Super League Gaming, Inc.
NasdaqCM:SLGG
FQ4 2020 Earnings Call Transcripts
Thursday, March 11, 2021 10:00 PM GMT
S&P Global Market Intelligence Estimates
|
-FQ4 2020-
|
-FQ1 2021-
|
-FY 2020-
|
-FY 2021-
|
|
CONSENSUS
|
ACTUAL
|
SURPRISE
|
CONSENSUS
|
CONSENSUS
|
ACTUAL
|
SURPRISE
|
CONSENSUS
|
EPS (GAAP)
|
(0.27)
|
(0.31)
|
NM
|
(0.20)
|
(1.57)
|
(1.64)
|
NM
|
(0.77)
|
Revenue (mm)
|
0.80
|
0.78
|
(2.50
%)
|
0.92
|
2.09
|
2.06
|
(1.44
%)
|
5.05
|
Currency: USD
Consensus as of Mar-01-2021 12:20 PM GMT
|
- EPS (GAAP) -
|
|
|
CONSENSUS
|
ACTUAL
|
SURPRISE
|
FQ1 2020
|
(0.52)
|
(0.60)
|
NM
|
FQ2 2020
|
(0.48)
|
(0.48)
|
NM
|
FQ3 2020
|
(0.40)
|
(0.36)
|
NM
|
FQ4 2020
|
(0.27)
|
(0.31)
|
NM
|
Call
Participants
|
|
3
|
Presentation
|
|
4
|
Question
and Answer
|
|
12
|
SUPER LEAGUE GAMING, INC. FQ4 2020 EARNINGS CALL | MAR 11,
2021
|
Call Participants
|
EXECUTIVES
Ann Hand
CEO, President & Chair of the Board
Clayton J. Haynes
Chief Financial Officer
ANALYSTS
Allen Robert Klee
Maxim Group LLC, Research Division
Brian David Kinstlinger
Alliance Global Partners, Research Division
William Morrison
|
|
|
SUPER LEAGUE GAMING, INC. FQ4 2020 EARNINGS CALL | MAR 11,
2021
Presentation
Operator
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 December 31, 2020. Joining us
today are Super League's President and CEO, Ann 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 statements 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. That's all 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 to March 18, 2021,
starting at 8:00 p.m. Eastern Time tonight. Our webcast replay will
also be available 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 Mr. -- President and CEO of
Super League Gaming, Ann Hand. Go ahead, please.
Ann Hand
CEO, President & Chair of the Board
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 Mobcrush, a
wildly stark contrast to 1 year ago, when we completed our fourth
quarter 2019 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 a table set a bit on the wider industry, the trends and our
positioning. Our focus has always been to provide competitive video
gaming and e-sports 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 3 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, A.K.A.
direct-to-consumer through a shared virtual economy.
SUPER LEAGUE GAMING, INC. FQ4 2020 EARNINGS CALL | MAR 11,
2021
Our digital marketplace launch that we seeded in the second half of
2020 does just that. And 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 2 million hours of
original content annually to their own social audiences,
aggregating more than 4.5 billion fans and subscribers across the
most popular live streaming and social media platforms, including
Twitch, YouTube, Facebook, Instagram, Twitter and
more.
Mobcrush also owns Mineville, 1 of the 6 exclusive official
Minecraft server partners enjoyed by more than 22 million unique
players annually. So let's break this down a bit more as the 2
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 billion 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 million 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 live stream
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 e-sports
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 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 in video gaming, competitive events, social
media and live streaming content, along with in-game
experiences.
SUPER LEAGUE GAMING, INC. FQ4 2020 EARNINGS CALL | MAR 11,
2021
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 Mobcrush's 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 onetime 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 3 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 highlights 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 live stream entertainment content,
checked again.
How do we monetize? Through our premium advertising model, our
direct-to-consumer offering and our gaming and live stream content
engine and library. Check again.
Before I hand it over to Clayton, I want to 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 million players per year, 3 million
players per month and with over 400,000 players per day. As well,
we reach a U.S. viewing audience of 85 million monthly, making for
a top 50 U.S. media property as verified by Nielsen.
SUPER LEAGUE GAMING, INC. FQ4 2020 EARNINGS CALL | MAR 11,
2021
Annually, we have over 7.7 billion U.S. video views across live
streaming platforms, 2 billion views on social media platforms and
enable 60 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 expand scale and scope.
Now I know you all want me to speak to financials. As we know, the
priority #1 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 million.
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?
Clayton J. Haynes
Chief Financial Officer
Thank you, Ann, and good afternoon, everyone, and thank you for
joining us for today's fourth quarter and year-end 2020 earnings
conference call. First, I would like to summarize our fiscal 2020
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&A transaction we
announced today.
As you know, each quarter, we provide updates on our key
nonfinancial performance indicators that we believe help investors
understand and gauge 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 3 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 2020, 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 million registered users, roughly 3x
the number at the end of 2019 and easily surpassing our goal of 2
million registered users for 2020. In 2020, we experienced over 2
billion video views, which is nearly 20x 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 72 million hours of engagement, mostly
gameplay across all of our platforms, nearly 5x 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 2020 financial results. Overall,
from a financial statement standpoint, fourth quarter 2020
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
2020 establishing another record quarter of revenues for Super
League eclipsing the record quarterly revenues previously
established in Q3 2020.
In addition, we continued our strong trend of strong margins,
reporting average margins of 62% in Q4 2020 compared to 50% in the
comparable prior year quarter as we continued leaning into our
largely digital and online offers and revenue-generating
activities.
SUPER LEAGUE GAMING, INC. FQ4 2020 EARNINGS CALL | MAR 11,
2021
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 2020
results as summarized in our earnings release filed today. Fourth
quarter 2020 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 2020 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 duration, repackaging and sale of our owned and user-generated
content highlighted by our content sales activities with Snap
Inc.
Direct-to-consumer revenues in the fourth quarter of 2020, which
were primarily comprised of digital goods revenues related to our
Minehut digital property, accounted for 8% of revenues for the
fourth quarter of 2020 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 Ann mentioned
earlier. During the fourth quarter of 2020, we continued our strong
trend of working with repeat customers, including our partnerships
with Topgolf, Gen.G, 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 2020, 2 customers accounted for 36% of
revenues, as compared to 3 customers accounting for 72% of revenues
in the prior year quarter. As with all advertising-based business
models, COVID-19 had an impact on the timing and distribution of
advertising revenue during 2020, but we feel we 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 2020
was 62% compared to 49% in the prior year quarter. Fourth quarter
2020 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 2020. 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 2020 GAAP operating expenses were $5.2 million, 8%
higher than the comparable prior year quarter. Noncash stock
compensation expenses in the fourth quarter of 2020 decreased 54%
to $434,000 as compared to $951,000 in the fourth quarter of 2019.
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 2020 as we continued 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.
SUPER LEAGUE GAMING, INC. FQ4 2020 EARNINGS CALL | MAR 11,
2021
And lastly, the impact of higher public company insurance costs
relative to the prior year. On a GAAP basis, which includes the
impact of noncash stock compensation charges, net loss for the
fourth quarter of 2020 was $4.7 million or $0.31 per share compared
to a net loss of $4.7 million or $0.55 per share in the comparable
prior year quarter. Excluding noncash stock compensation charges,
our pro forma net loss for the fourth quarter of 2020 was $4.3
million or $0.28 per share compared to $3.7 million 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 15.5 million shares
in the fourth quarter of 2020 compared to approximately 8.6 million
shares in the prior year quarter. As a reminder, and as described
in our earnings release today, pro forma 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 forma net loss as well as a
reconciliation of pro forma net loss with the most directly
comparable financial measures prepared in accordance with U.S.
GAAP.
Next, let me briefly review our full year 2020 results. In summary,
in fiscal year 2020, we saw a 90% increase in revenues recognized
across our 3 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 and 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 2020, revenues totaled
$2.1 million, an increase of 90% from the $1.1 million 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 2020, 4 customers accounted for 49% of revenues compared
to 5 customers accounting for 69% of revenues in fiscal 2019. As a
percent of revenue, fiscal year 2020 gross profit was 59% compared
to 53% in 2019. Cost of revenue for fiscal 2020 was $856,000, up
67% 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 12-month period.
The significantly lower increase in cost of revenue on a relative
basis was driven by the increase on lower cost advertising and
third-party content sales revenues and our largely digital and
online revenue-generating activities in fiscal year 2020, compared
to fiscal year 2019.
On a GAAP basis, total operating expenses were $20 million, down
slightly from $21.3 million in 2019. For fiscal year 2020, GAAP
operating expenses included $2 million in noncash stock
compensation expense, down from $6.2 million in 2019. Excluding
noncash stock compensation expense, total operating expenses for
2020 were $17.9 million, up 19% from $15.1 million 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.
SUPER LEAGUE GAMING, INC. FQ4 2020 EARNINGS CALL | MAR 11,
2021
Our net loss on a GAAP basis in 2020 was $18.7 million or $1.64 per
weighted average diluted share compared to $30.7 million or $3.89
per weighted average diluted share in 2019. Pro forma net loss,
which excludes noncash stock compensation as well as 2019 noncash
interest costs was $16.3 million in 2020 compared to $14.5 million
in 2019.
The weighted average diluted share count for the full year 2020 was
11.4 million compared to 7.9 million in 2019. From a balance sheet
perspective, as of December 31, 2020, we had $7.9 million in cash,
approximately $7.5 million in working capital and total
shareholders' equity of $10.9 million. Our current monthly net cash
burn rate continues to be, on average, approximately $1.3 million
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 3.1 million and 2.9
million shares of our common stock, raising gross proceeds of
approximately $8 million and $12 million, 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 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 2020, 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
end user-generated content.
Fiscal 2020 also saw a favorable average margin 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
surge in engagement during the period.
Lastly, a few comments on our transformative M&A-related
announcement today. Ann has already addressed the strategic
benefits of the proposed acquisition of Mobcrush, but I will
provide some additional detail with respect to the acquisition
agreement.
From a structure standpoint, Super League entered into an agreement
in plan of merger, by and among Mobcrush Streaming, Inc., Super
League and Super League Merger Sub. The merger agreement provides
for the acquisition of Mobcrush 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 12.6 million 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 end of April 2021. Please refer to our
current report on Form 8-K 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?
SUPER LEAGUE GAMING, INC. FQ4 2020 EARNINGS CALL | MAR 11,
2021
Ann Hand
CEO, President & Chair of the Board
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 3 revenue streams. Some highlights from our
advertising model.
The revenue traction continues. We have talked about the health of
the pipeline, the importance of winning a larger share of
advertiser's wallet and the value of swifter closings and repeat
deals. So far in 2021, the average size of our won deals is 2x 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 3.4 million registered users, and as mentioned, 1
million monthly unique users.
And in that same month, the average user spent approximately 11.5
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're improving it and optimizing
it.
A proof point. Our very 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 $0.20 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, 5x 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 Virtualis 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 and 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 newer offers; and number five, to make progress on
inorganic growth, either through strategics or M&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 have 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 2. And now we would be delighted to take your questions.
Operator?
SUPER LEAGUE GAMING, INC. FQ4 2020 EARNINGS CALL | MAR 11,
2021
Question and Answer
Operator
[Operator Instructions] And for your first question comes from the
line of Brian Kinstlinger with Alliance Global
Partners.
Brian David Kinstlinger
Alliance Global Partners, Research Division
Great. I assume Mobcrush generates all its revenue through
advertising. And if so, how much is programmatic versus direct
sales? And then maybe you can talk about the impact on the cash
burn as you burned $16 million in each of the last 2 years. Does
Mobcrush improve that burn by itself? Or does it increase that
burn?
Ann Hand
CEO, President & Chair of the Board
Yes. I mean, certainly, with all M&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 2, get the audit
complete 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 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 make its way through, but it does
represent a decent enough amount of that $6 million unaudited
revenue number that I mentioned to make it a material leg of
revenue going forward. So advertising is still #1 for both of us,
but we see really nice traction and growth on the
direct-to-consumer side.
Brian David Kinstlinger
Alliance Global Partners, Research Division
And there's -- just to be clear, theirs is direct sales not
programmatic?
Ann Hand
CEO, President & Chair of the Board
So 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 CPMs off
that.
SUPER LEAGUE GAMING, INC. FQ4 2020 EARNINGS CALL | MAR 11,
2021
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 want to 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 it's a low CPM model. 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 sales
force 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.
Brian David Kinstlinger
Alliance Global Partners, Research Division
Great. And then Mobcrush has -- you said about $6 million revenue,
Super League is about $2 million 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?
Ann Hand
CEO, President & Chair of the Board
Yes. No, good question again. So I mean, our KPIs -- it'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 million Americans in the U.S., 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 business partners in the middle, those great
streamers to reach that audience. So it's leveraging their kind of
social reach and scale. When we talk about the Minecraft businesses
that we have. Mineville is able to reach 22 million users per year
through the Minecraft server system. Minehut is its own owned and
operated property.
So when I talk about the 3.4 million registered users that we have
and many of them are on Minehut, we own that customer 100% fully.
And so that owned and operated property, 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
as -- very similar to the Netflix deal I talked about in 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 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 6 months of doing it.
Now you put that together, it really is a 1 plus 1 equals 3, 4, 5
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 sat down and had talks about our businesses. And look,
it's -- you're trying to jump in and create business models around
a really emerging category, but he has tremendous vision and
experience and the monetization of online kind of streaming
gamer-related content. It's a great complement to us.
SUPER LEAGUE GAMING, INC. FQ4 2020 EARNINGS CALL | MAR 11,
2021
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.
Brian David Kinstlinger
Alliance Global Partners, Research Division
Great. One last one, and then I'll get back in the queue because I
have others. It's no secret the ad market is 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 to impact
you? Or is that not the case?
Ann Hand
CEO, President & Chair of the Board
Yes. It's a little different in the gaming industry. You're
absolutely right that 4Q 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.
I think what you've seen more of in 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 what Mike would say, if he were on the call is that sometimes
he sees a little bit of a dip in 2Q because he's been riding a bit
of that -- the game publisher, new game release wave in
1Q.
But I think that between the 2 of us, we'll be able to smooth that
out.
Operator
And for your next question comes from the line of Allen Klee with
Maxim Group.
Allen Robert Klee
Maxim Group LLC, Research Division
Could you tell us what you think -- what your plans are for
potentially rolling out subscriptions in 2021?
Ann Hand
CEO, President & Chair of the Board
Yes. 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 small.
But we do have the mechanism for subscription as well as those
onetime digital good purchases.
For the most part inside Mineville for their direct-to-consumer
model, it is those onetime 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
tool kit. When you start to look at some of the broadcast
technology that we have inside Virtualis 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 those kind of
highest ranking streamers are looking for an advanced set of
content production and broadcast tools.
SUPER LEAGUE GAMING, INC. FQ4 2020 EARNINGS CALL | MAR 11,
2021
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, Allen. So
right now, we have, as I mentioned, big name media companies who
are trying out our Virtualis Studios product for their own
production needs. And it's not about gaming and e-sports. 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 tool kit. 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.
Allen Robert Klee
Maxim Group LLC, Research Division
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?
Ann Hand
CEO, President & Chair of the Board
Yes. I mean, look, I spent a lot of my career in retail. My dad was
a franchisee and owned a lot of restaurants, and I grew up working
in them. And 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 going to 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, e-sports 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 the -- with the vaccinations getting underway, when
we come back to retail, we'll have a much cleaner model with a
stronger margin profile.
Allen Robert Klee
Maxim Group LLC, Research Division
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 on that?
SUPER LEAGUE GAMING, INC. FQ4 2020 EARNINGS CALL | MAR 11,
2021
Ann Hand
CEO, President & Chair of the Board
Yes. I mean, this is -- you're right, it's philosophical. I mean,
we still protect it, no different than a lot of digital platforms
out there in the early days. It was all about let's -- a free
model, let's get as many people onto the platform as possible.
Really focused that -- #1 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 in the last call is a perfect example of
that.
I mean kids were having a ball in the unique gameplay experience
that we created. They were watching cool trailers. They weren't
just seeing Netflix logos everywhere. Now that said, your 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, 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, is that Mobcrush has
that. When a streamer is streaming, they can opt in to participate
in the advertising economy by saying, yes, 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 want to 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, I have no doubt between the
capability at Mobcrush 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.
Operator
And your next question will come from Bill Morrison with National
Securities.
William Morrison
Yes. Can you hear me?
Ann Hand
CEO, President & Chair of the Board
I can hear you, Bill.
William Morrison
Great quarter, lots of interesting stuff going on. Just on the
merger itself. So can you remind me the surviving entity, is
Mobcrush in -- roughly you're going to issue like 12.5 million
shares. Is that it?
Ann Hand
CEO, President & Chair of the Board
Clayton, you want to take that?
SUPER LEAGUE GAMING, INC. FQ4 2020 EARNINGS CALL | MAR 11,
2021
Clayton J. Haynes
Chief Financial Officer
Yes, that's correct. That is correct.
William Morrison
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 then whose tools are more advanced for advertising?
And is there any like plans for having like a programmatic direct
platform, not using a sell-side platform? Those are my main
questions.
Ann Hand
CEO, President & Chair of the Board
Yes. Definitely on the Mobcrush side, on your last point, there
have been some tech that's been built to kind of create a little
bit more of -- again, I don't want to use the term programmatic,
but something that is a little bit more rinse and repeat or ways
that others 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 gaming. 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+ and the Netflix deals, we're 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 for a while...
[Technical Difficulty]
Clayton J. Haynes
Chief Financial Officer
Ann, are you there? 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.
Did you have any other questions there, Bill, or...
William Morrison
No. Clayton, maybe you can help me. So what's the relative size of
the teams? And then you were talking about getting to it like an
efficiency level, like 50% was like short term goal. How is that on
both sides?
Clayton J. Haynes
Chief Financial Officer
It's my understanding in terms of the size of the teams, I believe
on the Mobcrush side, I believe it's in the 9 to 10 range. And then
on the Super League side, that's in the 5 to 6 range. And then in
terms of the sales efficiency, I know Ann 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 Mobcrush side just yet. And as you know, we continue to work
towards trying to build up our sales force efficiency over
time.
SUPER LEAGUE GAMING, INC. FQ4 2020 EARNINGS CALL | MAR 11,
2021
Ann Hand
CEO, President & Chair of the Board
I'm back. Sorry, guys.
William Morrison
Okay. So I was just curious, on the sales efficiency on the Super
League side, how close are you to the 50% level? And that's kind of
where we left that.
Ann Hand
CEO, President & Chair of the Board
Yes. And I think that 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 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 a Red Bull
or an Anheuser-Busch, they should be packaging all of our
age-appropriate ad content with it just like we should be packaging
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.
William Morrison
Okay. Great. Congrats on the transaction.
Ann Hand
CEO, President & Chair of the Board
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 refining, refining our business model, 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 both companies like it was a match made
in heaven.
Clayton J. Haynes
Chief Financial Officer
Ann, if you could just double check my recollection on the size of
Mobcrush's sales team?
SUPER LEAGUE GAMING, INC. FQ4 2020 EARNINGS CALL | MAR 11,
2021
Ann Hand
CEO, President & Chair of the Board
Mobcrush's sales team is more in the 10 person. So they're about 2x
ours. And I would say they've just -- they've been at it longer, a
very seasoned group of people. And it just, again, super
complementary.
Operator
[Operator Instructions] And for our last question, we have Brian
Kinstlinger with Alliance Global Partners.
Brian David Kinstlinger
Alliance Global Partners, Research Division
Great. I have 2 more. It's kind of a follow-up to that, talking
about fill rates of ads. I know in the past, about 3 quarters ago,
maybe even 2, 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
Allen's point, you've got your top 50 in terms of view you're
talking about. So when is that inflection point of when you can
start to get -- see stronger fill rates?
Ann Hand
CEO, President & Chair of the Board
Yes. I mean that's what we achieve when we combine, right? So
announcing today is the first step out of the gate. When we start
to go forward and tell advertisers, the added heft we can bring by
playing it together, it's just almost self-fulfilling that we're
going to grab a bigger share of wallet, more repeat business
because we become a go-to for them, 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 our packages
together, we're going to see all those health metrics go the right
way, better fill through 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 bringing them under confidentiality,
brought that sales team together and the enthusiasm -- these are
hunters by nature. 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? 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 want to be able to scale this model. And I think there's
a smart way to do programmatic without suppressing our overall CPM
rate.
Brian David Kinstlinger
Alliance Global Partners, Research Division
Great. Lastly, to that -- to another point you just mentioned, in
3Q you had 2 customers that ran rather large campaigns. I believe
it was Netflix and Disney+, not that I'm sure. Were those customers
at least that ran large campaigns in 3Q, the same customers that
were your 2 that represented 36% of revenue in the fourth
quarter?
SUPER LEAGUE GAMING, INC. FQ4 2020 EARNINGS CALL | MAR 11,
2021
Ann Hand
CEO, President & Chair of the Board
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 4Q like Snapchat and other kind of
big name media companies, I think, show that we're starting to have
the -- we don't just have -- it wasn't a onetime 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 heft of the
ones that we talked about in 3Q. And like I said, 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.
Operator
I'm 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.
Ann Hand
CEO, President & Chair of the Board
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 Mobcrush 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.
Operator
Ladies and gentlemen, this concludes today's teleconference. Thank
you for participating. You may now disconnect your
line
SUPER LEAGUE GAMING, INC. FQ4 2020 EARNINGS CALL | MAR 11,
2021
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