Engine Gaming and Media, Inc. Price & Performance (GAME)

I'm pleased to announce GameSquare delivered strong Q3 financial results were in line with our preannouncement and reflect the strategies underway to drive organic sales growth, complete the integration of our recent acquisitions and build a profitable organization. On a pro form a basis, revenue increased 10% year over year a 3rd quarter record of 26,400,000 dollars Revenue growth during the 3rd quarter reflects the continued success of the growth strategies we are pursuing and improving market dynamics compared to the same period last year. I'm also encouraged by the significant improvements we are making to profitability adjusted EBITDA for the Q3 exceeding our initial expectations. Our quarterly adjusted EBITDA was a loss of 2 point 1,000,000 For the 20243rd quarter, compared to a loss of $5,400,000 for the 2nd quarter a pro form a loss of 7.9 for the 1st quarter. Continued sequential improvement in adjusted EBITDA demonstrates the success of our ongoing efforts to grow revenue, increase gross margin and reduce operating expenses. Our financial model is approaching an important inflection point and we expect our adjusted EBITDA to continue to improve during the Q4 as we position GameSquare for profitability in 2025 and beyond. As we have stated on prior calls, our operating plan for 2024 has focused on 3 main components. 1st, to complete the integration of Face Clan Acquisition, and significantly reduce our cost structure. 2nd, to strengthen our balance sheet and divest non core assets, and 3rd, to leverage our platform of Oden operated IP agency and media and SaaS technology assets to drive profitable growth.

I believe our 3rd quarter results demonstrate the progress we are making executing against this plan. As a reminder, in March 2024, we completed the acquisition of Face Clan and an all stock transaction valued at $14,000,000 Phase Clan is comprised of 2 assets Phase Esports which is one of the world's best and most recognized esports organizations and Faze Media, which we regard as the largest followed gaming brand in the world. As part of our strategy for the FaZe Clan acquisition, we understood that in order for FaZe Media to be successful, FaZe's founders and creators must be at the helm an ownership stake in the organization, and be empowered with creative direction. As a result, we have completed 3 important transactions at [indiscernible] to align GameSquare, Fazemet's founders and other key stakeholders around a plan to return the brand back to its roots and reboot Phase Media for success in 2024 and beyond. First in May, we formed Phase Media as a separate standalone entity that combines the Phase creator talent roster and non eSports assets into a creator led IP and Internet media company under the leadership of CEO, FaZe Banc, an original Face Clan Founder.

We simultaneously closed an $11,000,000 investment in Face Media from Matt Kalish, a founder of DraftKings, who now serves on the Board of FaZe Media. 2nd, in June, we agreed to sell a 25.5 percent interest in Phase Media an entity controlled by Phase Media CEO of Phase Bax. Under the terms of the transaction, Gains Square retained voting control of the transferred shares a period of 2 years during which FaZe Media will continue to be consolidated into GameSquare financial statements. Finally, today, we announced a new $10,000,000 convertible note with Giga Moon Media, an entity controlled by Matt Kalish. Under the terms of the transaction, the conversion date is December 31, 2025 at which time the note at GIGA is election will convert into either shares of GameSquare common stock a conversion price of $2.50 per share, or 5 point 725,000,000 shares of Phase Media Series A1 preferred stock beneficially owned by GameSquare. If GIGAMON elects to convert the note into the remaining shares of Faced Media, it would value the entity at approximately $44,000,000 compared to GameSquare current market cap of approximately 32,000,000 dollars We believe this transaction a huge win for GameSquare for Kailesh and for FaZe Media.

The transaction aligns with our operating strategy optimizing our business model and raising non diluted capital. Also deepens the alignment between GameSquare, Kailesh and other strategic investors while supporting Face Banks' vision for the future of Face Media. We will use a portion of the new capital to pay down our existing equity line facility with funds managed by Yorkville. While increasing our cash position to take advantage of opportunities and accelerate revenue growth in the Q4 and beyond. In addition, we believe these transactions create the proper infrastructure for Phase Media to be successful Phase Media now truly is a creator led IP and media company supported by the leadership expertise of Matt Kaylis and full resources of GameSquare. When we acquired PhaseClay, the brand was suffering from significant losses declining community engagement and no clear strategic direction. I'm extremely proud of our efforts to turn around BaseCo's performance and bring the brand back to life. This is a direct result of the return and hard work of the founders under the leadership of CEO of Base Banks, the strength of GameSquare platform our history with and knowledge of the brand and most importantly our belief is managed correctly, face and reengage with an extremely committed community and lead to monetization opportunities in the coming months quarters.

I'd like to use this opportunity to thank everyone in GameSquare Endplays for hard work and dedication over the past 3 quarters. Since FaZe Media's reboot in April 20 24, the reengagement of the community has been fantastic. In addition to the statistics I shared on our last conference call, we recently announced [indiscernible] in September of 'twenty 4. The month long subathon was FaceTime's first major streaming event since the brand's reboot showcasing the successful return of Face Clan and its new creator roster. Some of the highlights include over 1,100,000,000 impressions More than 760,000,000 video views and over 47,000,000 engagements setting new records at FaZe Clan's event today The event averaged 52,600 concurrent viewers peaked at 132,200,000 and garnered 2,200,000,000 minutes watched with 257,000,000 total views. Finally, FaceTime added over 300,000 new Twitch subscribers as well as 350,000 total subscribers across all participating channels. In fact, Faze is the number one brand by minutes watched on Twitch during the month of September. Driving engagement with Faiza's community is an important indicator of future growth As engagement helps support a robust pipeline of brand deals and future monetization opportunities. We continue to see a larger number of multiple 7 figure deals enter our pipeline.

Which are expected to convert to partnerships in 202425. In addition to Gamesco's ownership in voting control and face media, we continue to own 100% of Faze Esports. As one of the top esports organizations in the world, we believe there is enormous opportunity to profitably grow FaZe esports. We're following a similar strategy that successfully grew our former esports team by over 2 20% in just 2 years. For the Q3, FaZe esports had revenue of $4,800,000 and contributed positive adjusted EBITDA We are also focused on driving efficiencies and reducing costs at Baysmedia and Bays Esports. When comparing the Q3 of 20242023, we have removed approximately $17,000,000 of annualized costs and believe there are opportunities to remove additional costs during the 2024 Q4. With a more efficient operating model and a more disciplined management structure, we believe there are a lot of opportunities to drive profitable growth at Fazemetia and FaZe esports, especially as each business scales. Our 3rd quarter adjusted EBITDA demonstrates the continued improvements we are making and the benefits of our integration strategy. The component of our plan in 2024 want to review today are the opportunities we are pursuing across our owned and operated IP Agency and Media and SaaS and Technology assets to grow and improve profitability.

Overall, we are seeing trends continue to strengthen and through the 1st 9 months of the year, we have increased the number of customers on We've grown our average contract value by 46% more than triple the number of UEF and well building campaigns deployed and achieved record monthly contract wins in August of 'twenty 4. Highlights during the Q3 for Faze Media and Esports include a multi year, multimillion dollar [indiscernible] a new multiyear, multimillion dollar sponsorship and licensing deal with G Fuel, and FAZE Esports' largest ever tournament winings the inaugural Esports World Cup, which was held in Saudi Arabia during July August. Within our media business, we announced multiple new projects during the quarter, including campaigns for Topgolf, [indiscernible] and a new and already growing relationship with 1 of the big 5 entertainment studios. We are also seeing favorable trends with in our Events business, we are kicking off our partnership with the NFL to launch a new traveling creator series called NFL For the Fans Light. This innovative series blends the excitement of NFL fandom on game day with interactive gaming, and creative driven content accessible for in person and online audience during the 2024 NFL season.

Finally, in the rapidly evolving landscape of gaming and influencer marketing, we continue to evolve our SaaS and technology offerings. Focusing on the integration of data and insights with our creator, management and activation platform. This strategic approach is designed to provide game publishers and brands with a comprehensive solution set to effectively target audience audiences and optimize revenue performance. Central to this development is our influencer CRM tool, which has been refined to meet the specific needs of our customers in allowing them to engage meaningfully with with their most value commercial channel influences. This capability will enhance our differentiated position in the influencer marketing space In October, Stream Hatchet, our streaming analytics and business intelligence platform launched an AI powered influencer discovery tool, designed to redefine how brands identify and connect with creators. This AI powered solution marked a significant breakthrough influencer marketing using proprietary algorithms, to sift through data on over 15,000,000 creators to find the most aligned partners for brand campaigns. We have launched this product [indiscernible] with a customer that operates one of the largest online mobile GameSquare we have seen interest grow quickly from other game publishers as well as brands and creators. As we look to the Q4 and beyond, are excited by the direction we are headed.

And positive momentum is growing across our business as more brands recognize the value of our next generation media platform. Our interconnected media, creative and technology [indiscernible] continue to provide brands with best in class solutions to connect and engage with youth audiences at scale. We expect to end 2024 with record revenue a record backlog of committed revenue, a higher number of customers on retainer and a growing pipeline. As a result, we believe 2025 will be a strong year of growth and significantly improved profitability. So with this overview, I'd like to turn the call over to Mike to review our Q3 financial results. [indiscernible] Thanks, Justin. As a reminder, 20 24's financial results include multiple corporate actions. Most significantly the March 7, 2024 acquisition of Face Clan and the March 1, 2024 sale of Complexity Gaming, which has been treated as a discontinued operation in our 2024 and 2023 year to date results. We also further divested non core assets during the year on May 31, 2024. As a result, we believe it is best to look at our business on a pro form a basis which includes a full year to date contribution of Baseclamp. Comparing our 20243rd quarter results to the prior year pro form a results, dollars dollars compared to 24,000,000 dollars The 10% year over year increase in revenue was primarily due to growth from our agency and media business Owning Operated IP segment.

Gross margin for the 20243rd quarter $5,200,000 or 19.8 percent of sales compared to 3,400,000 or 14% of sales on a pro form a basis for the same period last year.

We expect gross margin to improve going forward supported by a more profitable revenue mix in the Q4 and additional actions underway to improve gross margin.

As Justin mentioned, we have made significant strides in improving our operating cash burn figures over the last 12 months. Adjusted EBITDA loss for the 2024 Q3 amounted to 2 point 1,000,000 compared to a loss of 10,400,000 on a pro form a basis last year. As a percentage of revenue, our adjusted EBITDA loss improved from a negative 43 point for the pro form a 2023 3rd quarter to a negative 8.2% for the 20243rd quarter. When comparing the Q3 of 20242023 results of Phase 1, the company has removed approximately $17,000,000 of annualized costs and expects to remove additional costs during the Q4 of 2024. This overview, I'll turn the call back over to Justin. Thanks, Mark. Before we open the call up to questions, I want to review our expectations for the remainder of the year. After solid 9 months, we believe we are extremely well positioned to achieve between $105,000,000 $110,000,000 in annual revenue. As I mentioned earlier, we ended the 20243rd quarter with a record backlog of committed revenue a higher number of customers on retainer and a growing pipeline, which we believe provides us with good visibility into 2025. As a result, we believe 2025 will be a strong year of revenue growth and significantly improved profitability.

As we improve our cash burn and approach profitability, we have made additional strides to strengthen our balance sheet. At September 30, 2024, we had over $11,000,000 in cash that balance sheet, and added an additional $10,000,000 of cash through today's announcement of the convertible note, As a result, we have the flexibility to pay down our existing equity facility and take advantage of opportunities to accelerate revenue growth in the Q4 and beyond. 2024 is shaping up to be a transformative year for Gamesquare We believe that we are well positioned to show further sales growth and significantly improved profitability 2025. And with this overview, Lou, Mike and I are happy to take questions. Operator, please open up the call to questions. Thank you.

We will now begin the question and answer session.

Our first question comes from Jack [indiscernible] with Maxim Group. Please go ahead. Hey, that's pretty good. Hey, guys. Congrats on the results.

Great to see the strength.

I have a couple maybe just a couple of questions here.

Can you speak a bit further into the record backlog you mentioned? Kind of like what type of revenues does this include? And And sir, just get a sense of the margin profile as you guys make make strides to increase that gross margin overall? Thanks. Yes, absolutely. I can kick off there and Mike, Lou, feel free to add any color. Jack, I think what's most pleasing is A lot of the revenue growth that we're seeing, a lot of these longer term sort of multiyear deals are coming from sort of growth in our agency business which was a big contributor to that sort of 46% average contract size increasing and the higher retainer revenue. What is most sort of pleasing about this, these sort of multiyear 7 figure deals to your point Jack around margin is that they are higher in margin. I think that you'll continue to see margin expand. Q2 there was a sort of higher than expected programmatic revenue quarter what we're starting to see, and I think you'll see more so into Q4 and specifically into 2025 is continued growth of our SaaS business, which is really high margin and growth of our agency business, which again, we've really gone from, I think over the past 2 years competing for the RFPs into building long term relationships.

And now we're a lot more selective with who we're working with. We named some of the the clients sort of earlier in the call, but incredible clients that we're expanding our offerings with and getting more strategic with and certainly expanding margins. So expect margins to expand. I'd say that a lot of that growth is coming from that. Sort of agency segment of the business? Excellent. That's helpful color. And then I think it was in August you guys put that press release out that was very encouraging about I think there was like $15,000,000 or so of new revenue kind of in sponsorship and licensing deals you guys over multiple years obviously. Just give us a sense like is this just the tip of the iceberg?

I mean how does that kind of compare to what you're expecting to kind of bring in, in terms of additional licensing and sponsorship deals As you guys continue on this path here of getting momentum, how does that $15,000,000 or so that was kind of acquired in the month of August How does that compare to where you guys are heading, I guess, just to give us a sense [indiscernible] We certainly believe that it is Jackwood. Think what we're most sort of pleased with and excited about certainly this year as we talked about, it's been very transformative for us as a business.

And it's been a lot of heavy lifting on sort of integrating Face Clan and pulling out out costs. What I think has been the most pleasing is really the organic growth of the sort of SaaS business and the agency business while we've been doing the phase cleanup. So I think it really is the flood gates are starting to open, to be really frank. With you. I sort of said this last year and It's really true in the fact that we went through a pretty tough time into the brand and ad markets and there were budgets shrinking. And I think currently we're seeing the opposite. I think a lot of the hand holding we were doing and I give our team a huge amount of credit for this is these weren't lost clients. These were budgets that were shifting to later quarters and we're starting to see the benefit there. And look, I think that the reality is that we talked about 1 of the biggest studios that we're with. I think the opportunity that we have to expand with our current customer base rather than going out and fighting to try to win [indiscernible] is enormous.

So we're getting expanded budgets from these really large clients because we're executing and that's really pleasing. So that's one I think another one is Epic Games, we continue to deliver for Epic where helping them activate a lot of their large cultural moments Super Bowl, TwitchCon, tonight a few we have event this weekend in Vegas. We're doing a lot of their live event work. A lot of their strategy work working a lot more closely with their mobile team now. So [indiscernible] We expect a huge amount of organic growth in 2025. Pipeline stronger than ever, but I think pipeline is easy to say, right? I think what's the most pleasing for us is we're executing, we're expanding clients and we're going to kick off 2025 with more sort of locked in recurring revenue than ever before, so we're in good shape.

Okay, fantastic to hear. I think that does it for me. Great work guys. I appreciate it. I'll hop back in the queue. The next question comes from Greg Gibas with Northland Securities. Please go ahead.

Hey, great.

Afternoon, Justin, Lou and Mike. Thanks for taking the questions and congrats on the quarter. Really nice with the additional cost savings that you're seeing in reductions there. You mentioned seeing additional opportunity for cost reductions in Q4. Wondering if you could maybe expand on these opportunities you see and you able to quantify them in any Yes. I mean, I think, Greg, it's just continued efficiencies. I think a lot of the sort of initial cleanup of phase, there's still some sort of continued cleanup. Obviously, when you come in and you integrate any asset it takes a while, right? There's some there's some clearer maybe resource or contracts that you can eliminate sooner, but there's certainly runoff and there's areas as you learn to integrate different systems and find greater efficiency. So I think We identified when we acquired Phase we sort of publicly came out and said we can see around $80,000,000 of costs You can see we've achieved that on an annual basis. Looking at the Q2 and Q3 numbers, There's actually more and I think they're more so coming down to efficiencies rather than anything else. So I think You'll see continued improvement. I think the reality is, Greg, that cost improvement is not going to be at the same rate as it was in Q2 or Q3.

So I'm not I won't give you sort of an exact number, but I wouldn't expect that to be at the same level. Of cost improvement. But we certainly think that there's some further cost efficiencies What I would say is profitability comes from From here for us, because I think that we've done everything we said we would do on the cost side. Profitability really comes from increased revenue and increased margin. I think that if you look at again Q2, Higher than expected revenue quarter, that's great. But a lot of that sort of additional revenue did come from the programmatic area, which is lower margin. What we're expecting in Q4 and certainly into 2025 is a lot of that growth in revenue is coming from our higher margin areas of business. So will see improved costs, it won't be at the same rate as Q3. Q4, there will be some continued sort of runoff of contracts and and resources on the phase side, but I think a lot more on [indiscernible] I do think we're getting to a really healthy level of sort of operating leverage. I think the reality is that we have the key pieces in place at the business and like I talked about before, expanding these current clients is not costing us the same level per dollar as it is to really create operating leverage and drive additional revenue, right?

Like we're seeing 6 figure and in some cases low 7 figure deals translate to high 7 figure deals and in some cases some opportunities to even expand to 8 figure deals and that's not we don't need to go and hire The same percentage of sort of headcount to ex execute on those projects?

Great.

That's helpful, Justin. And just regarding the record backlog and growing pipeline, obviously, great to see. And I could maybe follow-up on the first question I think you guys were asked. Those larger number of 7 figure deals that are entering the pipeline, What segments or categories are you seeing them in It sounds like you mentioned strength in the agency business, But just wondering if you could maybe provide any more specifics on new deals entering the pipeline? Thanks.

Yes, absolutely. I think it's a really healthy mix across the business. To be really frank. I think that on the face side, the Esports business we have some really exciting opportunities. I think there'll be some really positive news coming out of that world really soon. I think the phased media saw we touched on the reality is that for part of this year, we we blacked out our social channels, which have access to huge audience and [indiscernible] And there was a bit of a cooling off period. And we've come back and I think the subathon in September just showed the true power in that brand and that's now resonating into we signed G Fuel and DraftKings and we've got a really sort of large and active pipeline on that side as well. So the agency business certainly getting a lot more inbound and I think again, I kind of covered off on this a little bit, but like what again is really pleasing for us [indiscernible] the way that we are expanding budget with our existing clients and these clients are large and I think there's opportunity to expand even further. And then I think, Greg, if you have a look at even into sort of segment 1, the SaaS business is really healthy.

We're getting to scale We're growing that as high margin business. But we have within there 9 of the top 10 game publishers as clients Currently, we're providing agency event or content services for probably 3 of those 9. So I think there's a huge opportunity for us to continue to execute and cross sell and up sell within the group. And that's certainly something we'll be focused on in 2025. So it is a really healthy mix across the group and yes, expect to sort of be getting out some pretty positive news to market soon because our again, I know it's easy to talk to pipeline and obviously you need to execute, but we're going to be kicking off 2025 a really good position.

Great. Appreciate the color. I'll pass it on.

This concludes our question and answer session. I would like to turn the conference back over to Justin Kenna for any closing remarks.

Yes. Thank you, Vlad. And as always, thank you everyone for joining and the continued support It really is greatly appreciated. I think it's certainly been a challenging year from a macro standpoint. Again, I'm extremely pleased with the way we've been able to navigate that. Way our teams have been able to put their head down and really execute I feel extremely bullish about the position that we're in closing out the year really strongly and entering 20 25 and a period of time that I really believe is a major inflection point for us as a business and that is going from ultra growth and cleanup mode to really generating cash I think that that is going to be an inflection point for us. And we look forward to getting the credit and the appreciation from the market as we continue to [indiscernible] thank you everyone for joining. We feel really bullish about where the company is at and sort of our path forward here. So thanks again for the support and really looking forward to updating everyone on Q4 as we continue to execute. This brings to a close the GameSquare Holdings 20 now disconnect your lines.

Thank you for participating and have a pleasant day.