GAME - NASDAQ

Good afternoon, and thank you for joining us for the GameSquare Holdings 2024 Third Quarter Conference Call. On the call today, we have Justin Kenna, GameSquare's CEO; Lou Schwartz, President; and Mike Munoz, CFO. During the call, all participants are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. Before management discusses the results, I'd like to remind everyone that certain statements in this call may be forward-looking in nature. These include statements involving known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied in our forward-looking statements. For information about forward-looking statements and risk factors, please see our 10-Q for the quarter ended September 30, 2024, which will be available on the company's website or with the Securities and Exchange Commission. I will now turn the call over to GameSquare's CEO, Justin Kenna. Justin, you may proceed.

Thank you, and good afternoon to everyone joining us on today's call. I'm pleased to announce GameSquare delivered strong third quarter financial results that 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 forma basis, revenue increased 10% year-over-year to a third quarter record of $26.4 million. Revenue growth during the third 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, with adjusted EBITDA for the third quarter exceeding our initial expectations. Our quarterly adjusted EBITDA was a loss of $2.2 million for the 2024 third quarter compared to a loss of $5.4 million for the second quarter and a pro forma loss of $7.9 million for the first quarter. And 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 fourth quarter 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 three main components: first, to complete the integration of Fa

Thanks, Justin. As a reminder, 2024 financial results include multiple corporate actions. Most significantly, the March 7, 2024 acquisition of Fa

Thanks, Mike. 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 million and $110 million in annual revenue. As I mentioned earlier, we ended the 2024 third 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 million in cash on our balance sheet and added an additional $10 million of cash through today's announcement of the convertible note. As a result, we have the flexibility to pay down our existing equity line facility and take advantage of opportunities to accelerate revenue growth in the fourth quarter and beyond. 2024 is shaping up to be a transformative year for GameSquare, and we believe that we are well positioned to show further sales growth and significantly improved profitability in 2025. So 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. [Operator Instructions] Our first question comes from Jack Vander Aarde with Maxim Group. Please go ahead.

Hey. That's pretty good. 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? Just kind of like what type of revenues does this include? And sort of just get a sense of the margin profile as you guys make strides to increase that gross margin overall. Thanks.

Yeah, absolutely. I can kick off there. Mike, Lou, feel free to add any color. Jack, I think most pleasing is a lot of the revenue growth that we're seeing in 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 in the higher retainer revenue. What is most sort of pleasing about this is 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. And 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 two 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 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 we 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 million 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? Just how does that $15 million 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? Thanks.

Yeah. We certainly believe that it is, Jack. I think what we're most sort of pleased with, excited about, certainly, this year, as we talked to, has been very transformative for us as a business. And there's been a lot of heavy lifting on sort of integrating Fa

Okay, fantastic. I think that’s it for me. Great work, guys. Appreciate it. I’ll hop back in queue.

The next question comes from Greg Gibas with Northland Securities. Please go ahead.

Okay. Great. Good afternoon Justin and Mike. Thanks for taking the question and congrats on the quarter. Really nice with the additional cost savings that you're seeing and reductions there. You mentioned seeing additional opportunity for cost reductions in Q4. Wondering if you could maybe expand on the opportunities you see? And are you able to quantify them in any way?

Yeah. I mean, I think, Greg, it's just continued efficiencies. I think a lot of the sort of initial cleanup of Fa

Great. That's helpful, Justin. And just regarding the record backlog and current 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 those new deals entering the pipeline. Thanks.

Yeah, absolutely. I think it's a really healthy mix across the business, to be really frank. I think that on the Fa

Great. Appreciate the color. I’ll pass on.

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

Yeah. Thank you, Dan. And as always, thank you to 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. But again, I'm extremely pleased with the way we've been able to navigate that, the 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 2025 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. And I think that, that is going to be an inflection point for us. And we look forward to getting the credit and appreciation from the market as we continue to execute. So thank you, everyone, for joining. We feel really bullish about where the company is at and sort of our path forward is. So thanks again for the support. And we're really looking forward to updating everyone on Q4 as we continue to execute. Thanks.