Good afternoon, everyone, and thank you for participating in today's conference call to discuss Super League Gaming's Financial Results for the Third Quarter Ended September 30th, 2020. Joining us today are Super League's President and CEO, Ann Hand; and CFO, Clayton Haynes. Following their remarks, we'll open up 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. This statement provides important cautions regarding forward-looking statements. The company's remarks during today's conference call will include forward-looking statements. These statements, along with other information presented that does not reflect historical facts, are subject to a number of risks and uncertainties. Actual results may differ materially from those implied by these forward-looking statements. Please refer to the company's recent earnings release and to the company's reports filed with the Securities and Exchange Commission for more information about the risks and uncertainties that could cause actual results to differ. I would like to remind everyone that this call will be available for replay through November 18th, 2020, starting 8:00 P.M. Eastern Standard Time tonight. A webcast replay will also be available via the link provided in today's press release as well as the company's website at www.superleague.com. Now, I would like to turn the call over to the President and CEO of Super League Gaming, Ann Hand. Ann?

Good afternoon and thank you for joining us. So, let's get started. Here we are further along in what continues to be a strange and challenging year for everyone personally and professionally. The world is not only still dealing with the pandemic and a possible resurgence, but also a great deal of ambiguity in a significant election year. We continue to hope for an end to the pandemic and a return to calm and some degree of normalcy for everyone. And yet gaming continues to be one of the brightest sectors in the economy. Sales and downloads of console video games are about to enjoy a big sales boom with the new PlayStation and Xbox consoles. And with even wider reach, we continue to see a surge in the very accessible mobile gaming segment, which represents 30% of all mobile downloads and 10% of the time spent on mobile devices. On average, millennials in North America spend $111.54 on games per month, teamed them up to be the first generation of lifelong gamers. And the advent of 5G and more edge of cloud gaming means less lag, lower latency, and that will make the gamers experience and stickiness to the games they enjoy grow more. These are all good things for Super League by further democratizing competitive gaming for the masses. And Esports, the most heightened form of competitive video gaming, continues to grow in terms of participation, both in players and audience. Investors and journalists often ask me if this outpoint of engagement and gaming and the consumption of gaming-related content will ebb when there is a cure for the pandemic. And my reply is always the same: gaming continues to solidify its position as a dominant form of entertainment, bigger than TV, much larger than the global film…

Thank you, Ann, and good afternoon to everyone, and thank you for joining us for today's third quarter 2020 earnings conference call. In summary, our Q3 2020 highlights included a 105% increase in total revenues, reflecting a significant increase in advertising and content sales revenues relative to the comparable prior year quarter. Our cost of revenue increased 70% from the prior year quarter, which was less than the 105% increase in total revenues, resulting in average margins of 54% in the third quarter of 2020 compared to 45% in the prior year quarter, as we continued leaning into our largely digital and online offers. Excluding non-cash stock compensation charges, our operating costs for the third quarter of 2020 rose a modest 10% compared to the prior year quarter, reflecting an increase in cost related to the build-out of our direct sales force, as we continued to invest in the monetization of our ad inventory and an increase in platform infrastructure cost, driven by the surge in engagement during 2020. During the third quarter of 2020, we continued to be focused on increasing monetization and cost reductions where possible. Diving into the details, from a revenue perspective, as summarized in our earnings release earlier today, third quarter 2020 revenue increased 105% to $718,000, the highest revenue quarter in the company's history, compared to $350,000 for the third quarter of 2019. The increase was primarily due to a significant increase in advertising and content sales revenue relative to the prior year quarter, reflecting the positive impact of the build-out of our direct sales force earlier this year and our continued focus on accelerating the monetization of our growing advertising inventory and surge in engagement. Turning to third quarter of 2020, consistent with what we have done historically, we demonstrated the ability to…

Thanks, Clayton. I want to express, how pleased I am with the progress we're making. Seizing this opportunity in front of us, this gaining of critical mass, to begin to monetize our growing audience, the company is right now at a high level of productivity and commitment to grow shareholder value. And I can see it in the energy in every meeting, especially in our weekly sales pipeline and revenue review session, where the hunger to win more and bigger deals is high. And we are only just beginning to show off, how our end-to-end technology, enabling mass participation, competitive gaming and viewing entertainment can be leveraged. I continue to believe 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. So what should you expect of us in the coming months, as we try to further develop the network effect that is growing between our community of players, viewers, partners and content. We'll continue to grow our audience and engagement, increase our monetizable advertising inventory and sales force effectiveness, increase our consumer revenue per user, bringing more players and into our monetization funnel, we'll continue to grow our addressable market with more game titles and expanded offers, and we'll continue to progress material strategic partner conversations that provide us commercial scale, but also a potential source of growth capital. Our goal is clear, continuing to build our large, diverse and young community of gamers through engaging content and entertainment that will enable us to capture a growing share of the advertiser's wallet and our consumers' wallet. And I want to close by being crystal clear with our investors and analysts that, we are playing for high-stakes here. I consider my day job to deliver transformative moves that can create real leverage and scale for the company. So with that, you have our full commitment. And we are now happy to take any questions that you might have. Thank you.

[Operator Instructions] Our first question comes from the line of Brian Kinstlinger of Alliance Global. Your line is open.

Hi. Good evening, guys. Thanks for taking my question. Can you talk about the two large ad campaigns or the two separate large brands. I think, one, you announced Netflix now. And the second, I think you intimated at least as much, I believe it was the LD conference that you had a second. So did both of these campaigns go off? And how do they perform in the customers' eyes? And have you received follow-on campaign from these customers as well?

Yes, absolutely. So I thought it was important in the call that we emphasize how well we're doing on the repeat side of the pipeline. Certainly, we do provide full performance reports to all of our advertisers, and we are seeing that we're outperforming on all metrics. And that's, hence, why we're starting to see that repeat business. And more importantly, it's not just the repeat business, it's the fact that the size of the deals are nearly double. So these advertisers are willing to put more dollars to work because of our outperformance. We are seeing pretty consistently new business starting to flow through with media-related companies, like a Netflix or Disney+, people who are every week releasing new content on their streaming platforms and they are looking for ways to reach those desired audiences and drive them to those platforms. So we do continue to see repeat business with them. We also just ran a very successful campaign with a toy company, Monster Toys, where, as well, we overdelivered on performance. The agency and the company were very thrilled, and so we're now getting excited talking to them about additional toy releases that are appropriate for our different younger audiences. So we're seeing it as a pretty consistent that we are outperforming, and that's leading to repeat.

Great. And then can you give us some great details for the first time, I think, on the pipeline 80 deals. Can you talk about how many are larger than, say, $200,000 like, your first two large pilots? And then when you talk about the pipeline, is that a addressable campaigns that are going to happen in the next few weeks, in the next few months, in next few quarters? Can you just help characterize the duration?

Yes. No, it's a good question. I mean, look -- we have been doing a good job of starting to see as we've been able to kind of reposition and get out in front of advertisers as we've seen advertisers start to loosen up a bit and start putting money to work again, kind of, in the wake of everyone kind of freezing a bit with COVID. We are seeing our sales cycles start to be faster, but we're already selling against spring break, kind of, New Year's campaigns. So I would say, it's not several years but it's not just several weeks either. It's more in the kind of 6-month range is how we are selling. Now that doesn't mean the sales cycle is that long. We certainly are starting to see deals flow through and close in a 20-day to 30-day sales cycle. That's kind of at the top-tier of performance. And then your question about deal size. As I mentioned right now, the average deal size is a little over $70,000 in the pipeline, but that's up from about $37,000 just in the prior quarter. So we like that trend. Certainly, we are -- because we have more reach, we can start going in with bigger numbers on our proposals. So we are seeing that we're putting in more pitches in that kind of six-figure range. That doesn't mean that the advertiser will select all the options we put in front of them. But the power in having all that reach is now we can be a chunkier part of their spend. And a lot of times in the advertising world, when you have small reach, even if they love what you do, it's just -- they just kind of can't manage 10 different vendors or advertisers that they are trying to route through. It's just a lot more work for them. So it's always a good sign that if we can take down more and more of a higher percent of a campaign's dollars that we will tend to be a go-to place for them to put more money to work in the future.

Great. Last question, just two parts or separate. First, can you tell us you talked about your investment in the direct sales force? How many people do you have today versus the beginning of the year? And then it's early in your business model, but do you see the fourth quarter generally being a seasonally strong one given the holiday season and the need to push advertising to kids and things like that?

I mean we're certainly working hard to convert deals faster, deals of bigger size. I mean we don't give guidance on 4Q. But as I alluded to in the call, the energy is high on our weekly pipeline reviews. And there's a lot of excitement as we are seeing more and more new deals coming in with shorter fuses on them as far as conversion. So we continue to be very bullish on the progress that we're seeing that we started to make in 3Q and how that will go forward. As far as the sales team goes, we started the year with about 3 people in the sales team, and we've grown that to about 7. A couple of those FTEs are partial -- FTEs because they have kind of broader roles. But with that, we do have kind of a much higher percent of people in the firm who are now revenue-facing. And then I think the other important thing is, we've always been so proud of our very high quality, high-CPM model, right? And so we've always resisted kind of cheap programmatic because we don't want to bring down the value of this high-end inventory that we're creating. But equally, we know that every time we add a premium ad unit, we don't want to always be adding a body against it. And so what we've started to do is work with a few different companies that have effectively marketplaces for video ad units of high-quality programmatic. And so when I referenced starting to put some of that inventory to work in these programmatic marketplaces where we can still get a $10 to $15 CPM, we think that is a really nice complement to our direct sales team.

Great. Thanks so much.

Thank you. Our next question comes from the line of Allen Klee of National Securities. Your line is open.

Yes. Hi. Last quarter, on the call, you gave a stat of how many monthly users -- the run rate or monthly -- and the number was, I think, around 275 million. I was wondering where that run rate is now?

Okay. So that was monthly active users. It was about 275,000 monthly active users. And we're seeing that number now kind of in the 400,000 to 500,000 range. So it continues to grow as the user base grows.

Okay. And the CPMs that you've been getting on average for this past quarter, did you say 10% to 15%? Or did you say specifically...?

10% to 15% is -- was the programmatic ad units that we're testing. I mean, we tend to see more in the 15% to 25% range, for the direct sales campaigns. And we've seen, in some cases, CPMs go as high as $40 to $50.

Okay. If I just …

15% to 25% direct sales is a good range.

…so it looks like if I did my math, that you sold out, maybe some number around 5% of your inventory in the current quarter. So the real question here, which is, I think, so important for the revenue opportunity ramp-up, is how you can get that number higher? And how we can think about the ramp of -- and I know you just mentioned, the video programmatic. But like is there a sense of how we can think about, how you can start selling out a much more, higher percentage of your inventory?

Absolutely. So one thing to remember is, not every viewer impression has an ad unit against it, right? So we talked about that a little bit on the last call. How you -- we are continuing to add more ad inventory, but we don't want to put an ad unit against every viewer impression. It would be a bad experience, for the players. But you're absolutely right, that right now, we're only really selling out about 25%, I would say, to 30% of our ad units. And a high-performing sales team would be selling out kind of 85% to 90%. Now -- so all these numbers are going to continue to be dynamic, right? Because since our last call we've added more ad inventory. So we want -- in an ideal state, we want to serve that high-quality CPM, we want to be selling out 80%, 85%, 90% of our available ad inventory, we want our ad inventory to continue to grow so that, that overall potential dollar value grows as well. And then we want repeat customers, shorter sales cycles, and bigger deal size.

Okay. And for your advertising revenue, is it -- for that segment, is any -- was any of the, amount that you said there also related to sponsorship?

Yes, advertising and sponsorship is all lumped together there. And that's really because, if you recall, when we -- in the early days, we would run our own programs. And then we would try to bring a sponsor in to kind of put their name across the top of it. But now more and more of our sponsorship opportunities have blended into advertising opportunities. So there's not really a big distinction there.

Okay. My last question is, in direct consumer, you mentioned, you're going to be rolling out some new type of things. Could you comment on that a little more?

Yes. So right now, when we introduced this notion of a micro transaction marketplace, specifically first in our owned and operated property called minehut.com, we just threw in a couple of items, that we thought would speak to power users of that website. And so the good news is, we did prove that, we could attract and sell, again, a growing basket size now an average of $11.33 a month, speaking to that kind of real narrow segment of that max user of the platform. So when I talk about what the advancements we're going to make for marketplace at the end of the month, we're calling it Marketplace 2.0 is, we're going to put in a lot more digital goods, that speak to a wider range of different segments, some our more casual players or maybe players who are coming more for the social aspects than the gameplay aspects of the platform. And so we're excited to see, if we can now put in front of a wider birth of players, things that can convert more people into wanting to put in their credit card and start paying.

Maybe one other thing I...

There can be things that are very -- have a real kind of product or experience benefit like, something that maybe expands your server side. So you can invite more friends into your private realm to play. It could be a way for you to back up your gameplay, so that you can save your different private worlds or realms. Or it could just be some of the things that are going to be in the next marketplace are just much more kind of social and entertainment related, different skins for your Avatar and things like that.

If I could ask one last question, sorry. On the subscription side, when could we potentially be thinking about, that as a revenue opportunity?

Yes. So part of Marketplace 2.0, we're looking at how we can create UX functionality, so that there is an option for people, especially with things like expanded server plans, and the ability to invite more friends, or with backup servers for it to be a recurring charge. And so that will be us kind of dipping our toe into a recurring revenue stream through that kind of monthly renewal of those features and benefits. And then, we still have aspirations, over time, to think about subscription that would be more related to premium content. So, not just your gameplay, but access to entertainment content, access maybe to an expansion of gamer tools for you to spin up your own tournaments. But that's still in our product roadmap.

Okay. Thank you very much.

Yes.

Thank you. [Operator Instructions] Our next question comes from the line of Carter Mansbach of Forte. Your line is open.

Hey, guys. Good afternoon.

Hey.

Hey. So I have two questions. One is there was a report today that ESPN was getting out of e-gaming, and I'm wondering what the effect that could have in a positive way on the company? And the second part is cash on hand. So I know there are people that have been concerned that the company is going to run out of cash in the next year or so. And maybe you guys would need to do a money raise. Can you address that, please?

Yes. So, what you see ESPN doing is very similar to where you saw a couple of years ago, Turner tried to kind of make a bet and invest in content for e-sports at the professional level. And so that only speaks to about 10,000 to 15,000 professionals around the world. And that's a very specific type of content. It's high cost, because you're bringing people into Madison Square Garden or Staples Center. It's big production, no different than like an NFL game. And certainly, in the wake of a pandemic, all types of big, live event entertainment, is on hold. We're operating at a very different part of the e-sports pyramid. We're about the mid-tier players and creators of content. So, when I talk about the tens of millions of gameplay hours running through our platform, that's gameplay that we have exclusive access to. By facilitating those tournaments, we can repackage and distribute that content in a lot of different ways to monetize it. And so, one of the ways I explained is, we have a set of social channels, some of the largest social channels on Instagram and Tiktok in the gaming category. This is where everyday gamers upload their own user-generated highlight reel. So it doesn't cost us anything. They upload it to us for free. We take that piece of content. We now own it. And we can both post it on those social channels to drive up our following and audience there for ad revenues. But then we can also repackage it and distribute it elsewhere. So when I mentioned that we've sold the 123 episodes to Snapchat, that's us repackaging that content and using it for other ways. In fact, we have a leading position, really a dominant position when it comes to amateur…

That's perfect answer. All right. So, one follow-up. Over the last two calls, I've now heard you mention Netflix and Snapchat. And I would like to know, do you think, as time goes on, and considering that you're so small and no one really knows the company that well. As the relationship grows with big companies like a Netflix or Snapchat, when you come out with press releases, can -- do you think they will, in time allow you to put their names in the release?

I know. It would be wonderful if they did. I mean, right now, you guys had asked earlier about bigger deals that we have. We do now have five deals that are over kind of $200,000. We have many deals in the pipeline over $100,000. So again, we like the direction and a lot of them are with these repeat customers, these big media companies. The reality is, is that we're still a drop in the bucket for their kind of annual spend when you look at it collectively from a content point of view. But that's when I talk about the bigger kind of strategic explorations I'm having with strategic partners. It's really about more than just, "Let us be an advertising platform for you." I think about it all the time, you think about what's happening with telcos right now? Well, telcos are either formally buying up media companies or they're creating pretty strategic partnerships with them. Why? Because content is king. And if they can get that content onto their devices, it creates more stickiness to their devices, to their consumer offerings. We're sitting on a massive amount of, not just gaming-related content, but gaming tools and gaming tournaments and things that really speak to where a lot of this younger audience of gamers want to spend their time. And I think that there's a lot of ways that we could show our value to some big strategic partners in a really different way. And whether that be media companies or other companies who are chasing this audience, I think what we have is valuable.

Okay. Great. Thanks guys so much for taking my questions.

Thank you. Our next question comes from Bill Morrison of National Securities. Your line is open.

Hi, guys. Thanks for taking my questions. A couple. We didn't hear anything much about the VSP. Is that still progressing? And what the revenue outlook look like there? And then on sales efficiency, you mentioned last time you expected to get to like 50% efficiency. So are you still expecting that? And do the sell-side platforms affect that? Or how do they affect that? Those are my questions. Thanks.

Yes. I mean, definitely, what we did talk about is, we didn't put out a bogey on the last call for where we would get to on the next quarter with sales efficiency. What we said is, look, we're probably at about 20%, 25% efficiency with this brand-new team, and we want that to grow and we believe that 80%, 85% is kind of best-in-class. You're never going to sell-out all your ad inventory. And that's just kind of a standard rule of thumb or benchmark that is used out there. So we continue -- again, the metrics that we can track are bigger deals and faster closing and selling out more and more of our ad inventory, but that ad inventory does continue to grow too. So that ball kind of keeps moving, so to speak. But certainly, I would say we've improved our sales efficiency without a doubt since last quarter as evidenced by the fact that we did two times plus in revenue.

Yes, no doubt. So how does -- how do the SSPs figure into that? Does that make that ratio lower? Or is that lower the target or...? Like, sell-side platforms…

Yes. I mean -- I think the sell-side platforms are -- as we've been now doing some of this programmatic testing, we've been again, careful to say, okay, let's really -- we have an ad products manager who really is figuring out where are the most valuable places, the most valuable views and impressions where we can add inventory first, what are the right pieces of ad inventory to offer up to some of those sell-side platforms versus preserving them for our direct sales because they're of higher value. And so I think we're doing a good job right now of building more video ad units. In fact, you'll see us creating in the product road map over the next couple of months, a specific video portal, where we'll be able to take all this content we're generating and drive more viewership to it, and that will give us more video ad units that we can push through those programmatic services and get that kind of $10 to $15 range. And again, still preserving the higher CPMs for our direct sales team's efforts. When you think about what we did for Netflix, when we were promoting them, it was much richer than just a video ad unit or a trailer. When kids come into minehut.com, they first are teleported into a virtual social lobby, where they run around and chat. They're not game playing yet. Well, we created kind of Easter egg hunt for them. We themed that lobby to that Netflix content that we were marketing. We also could extract sentiment out of the chat. That's like having a live focused group. And then we still -- when the kids were ready to go into their private realm, we still got to show them the trailer. So it's when you combine all of those other integrations, that's why we're able. It's such a deep authentic form of engagement. So, I think that's where we really wanted to have our direct sales effort focused on and then continue to create more programmatic video ad units that we can pump through these programmatic marketplaces and really, frankly, try to stay away from the kind of sub-$1 CPM banner ads and pop-ups that really are a real kind of turn off for the younger audience.

No doubt. So, just a follow-on on that. So, you expect like the vast majority of your ad revenues to be direct sales for the foreseeable future? Programmatic is not going to spike way higher?

Well, I mean, we'll see. I mean, the fact that the last call, it was Laura Martin from Needham, who said, hey, I think you could be doing more programmatic. And our concern has always been about ruining the experience. And what we don't want to see is after all the hard work to build this audience and community, start to see people move away from our platform. And so that did spark a set of conversations and this effort we've been making now on our product road map to add more quality video ad units. So, I'm hopeful that we'll be able to see programmatic, but still with that nice high CPM in 2021, be a more meaningful chunk. In that way, we don't have to keep adding workforce as our ad inventory growth. So, who knows what the balance will be next year, but I'm -- it's very promising.

Good, good. So, yes. So, I guess -- so just the -- like, midterm question is, when do you think your sales force efficiency would be at a place where you could generate like $1 million a month in revenue, roughly?

I'd be taking a total guess. I'd prefer not to just throw kind of a wild number out there. I mean, what I would tell you is, I mentioned that our ad inventory, if it were static, which it's not, last quarter, if we sold everything out, we could probably be doing about $10 million to $16 million in revenue per annum, if we kind of held it like a $20 average CPM. Now the ad inventory has grown since then. And we're selling more and more. So, we're not selling everything out, but it probably is about 50%. That's probably a decent kind of way to think about it. But, again, there's multiple variables to be considered here that would -- that have to translate into that $1 million a month, which is your question. So, you just -- you need to see us, again, closing deals faster, size of deals getting bigger, keeping, preserving that nice premium CPM and I do think overall, pipeline health. If you -- we continue to see the pipeline stay nice and healthy in that $5 million range, that's a good indicator as well.

Cool. Great. And then last question on the video production booth. How is that going?

Yes. I mean, it's interesting. We've been doing -- we didn't play it up too much in the script, but we have been higher to do some things that we were using those use cases to show the flexibility of it. We recently did an award show using the broadcast technology. We are in -- continue to be in conversations with other uses like game shows and talk shows and so we're excited. We continue to further productize the tool kit. Think of it as almost like a fully remote virtual production studio that has a kind of a cloud-based master controller. So, you can run a high-end quality live stream broadcast all off your laptop. And you can be patching in talent and overlaying graphics and sounds and doing all the cool stuff that usually those big expensive physical studios would do. And because we've solved for it with gaming that's so complex that we know that, there are others who might be interested in using this for other types of programming. So, we continue to think that, that could, over time, become another kind of side revenue stream when people maybe want to start licensing that product from us. But its early days, and we think the most important thing we can do is, first, show off those use cases and use that as a way to see if there's a real market of interest for us.

Great. Thank you, very much. I appreciate it. Good luck.

Thank you. At this time, this concludes our question-and-answer session. I would like to turn the call back over to Ms. Ann for closing remarks.

Thank you. We'd like to thank everyone for listening to today's call. We look forward to speaking with you at upcoming conferences, and when we report our fourth quarter results early next year. And most importantly, we wish you all a very happy and safe fourth quarter and holiday season. Take care.

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