has not only held but continuously grown in very material ways, giving us heft and critical mass. It forced us to focus, to double down on what was working, and it certainly offered us a window to explore inorganic growth in addition to our explosive organic growth.

Before I get into today's announcement and what it means for us, I want to table set a bit on the wider industry, the trends, and our positioning. Our focus has always been to provide competitive video gaming and eSports entertainment for everyday players of all ages. And over the last year, we have leaned more and more into putting these tools into the hands of the players themselves to create and share their own gameplay and relevant content with others. This mission speaks to the overall democratization of content creation. The Gen Z and Millennial thirst to create and share, and their desire to spend more and more of their day connecting and communicating in a virtual space and time, and in a highly engaging and creative way.

And gaming is only an entry point. It's bigger than that. Super League is a social media and entertainment platform. Yesterday's Roblox direct listing on the New York Stock Exchange further validated this. Their metaverse has similar themes to ours.

I say that humbly, of course. We engage with large audiences of gamers and extend beyond just gameplay. And there are three sources of value from this. First, the way we create a powerful marketing channel for advertisers to reach this elusive coveted audience. Second, direct gamer creator monetization, aka direct to consumer through a shared virtual economy.

Our digital marketplace launch that we see it in the second half of twenty twenty does just that. It empowers the players and creators themselves to create a diverse breadth of digital goods that speak to precisely what our community wants and allows them to participate in the economy. And the third lane of value, the massive amount of derivative content produced on platform that in itself can become a source of revenue. So now that I have shared some key macro trends that speak to how Gen Z and Millennials want to create, share, and participate in their own content creation and how that has established a powerful business model for both the mighty Roblox and of course for Super League. It is a perfect segue to what we believe to be the most material shift in Super League's overall trajectory, providing a step function increase in not just our scale, but also our forward revenues.

Again, today we announced our intention to acquire Mobcrush. Mobcrush is a company we have known and admired over the last few years with great leadership and technology. They are a live streaming platform used by hundreds of thousands of gaming influencers who generate and distribute almost two million hours of original content annually to their own social audiences aggregating more than 4,500,000,000 fans and subscribers across the most popular live streaming and social media platforms, including Twitch, YouTube, Facebook, Instagram, Twitter, and more. Mobcrush also owns Mindvill, one of the six exclusive official Minecraft server partners enjoyed by more than 22,000,000 unique players annually. So let's break this down a bit more as the two companies line up beautifully in all of the most important ways.

First, let's talk about our customers and our offers. Super League has consistently focused on what we call the middle of the pyramid. There are 3,000,000,000 gaming enthusiasts in the world, with our target being what we describe as the mid tier gamer. So they are highly competitive. They are likely sharing their gameplay and entertainment content more widely.

They are highly engaged. Our offers such as Framerate, Super League Arena, and Super League TV align with that segment. And uniquely inside of that tier, we have a growing foothold on the younger engaged gamer, mainly through our owned and operated digital property Minehut, one of the world's largest expanding online communities of Minecraft players with over 1,000,000 monthly uniques. Players enjoy freemium private server hosting along with social, gameplay, and entertainment experiences. And Mobcrush focuses on the same segments.

Mobcrush's free live streaming toolkit is offered to up and coming mid tier streamers, that middle of the pyramid again, as a way to build and monetize their own livestream content. The company's mission is to enable streamers an opportunity to turn their passion into their livelihood. This demographic aligns with Super League's 16 to 34 year old demographic. As well, their Mineville product is highly complementary to our Minehut audience, squarely focused on young avid Minecraft players. And it is exciting to think about how these segments intersect.

The combined company has amassed a suite of offers that mirror the gamer journey. The young gamer and creator today is tomorrow's streamer, tomorrow's influencer, maybe even tomorrow's esports star. So now let's dive into monetization. And again, I think you'll see there is great alignment. First, both firms have focused on audience development to create real heft material reach to support their primary revenue stream to date, a premium advertising model.

Media is all about scale. And while both firms have reached a degree of critical mass organically and individually, the combination makes us a leader leading provider of content driven advertising solutions in event, in stream, and in game. Providing brands, advertisers, and other consumer facing businesses with massive audience reach across the most important engagement channels and video gaming, competitive events, social media, and live streaming content along with in game experiences. With this acquisition, we are building a formidable, highly scalable gaming centric media and advertising platform that reaches one of the largest addressable audiences of gamers in The United States. Super League's premium owned and operated in game and video inventory, coupled with mob crushes, television equivalent, and ad blocker proof in stream sponsor inventory, creates a sought after solution for advertisers targeting gamers.

Let's face it. We all know kids who game. And when they are playing or watching their favorite streamer, the room could be on fire and they wouldn't notice it. We can place brands in front of those players and viewers right then, right there. Next, we both share a growing second pillar of revenue, direct gamer monetization through our Minehut and Mineville properties.

I mentioned earlier Minehut's early stage marketplace, offering players and creators both subscription and one time digital offerings that allow our customers to expand their server capability, buy cosmetic goods, and in the future purchase access to new games. Similarly, in Mineville, players can purchase digital goods in Minecraft's marketplace, such as game entry fees and cosmetic skins. There is so much opportunity to significantly amplify both of these businesses through the cross marketing of our communities and the cross fertilization of our offers. And there is a third emerging leg of revenue, one that we have talked about on previous calls as somewhat pandemic powered for Super League around both the value of our content and our proprietary technology to create and distribute content. We already have proof points.

Last year, we generated over $400,000 of revenue syndicating our derivative content to others like Snapchat and Cox Media. And we now have partnerships in place or pending to syndicate our content through three OTT services. As well, we have several media companies in the mix sampling our patented visualization and cloud based remote video production and broadcast technology. Virtualis studios for their own production needs. The headline, the tools we create for ourselves for our own experiences have value to top tier broadcasters.

Similarly, again, Mobcrush's live streaming technology platform and proprietary AI driven gameplay highlight software amasses a large amount of derivative content that when coupled with ours creates a compelling library of competitive gameplay and entertainment content. And there's even more upside. Imagine if we combine our live streaming technology stack. Together, the companies can provide content producers at all levels, streamers, creators, digital and television production companies, branded content studios, and more, with an exciting suite of tools and capabilities designed both for the unique needs of today's production and distribution realities and the enduring changes resulting from the pandemic. So collectively, who do we target?

Everyday competitive gamers, creators, and streamers. Well, we can check the box on that. What do we offer in a combined sense? Technology that supports the creation of competitive gameplay and livestream entertainment content. Check again.

How do we monetize? Through our premium advertising model, our direct to consumer offering, and our gaming and livestream content engine and library. Check again. Before I hand it over to Clayton, I wanna quickly touch on the compelling metrics as well. Again, I can't say enough about how joining forces takes us to a whole new level of scale.

The combined companies reach more than 25,000,000 players per year, 3,000,000 players per month, and with over 400,000 players per day. As well, we reach a US viewing audience of 85,000,000 monthly, making for a top 50 US media property as verified by Nielsen. Annually, we have over 7,700,000,000 US video views across live streaming platforms, 2,000,000,000 views on social media platforms, and enable sixty million hours of gameplay on owned and operated platforms. And another point of unique synergy, collectively we generate and distribute over 200,000 gameplay highlights across streaming and social channels per month. Brands and advertisers will take notice of this expanded scale and scope.

Now I know you all want me to speak to financials, as we know that priority number one is to smartly continue to drive our top line. While we want to focus on getting the deal closed and are in the midst of completing the financial audit, I can share that Mobcrush's unaudited revenues for 2020 were over $6,000,000 Similar to Super League, Mobcrush responded to the pandemic with a strong recovery. Audited financials will be filed with the SEC when required and available, But this is less about looking back and more about looking forward. The combined companies have a very bright 2021 and beyond. At this point, I will turn the call over to our CFO, Clayton Haynes, who will provide an overview of fourth quarter financial results, after which I will come back with some closing remarks.

Clayton?

Speaker 2

Thank you, Anne, and good afternoon, everyone, and thank you for joining us for today's fourth quarter and year end twenty twenty earnings conference call. First, I would like to summarize our fiscal twenty twenty KPI results. Then I will move on to a summary of our Q4 and our full year 2020 financial results and wrap up with a brief summary of some of the details of the proposed M and A transaction we announced today. As you know, each quarter we provide updates on our key non financial performance indicators that we believe help investors understand, engage the progress we are making with respect to building our business and the long term opportunity we see in front of us. We will continue to provide KPIs, but over time, we may focus on different metrics as our business evolves.

Currently, we continue to focus and report on three primary nonfinancial KPIs, the first being registered users, the second being video views, and the third being hours of engagement. Looking at our KPI metrics as of the end of twenty twenty, we saw dramatic increases in our audience size and level of engagement over the course of the 2020 fiscal year. We ended 2020 with nearly 3,000,000 registered users, roughly three times the number at the end of twenty nineteen and easily surpassing our goal of 2,000,000 registered users for 2020. In 2020, we experienced over 2,000,000,000 video views, which is nearly 20 times the number in 2019 and several times the level of video views we had targeted at the beginning of the year. And lastly, we saw over seventy two million hours of engagement, mostly gameplay across all of our platforms, nearly five times the total we saw in 2019.

We posted a strong year of KPI performance in 2020, and we look forward to continuing the trend of strong KPI performance in 2021, which we believe will continue to underpin and drive revenue growth. Moving on to the fourth quarter of twenty twenty financial results. Overall, from a financial statement standpoint, fourth quarter twenty twenty highlights included an approximately 3x increase in revenues, reflecting strong growth in our advertising and content sales revenues relative to the comparable prior year quarter, with Q4 twenty twenty establishing another record quarter of revenues for Super League eclipsing the record quarterly revenues previously established in Q3 twenty twenty. In addition, we continued our strong trend of strong margins reporting average margins of 62% in Q4 twenty twenty compared to 50% in the comparable prior year quarter as we continued leaning into our largely digital and online offers and revenue generating activities. From an operating expense standpoint, we saw increases in sales and marketing expenses related to the build out of our direct sales team earlier in 2020 and an increase in technology platform infrastructure costs due to the surge in engagement across our digital properties in 2020.

Taking a look then in more detail at our fourth quarter twenty twenty results as summarized in our earnings release filed today, fourth quarter twenty twenty revenues increased 197% to $779,000 compared to $262,000 in the comparable prior year quarter. Advertising and content related revenues, which includes brand sponsorship and customized brand partner program revenues, traditional advertising revenues and third party content licensing revenues comprised approximately 92% of revenues for the fourth quarter of twenty twenty as compared to 97% of revenues for the comparable prior year quarter. The increase in quarterly revenues was primarily driven by an increase in advertising revenues across our branded digital channels reflecting in part the impact of the build out of our direct sales force earlier in 2020, the significant growth in our advertising inventory and surge in engagement during 2020, and an increase in third party content sales revenues in connection with the curation, repackaging, and sale of our own and user generated content highlighted by our content sales activities with Snap Inc. Direct to consumer revenues in the fourth quarter of twenty twenty, which were primarily comprised of digital goods revenues related to our Minehut digital property, accounted for 8% of revenues for the fourth quarter of twenty twenty and increased approximately 7x compared to the prior year quarter, continuing our trend of and reflecting our focus on accelerating the increase in direct to consumer monetization.

We continue to focus on ramping up overall direct to consumer revenues, including sales of digital goods and the continued rollout of our micro transaction marketplaces as Anne mentioned earlier. During the fourth quarter of twenty twenty, we continued our strong trend of working with repeat customers, including our partnerships with Topgolf, GenG, Logitech, and Cox Media, as well as working with new partners, including the Indiana Esports Development Group, Moose Toys, and Bosch. For the fourth quarter of twenty twenty, two customers accounted for 36% of revenues as compared to three customers accounting for 72% of revenues in the prior year quarter. As with all advertising based business models, COVID nineteen had an impact on the timing and distribution of advertising revenue during 2020, but we feel recovered and are continuing to recover well. We have made substantial progress in building our direct sales team and in building our views and impressions during 2020 and expect our advertising inventory to continue to grow going forward so that as advertisers and brands continue to rebound, we are ready to continue taking advantage of the monetization opportunities.

As a percent of revenue, gross profit in the fourth quarter of twenty twenty was 62% compared to 49% in the prior year quarter. Fourth quarter twenty twenty cost of revenue increased 121% to $296,000 compared to $134,000 in the comparable prior year quarter, representing a 39% lower percentage increase in cost of revenue than the 197% increase in revenues for the same period. The significantly lower increase in cost of revenue on a relative basis was driven by the increase in lower cost advertising and content sales revenues and our largely digital and online revenue generating activities in the fourth quarter of twenty twenty. Cost of revenues continue to fluctuate period to period based on the specific programs and revenue streams contributing to revenues each period and the related cost profile of our advertising and content sales activities and our digital online and or physical in person experiences occurring each period. Fourth quarter twenty twenty GAAP operating expenses were $5,200,000 8% higher than the comparable prior year quarter.

Non cash stock compensation expenses in the fourth quarter of twenty twenty decreased 54% to $434,000 as compared to $951,000 in the fourth quarter of twenty nineteen. The decrease was offset by an increase in sales and marketing and personnel costs related to the build out and investment in our direct sales force in early twenty twenty as we continue to invest in the monetization of our growing ad inventory, an increase in technology platform infrastructure costs primarily related to our cloud services consistent with the surge in engagement we experienced during 2020, and lastly, impact of higher public company insurance costs relative to the prior year. On a GAAP basis, which includes the impact of non cash stock compensation charges, net loss for the fourth quarter of twenty twenty was $4,700,000 or $0.31 per share compared to a net loss of $4,700,000 or $55 per share in the comparable prior year quarter. Excluding non cash stock compensation charges, our pro form a net loss for the fourth quarter of twenty twenty was $4,300,000 or zero two eight dollars per share compared to $3,700,000 or $0.44 per share in the comparable prior year quarter. The weighted average number of shares outstanding for both GAAP and non GAAP earnings per share was approximately 15,500,000.0 shares in the fourth quarter of twenty twenty compared to approximately 8,600,000 shares in the prior year quarter.

As a reminder and as described in our earnings release 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 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 US GAAP. Next, let me briefly review our full year 2020 results. In summary, in fiscal year twenty twenty, we saw a 90% increase in revenues recognized across our three primary revenue streams with a continuing trend of strong and improving margins stemming from efficiencies and lower cost revenue generating activities. Operating expenses increased year over year reflecting our investment in our direct sales function and increases in technology infrastructure costs in connection with the remarkable surge in engagement across our digital properties during 2020.

These increases were partially offset by a decrease in primarily performance based noncash stock compensation charges and facilities costs. Moving into the details for fiscal twenty twenty, revenues totaled 2,100,000.0, an increase of 90% from the 1,100,000.0 in total revenues we reported in 2019. This increase was primarily driven by an 81% increase in sponsorship and advertising revenue, including third party content sales revenues and an increase of over 300% in direct to consumer revenues in 2020. In fiscal twenty twenty, four customers accounted for 49% of revenues compared to five customers accounting for 69% of revenues in fiscal twenty nineteen. As a percent of revenue, fiscal year twenty twenty gross profit was 59% compared to 53% in 2019.

Cost of revenue for fiscal twenty twenty was $856.67 percent from $513,000 in 2019, reflecting a 26% lower percentage increase in cost of revenues compared to the 90% increase in revenues for the same twelve month period. The significantly lower increase in cost of revenue on a relative basis was driven by the increase in lower cost advertising and third party content sales revenues and our largely digital and online revenue generating activities in fiscal year twenty twenty compared to fiscal year twenty nineteen. On a GAAP basis, total operating expenses were $20,000,000 down slightly from 21,300,000 in 2019. For fiscal year twenty twenty, GAAP operating expenses included $2,000,000 in non cash stock compensation expense, down from $6,200,000 in 2019. Excluding non cash stock compensation expense, total operating expenses for 2020 were 17,900,000 up 19% from $15,100,000 in 2019.

The increase was primarily due to an increase of 18% in selling, marketing, and advertising expenses in connection with the investment in our direct sales force, a 34% increase in technology and platform development costs due primarily to the surge in engagement across our digital properties in 2020, and a 9% increase in general and administrative costs due to an increase in corporate insurance and a full year of other public company related costs. Our net loss on a GAAP basis in 2020 was 18,700,000.0 or $1.64 per weighted average diluted share compared to 30,700,000.0 or $3.89 per weighted average diluted share in 2019. Pro form a net loss, which excludes noncash stock compensation as well as 2019 noncash interest costs, was 16,300,000.0 in 2020 compared to 14,500,000.0 in 2019. The weighted average diluted share count for the full year 2020 was 11,400,000.0 compared to 7,900,000.0, excuse me, in 2019. From a balance sheet perspective, as of 12/31/2020, we had 7,900,000.0 in cash, approximately 7,500,000.0 in working capital and total shareholders' equity of 10,900,000.0.

Our current monthly net cash burn rate continues to be on average approximately $1,300,000 per month. We continue to be focused on reductions of our cost structure, particularly in the area of technology platform infrastructure costs and other areas as identified. As previously reported, in June 2020, we vacated approximately 75% of our office space in Santa Monica, resulting in significant rent and facilities cost savings going forward, and we continue to work with existing and new platform infrastructure service providers to reduce those costs going forward as well. Subsequent to year end, as previously reported, in January and February 2021, we strengthened our balance sheet, closing registered direct offerings of an aggregate of 3,100,000.0 and 2,900,000.0 shares of our common stock, raising gross proceeds of approximately 8,000,000 and 12,000,000 respectively. We currently intend to use the net proceeds from the offerings for working capital and general corporate purposes, including sales and marketing activities, product development, capital and capital expenditures as we continue to grow the business and focus on the continued acceleration of monetization.

In summary, in Q4 and fiscal year twenty twenty, we saw the highest revenue quarter and highest annual revenues reported in the company's history driven by significant increases in our advertising, third party content sales, and direct to consumer revenues relative to prior year periods underpinned by the enhancement of our direct sales force, growth in advertising inventory and the flexibility of our technology platform as it relates to broadcast and proprietary and user generated content. Fiscal twenty twenty also saw favorable average margins trends reflecting our largely online and digital activities in the quarterly and full year periods while identifying areas for cost reductions in future periods, all while balancing our focus on the acceleration of monetization of our rapidly growing advertising inventory and investment in our growth initiatives in response to the overall surgeon engagement during the period. Lastly, a few comments on our transformative m and a related announcement today. Anne has already addressed the strategic benefits of the proposed acquisition of ModCrush, but I will provide some additional detail with respect to the acquisition agreement. From a structure standpoint, Super League entered into an agreement and plan of merger by and among ModCrush Streaming Inc, Super League, and Super League merger sub.

The merger agreement provides for the acquisition of ModCrush by Super League pursuant to a reverse triangular merger structure with Mobcrush as the surviving corporation in an all common stock deal. Upon completion of the merger, Mobcrush will be a wholly owned subsidiary of Super League. In accordance with the terms and subject to the conditions of the merger agreement, each outstanding share of Mobcrush common stock and preferred stock will be canceled and converted into the right to receive 0.528 shares of Super League common stock as determined in the merger agreement. Subject to certain adjustments and other terms and conditions more specifically set forth in the merger agreement, SLG will be issuing approximately 12,600,000.0 shares of SLG common stock at the merger consideration. The proposed merger is subject to certain customary closing conditions, including being subject to obtaining approval from a majority of Super League shareholders at a special meeting that we expect to be held before the April 2021.

Please refer to our current report on Form eight ks regarding the proposed merger that we filed with the SEC earlier today for additional information. Thank you again for joining us today. With that, I will turn the call back over to Ann for some additional remarks. Ann?

Speaker 1

Thank you, Clayton. Before we turn to questions, let me offer a bit more context on the key drivers that we have spoken about on previous calls that indicate the underlying health of our business model across our three revenue streams. Some highlights. From our advertising model, the revenue traction continues. We've talked about the health of the pipeline, the importance of winning a larger share of advertisers' wallet, and the value of swifter closings and repeat deals.

So far in 2021, the average size of our won deals is two times that of 2020 and over 50% is repeat business. And 6 figure deals represent over 35% of the deal opportunities we are pursuing, maintaining all the while our premium CPM in the $15 to $20 range. For Super League's direct to consumer business, while early, we have some strong indicators as well. Through February, we have grown to 3,400,000 registered users, and as mentioned, 1,000,000 monthly unique users. And in that same month, the average user spent approximately eleven point five hours on our platform.

We like the trends on player monetization as well. Our average purchase size is holding up at 10 to $12, albeit we still have a small percentage of players who have become buyers with our freemium model. But we are improving it and optimizing it. A proof point, our very smart, small smart, nimble, and light marketing investment accounts for over 30% of our new user registrations in the month of February at a mere customer acquisition cost or CAC of less than 20¢ per new user. And on the content front, our swift pivot to more quickly monetize our content library and our proprietary content technology became a meaningful tranche of revenue in 2020 with a good outlook ahead.

We delivered 290 episodes of original content across Snapchat and Instagram, five times the amount of content we produced in all of 2019. And through February, we continued the momentum, having produced 54 new episodes. I mentioned the revenue we generated off of those content syndication deals, but the margin profile is strong as well. The average episode sees margins in the 75% range. How do we achieve that?

Well, it comes back to the power of virtual studios. Our content is formatted for easy syndication using our highly flexible and affordable technology platform. On our last earnings conference call, I laid out some of the strategic goals for the coming months. Number one, to continue to grow our audience engagement. Number two, to increase our monetizable advertising inventory.

Number three, to further optimize our revenue per user and customer acquisition costs on the direct to consumer front number four, to expand our servable market through new offers and number five, to make progress on inorganic growth either through strategics or M and A activity. I hope you agree that through our intended acquisition of Mobcrush, we've now taken the business up several notches. The combined company will continue to build on our compelling value proposition, a gameplay and entertainment platform, a gamer centric media and advertising solution, and a player creator virtual economy. I've often said that one of our most unique distinctions is that while we are small in size and early in our revenue story, we punch above our weight with partners, advertisers, and the gamers themselves. Well, in our view, we are about to jump a weight class or two.

And now we would be delighted to take your questions. Operator?

Speaker 0

Thank you. To ask a question, you will need to press star and then the number one on your telephone keypad. And for your first question comes from the line of Brian Kinstlinger with Alliance Global Partners. Go ahead, please.

Speaker 3

Great. Thanks so much. I assume Momcrush generates all its revenue through advertising. And Ixcel, how much is programmatic versus direct sales? And then maybe you can talk about the impact on the cash burn as you've burned $16,000,000 each of the last two years.

Does Mobcush improve that burn by itself? Or does it increase that burn?

Speaker 1

Yes. I mean, certainly, with all m and a activity, you're always looking for both the top line amplification as well as the potential synergies that can be borne out of the cost and the infrastructure. We do have very highly complementary businesses as I already laid out. And while we do believe there will be additional cost synergies by bringing those companies together, I think the part that we think is the biggest grab we'll be able to take on the cost side, Brian, is going to be, the infrastructure cost. Because when you think about us both being entirely cloud based companies and having the kind of surge of engagement that we're having, that is one of the biggest line items on our cost structure.

So we're super excited to see what kind of synergies we can gain from that. Obviously, we're in the midst of an audit. So we can't get into specifics about that. It was important for me to be able to show you a little bit about the shape of the top line, but we really just need to walk through the next week or two, get the audit completed, and then we'll be able to file that information and have that full transparency with all of you. As far as the top line goes, it's correct.

It's fair to say that it's primarily ad revenue, much like ours. But I I have to tell you, the Mineville business, is a valuable business in itself. It's highly complementary, as I said, to our Minehut business. And, again, I'd like the audit to to make its way through. But it does represent a decent enough amount of that 6,000,000 unaudited revenue number that I mentioned to make it, you know, a material leg of revenue going forward.

So advertising is still number one for both of us, but we see real, really nice traction and growth on the direct to consumer side.

Speaker 3

And there's just to be clear, there's a direct sales not programmatic?

Speaker 1

Yes. So thank you for clarifying. Yes. So they do have a direct sales arm as do we, which is the primary, reason and way that we get that kind of high CPM because we offer that high deep engagement. That said, when you look at their video inventory and increasingly ours, we have been testing some programmatic video models, and we are seeing kind of $10.12 dollars CPMs off that.

So when our direct sales is not selling out that video inventory, we're able to supplement it with programmatic. We think we can apply that same opportunity to some of the video inventory inside of Mobcrush's ad inventory as well. What we wanna do, the key is on programmatic is while there's some minimal amounts of testing we're doing on display programmatic, we all know that that kind of ruins customer experience, and and it's a low CPM model. You know, what we want is we want more and more video units. And if we can fill in some of that programmatically and smartly, so we don't have to add a direct Salesforce person every time we expand ad inventory, as long as it's good content, we're up for that.

So, yes, I would say right now, the companies are primarily driven off direct sales, but we're excited about where video programmatic could go.

Speaker 3

Great. And then my question, you said about $6,000,000 revenue. Super League is about $2,000,000 in 2020 roughly. I didn't do the math, but I assume your KPIs are higher, but maybe I'm wrong because I didn't look too closely. If they are, what are they doing different in terms of execution that SL that, Super League can learn and maybe hasn't been doing?

Speaker 1

Yeah, no, good question again. So I mean, our KPIs, that's why we took the time to really kind of separate them out, because they're not completely apples to apples. So when we talk about the fact that we're able to now reach 85,000,000 Americans in The US, a lot of that is on the back of the streamer's social reach. Right? That's still reach.

It still counts. It's still what advertisers want. It's highly relevant. But it is using our our our business partners in the middle, those great streamers to reach that audience. So it's leveraging their kind of social, you know, reach and scale.

When we talk about the the Minecraft businesses that we have, you know, Mineville is able to reach 22,000,000 users per year through the Minecraft server system. Minehut is its own owned and operated property. So when I talk about the 3,400,000 registered users that we have, and many of them are on MineHut, we own that customer 100% and fully. And so that owned and operated property, you know, I think Mobcrush would say is very exciting to them. Because if they can package the kind of reach they're getting through their streamers reach and then couple it with owned and operated, they believe that they can get a much greater share of advertiser wallet.

We feel the same. We offer, brands and advertisers really deep engagement. And hey, we've had good growth. And through that good growth, we certainly are now giving them kind of enough critical mass to be interested in us, you know, very similar to the Netflix deal I talked on the last call. But now imagine we can package with it all of that additional reach, those eyeballs off of that streaming audience.

So I think those are the differences between the company. I think what what they've done well is by leveraging that reach of their streamer base, they're just able to go in and to grab a much bigger share of advertiser wallet. We've been on our journey of doing it. We certainly have proof points over the last six months of doing it. Now you put that together, it really is a one plus one equals three, four, five for both sides of the house.

So that's what we're excited about. I mean, Mike, the CEO, and I have known each other for years. And we've always, you know, sat down and had talks about our businesses. And look. It's you know, you're you're trying to to to jump in and create business models around a really, you know, emerging category.

But he has tremendous vision and experience and the the monetization of of online kind of streaming gamer related content. It's a great compliment to us. And the biggest thing for us both is when we talk now and as we've seen our business models converge more and more, there was a magic moment when we started these discussions where we realized not only were our business models beautifully aligned, but as I alluded to, media is all about scale. You put our reaches together, our deep engagement together, our player bases together, and it really does, amplify everything that we do.

Speaker 3

Alright, one last one, and then I'll get back in the queue because I have others. It's no secret the ad market's seasonal, and the first quarter is almost over. And typically, in the ad market, weaker than the fourth quarter. Are you too small for seasonality impact you, or is that not the case?

Speaker 1

Yeah. It's a little different than the gaming industry. You're absolutely right that 4Q is is always typically in the advertiser world strong. The gaming industry benefits a bit because there's a lot of new game launches in 1Q. But I do think that right now, we don't see extreme seasonality.

You know, I think what you've seen more of in our, you know, our progress last year is that we are continually improving quarter on quarter. Now that doesn't mean it's always going to be perfectly that way in a stair step. But, you know, what what Mike would say if he were on the call is that sometimes he sees a little bit of a a dip into because he's been writing a bit of that the game publisher, new game release wave, in one queue. But I think that between the two of us, we'll be able to smooth that out.

Speaker 3

Great. I'll get back in the queue with my third two questions. And

Speaker 0

for your next question comes from the line of Allen Klee with Maxim Group. Your line is open.

Speaker 4

Yes, hi. Could you tell us what plans are for potentially rolling out subscriptions in 2021?

Speaker 1

Yeah. So we do have already a subscription model inside Minehut. When people are participating in our marketplace, they can choose a monthly purchase to upgrade their server capability. So it's it's it's small, but we do have the mechanism for subscription, as well as those onetime digital good purchases. For the most part inside Mindvill for their direct to consumer model, it is those one time purchases of player entry fees or cosmetic purchases.

But what I am excited about is if you think about subscription in a bigger sense, right now, Mobcrush is a free toolkit. When you start to look at some of the broadcast technologies that we have inside Virtual Owl Studios, we believe there could be a really interesting play there to put some of that technology into their suite of tools and offerings and perhaps create an upgrade, more of a freemium model where where those kind of highest ranking streamers are looking for an advanced set of content production and broadcast tools. So we believe that it's a worthy exploration to see what is the role inside Mobcrush for subscription because we know the market likes recurring revenue, and then continue to expand subscription inside our own Super League properties as well. So and then there's always licensing technology too, Alan. So, you know, right now, you know, we have, as I mentioned, you know, big name media companies who are trying out our Virtual Owl Studios product for their own production needs, and it's not about gaming and esports.

So we believe that there could be as well technology licensing opportunities. Very similarly, there could be technology licensing opportunities on the Mobcrush side of things with their great streamer, mid tier streamer toolkit. And if those things occur, those could take the shape as some kind of monthly subscription type model, more of like a B2B or white label model.

Speaker 4

Okay. How do you think about, as people get vaccinated, the opportunity for you to start doing brick and mortar type of events that you had prior to the pandemic and what that could potentially represent?

Speaker 1

Yeah, I mean, I spent a lot of my career in retail. My dad was a franchisee and owned a lot of restaurants, I grew up working them in them. And, you know, we're rooting for that brick and mortar operator, and we still enjoy our great partnerships with Topgolf and Cinemark Theaters and others. So when they're ready to come back, I believe they're gonna need us more than ever as a new way to bring foot traffic back in, and try to reach a younger audience and use their spaces and try to optimize that capacity in as many ways as possible. I have said, though, on previous calls, I think we'll do it a little differently now.

We've advanced the tech enough that we really don't need to be as hands on with it. So if that retail partner is interested in pop up esports experiences or other types of entertainment, I think that's another retail licensing subscription type model where we can offer them to pay some kind of tollgate or monthly fee to use our technology to drive more people into their venues. I like that. That was always the original vision of the retail model was that at some point, we just really let the brick and mortar owner do the heavy lifting as far as marketing the event. They know their customer better than anyone, getting people there, making sure it's a great experience, not super league doing it from afar.

And so I think with the vaccinations getting underway, when we come back to retail, we'll have a much cleaner model with a stronger margin profile.

Speaker 4

Okay. My last question is somewhat philosophical, but you currently monetize a small fraction of the digital viewers that you have. And I know that you get, a high premium for that. But how do you think about the opportunity of expanding it with programmatic and technology where even if you don't get the high CPM, getting something for something that you're getting nothing for could actually be quite meaningful potentially on such a large user base that you've created. So any thoughts Yeah, on I

Speaker 1

mean, is you're right. It's philosophical. I mean, so protected no different than a lot of digital platforms out there in the early days. It was all about let's, you know, a free model. Let's get as many people onto the platform as possible.

Really focus that, you know, number one priority is a great experience, right? We didn't want to too quickly try to monetize it because we didn't want to turn them off from the experience. And we know like gamers value that experience. They value their community. And so with that, we've really tried to be careful about where we introduce that inventory and make sure that it is improving the overall experience.

And I think the Netflix deal that I spoke about on the last call is a perfect example of that. I mean, were having a ball and the unique gameplay experience that we created. They were watching cool trailers. You know, they weren't just seeing Netflix logos everywhere. Now that said, question about programmatic, I think it really goes back to I just don't want us to become a company that overly leans into display.

Display, it's annoying for all of us, right? And so I think the key is that video is engaging and fun. And I think the key for us will be to find more and more video inventory that we can put into our combined systems. Now the good news is that Modcrush has that. You know, when a streamer is streaming, you know, they can opt in to participate in the advertising economy by saying, yeah, you know, I'm happy to promote Red Bull.

And that is an ad unit that Red Bull is paying for, and it is a premium ad unit. And so it's more about that type of programmatic that we really wanna focus on going forward. And remember, it's got that ad block technology to it as well. And so we can guarantee to that brand or advertiser that they're getting what they're paying for. But I do want to just be careful about programmatic and turn it on smartly.

And I really want it to be focused on video units where you can see $10 and up CPMs. And look, have no doubt between the capability at Modcrash and Mike's talents and what we've worked so hard to build organically, I think we're going to be able to really look at how do we preserve premium CPMs, but to your point sell out a heck of a lot more of those units.

Speaker 4

Okay, thank you very much.

Speaker 1

Yep.

Speaker 0

And your next question will come from Bill Morrison with National Securities. Your line is open. Ann. Yes.

Speaker 4

Can you

Speaker 2

hear me?

Speaker 1

I can hear you, Bill.

Speaker 5

Hi, Ann. Great quarter. Lots of interesting stuff going on. Just on the merger itself, so can you remind me the surviving entity is Mobcrush and roughly you're going to issue like 12,500,000.0 shares. Is that it?

Speaker 1

Clayton, you want take that?

Speaker 2

That's correct. That is correct.

Speaker 5

Okay. Good. On the sales team side, can you give me the relative like size of both sales teams and like the relative efficiency of both? And also whose tools are more advanced for advertising? And is there any plans for having a programmatic direct platform not using a sell side platform?

Those are my main questions. Thanks.

Speaker 1

Yeah, definitely on the ModCresh side, your last point, there have been some tech that's been built to kind of create a little bit more of a again, don't want to use the term programmatic, but something that is a little bit more rinse and repeat or ways that, you know, can kind of take that inventory and sell it for us without us having to continue to build up the direct sales team. And so there are some explorations going on that. I would say again, for the most part, most of the advertising sales to date for both firms are coming from that direct side though. As far as the teams go, we find them very synergistic. Certainly Mobcrush has a very seasoned team, direct sales team.

We just started building up our direct sales team about a year ago. Ours has really been focused a lot on youth and brands and advertisers trying to find youth And so in some ways, we've really kind of started to dominate in that vertical. So you think about the repeat business we continue to do with Moose Toys, even the Disney plus and the Netflix deals were targeting young gamers. It was family friendly new releases. So what's kind of nice is we've kind of been building out that lane.

And

Speaker 2

Okay. So it sounds like she may have dropped. I just sent her a quick note to that effect. She should be dialing back in shortly.

Speaker 5

Okay. Thanks.

Speaker 2

Did you have any any other questions there, Bill? Or

Speaker 5

No. It's Clayton. Maybe you can help me. So so what's the relative size of the teams? And then, you you you were talking about getting to it, like, an efficiency level, like 50% was, you know, shorter term goal.

You know, how is that on both sides?

Speaker 2

It's it's it's it's my understanding in terms of the size of the teams, I believe on the mob purse side, I believe it's it's in the nine ten range. And then on the Super League side, that's in the five to six range. And then in terms of the sales efficiency, know Anne has spoken about that in the past in terms of levels that we might want to get to. I've not had a chance to dive into the sales efficiency sort of on the mob crush side just yet. As you know, we continue to work towards trying to build up our sales force efficiency over time.

Speaker 5

Okay. Good. I'll I'll jump back into the queue. Appreciate it.

Speaker 3

Okay.

Speaker 1

I'm back. Sorry, guys.

Speaker 5

Okay. Ann. So I'm just curious on the sales efficiency on the Super League side, how close are you to the 50% model and and, you know, that's kind of where we left off.

Speaker 1

Yeah. And I'm I you know, I think the, you know, the best estimate I have for you on that right now, Bill, is that we're kind of in that kind of 25 to kind of 20% to 25% range. What we're finding is that when brands are, wanting to do business with us, I guess it's a good thing because a lot of these deals are coming in and in the kind of 6 figure range, but it means they're doing full takedowns, right? And then we'll have kind of quiet periods where we don't have that full takedown happening. As we've talked about kind of like 80% is like a really super high efficiency, high performing team, and we're still kind of trying to march up that curve.

I think what's going to be exciting is when we sit down and really work with the Mobcrush sales team, and again, a lot of this under Mike's leadership, to really look at their efficiency metrics because I don't want to quote those right now and misquote them, but look at what we can learn from each other, how we can align across verticals, how we can combine, most importantly, our ad inventory. And so when they're going out and selling something to, you know, a Red Bull or an Anheuser Busch, they should be packaging all of our age appropriate ad content with it, just like we should prepackaging their younger ad inventory against some of our younger verticals. So I just look forward to the next call where I can start to share with you what we see as the combined entity and how we're performing against it, but it's just a little too soon for me to report on it.

Speaker 5

Okay. Great. Congrats on the on the transaction. Appreciate

Speaker 1

it. Thank you. Thank you. We're super excited. We looked at a lot of companies, and over the last year, and boy, a lot of them, I think, we would have gotten on a call and you guys would have said, this feels like a pivot.

And it is a wonderful moment when you see that both of us have been refining refining our business model as as we've known each other. Our offices are just a few blocks away from each other in Santa Monica before we both gave them up. And to see us finally converge to a point where there's so much alignment, it just felt to to both to both companies, like, was a match made in heaven.

Speaker 5

Yes. That's what it seems like that to me. Congrats. Thanks. Congrats.

Thanks.

Speaker 2

Hey. Hey, Anne. If you could just double check my my recollection on the size of Modcrush's sales team.

Speaker 1

Modcrush's sales team is more in the 10 person. So the so they're about two XRs. And I would say they've just, you know, they've been at it longer, a very seasoned group of people. And, it just, again, super complimentary.

Speaker 0

And for our last question, we have Brian Kinstlinger with Alliance Global Partners.

Speaker 3

Great. I have two Kind of a follow-up to that talking about fill rates, of ads. I know in the past, about three quarters ago, maybe even two, you talked about all the inventory and the potential it represents for ad revenue. What are the biggest impediments to fill rates?

And when do you see that inflection point? I mean, to Alan's point, you're a top 50 in terms of you you're talking about. So when is that inflection point and when you can start to get see stronger fill

Speaker 1

Yeah. I mean, that's what we achieve when we combine, right? So announcing today is the first step out of the gate. You know, when we start to go forward and tell, you know, advertisers the added half we can bring by putting it together, it's just almost self fulfilling, that we're going to grab, you know, a bigger share of wallet, you know, more repeat business because we've become a go to for them. You know, one of the go to places, one of the rare kind of gaming centric advertising solutions for them.

So I do think that once we start seeing us putting out packages together, we're going to see all those health metrics go the right way, better filter rates, preserving that good CPM, certainly continuing repeats and bigger and bigger average deals. So that's what we're so excited. We're chomping at the bit to start doing. And so I think it's inevitable. We've already, you know, bringing them under confidentiality, brought that sales team together.

And the enthusiasm, you know, these are hunters by nature, you know. And so the enthusiasm in the call when they were realizing sharing pipeline and talking about the opportunities if we became a combined company were material. So I think that you'll start to see by the time we're reporting next already proof points of us selling more faster and bigger deals. But the good news is we were already starting to improve on those sales effectiveness metrics on our own, right? You know, as I talked about 50% of our deals this year, Super League alone, are repeat deals.

We're already trending with a higher overall deal size. So, but as you and Bill said, now let's put our money where our mouth is and start showing that we leave no impression behind, right? That we can sell out more and more of that. And if we can smartly fill in programmatic, I'm all for it. I absolutely wanna be able to scale this model.

And I think there's a smart way to do programmatic without suppressing our overall CPM rate.

Speaker 3

Great. Lastly, to another point you just mentioned, in 3Q you had two customers that ran rather large campaigns. I believe it was Netflix and Disney plus not that I'm sure. Were those customers at least that ran large campaigns in 3Q the same customers that were your two that represented 36% of revenue in the fourth quarter?

Speaker 1

So, certainly we continue to, have more deals in the pipeline with both of those customers. The nice thing is for us is is that the larger customers that we had in '4 q, like Snapchat, and other kind of big name media companies, I think show that we're starting to have the, you know, we don't just have it wasn't a one time fluke solution for Netflix. Right? That them and their competition are coming back to us as a go to for their next kind of appropriate releases that are targeting that type of audience. So, no, it was not just, the same kind of basket of customers.

It was new customers, but it was all with that same kind of half of the ones that we talked about in 3Q. And like I said, you know, the the little bit of tidbit I can share about 4Q is 50% repeat. And so that is inevitably from that pool of people that we've talked about for last year.

Speaker 3

Okay. Thanks very much.

Speaker 1

Okay.

Speaker 0

Excuse me speakers, I am not showing any further questions. At this time, this concludes our question and answer session. I would now like to turn the call back over to Ms. Hand for closing remarks.

Speaker 1

Okay. Well, other than me losing connection for a bit, I want to thank you for joining the call today. Again, it's a fantastic day for Super League and a really bright future going forward. Just the company couldn't be more ecstatic. And we're just so excited to join forces with the Mob Croche folks and their great brand.

We look forward to speaking to you at our upcoming conferences and when we report our first quarter results in May. Stay safe.

Speaker 0

Ladies and gentlemen, this concludes today's teleconference. Thank you for participating. You may now disconnect your lines.