GAME - NASDAQ

Good afternoon and thank you for joining us for the GameSquare Holdings 2025 First 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. During 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 refer to our 10-Q for the year ended March 31st, 2025, 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, please go ahead.

Thank you and good afternoon to everyone joining us on today's call. Our first quarter results reflect steady progress as we continue to optimize our platform with the goal of achieving profitability and positive cash flow in 2025. Results were in line with expectations and were shaped by seasonal trends, low programmatic advertising revenue and the final quarter of Fa

Thanks, Justin. We believe it's best to compare our reported Q1 2025 financial results to our Q1 2024 pro forma results, which removes complexity from GameSquare's financial statements and includes a full quarter contribution of Fa

Thanks, Mike. Our first quarter financial results were in line with expectations and we remain confident in our 2025 outlook. We continue to project pro forma annual revenue of at least $100 million in 2025. Achieving profitability remains essential focus of our 2025 strategy. We continue to target full year gross margin of approximately 20% to 25% and operating expenses around $20 million. Our first quarter results clearly demonstrate the operational progress we're making and we are actively pursuing opportunities to accelerate our path to profitability. As we've noted previously, our business typically sees approximately 60% of annual sales in the second half of the year. As such, we expect seasonality to influence both revenue and profitability in the coming quarters. That said, we are already seeing sequential trends in Q2 to improve further. Based on our current trajectory, we expect to achieve positive cash flow and adjusted EBITDA in the second half of 2025. Two critical milestones in our transformation. We look forward to keeping you updated on our continued progress throughout the year. So with this overview Lou, Mike and I are happy to take your questions. Operator, please open the call to questions. Thank you.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] First question comes from Greg Gibas with Northland Securities. Please go ahead.

Hey, good afternoon, Justin, Lou, Mike. Thanks for taking the questions. Congrats on the quarter and congrats on the expanded relationship with Paramount. Wondering if you could maybe elaborate on the development plan with Spongebob and kind of the general structure of that arrangement?

Yes, I can kick off here for sure. Yes, we're really excited. We actually -- our agency team with Paramount in New York this week and they had a fun dinner altogether last night and very excited about what we're building there. We've been working with Paramount now for some time. We help them with sort of the marketing and growth of Teenage Mutant Ninja Turtles into Fortnite last year, which we talked about, which was really exciting and obviously been working on a number of games with them, with Spongebob and so forth. And this is the next step. I think we've done a really good job, and we've gone, we've moved from being paid to sort of build and market to actually co-owning and driving revenue together. So really exciting. The agreement is a two-year contract. Three games minimum per year. So we're very excited. We've got one in the works for summer that in the coming months, you'll see one out in market, which we're really excited about and really looking to maximize profitability on that and very likely, we'll be launching in Fortnite Mobile, which is really exciting. So, yes, two-year contract, minimum three games per year, option to make up to eight games per year and a number that are in the works already. So you'll see the launch of our first game in the coming months here.

Great. That's helpful, Justin. And if I could follow up, I think you mentioned sequential trends improving in Q2. Just wondering if you could maybe provide some color on what business units you're seeing positive momentum with?

Yes, for sure. I think we expect the most improvement in Q3 and Q4. I think seasonality, generally in the back half of the year, we see bigger pick up. Our pipeline is really strong. We've got deals closing and I think you'll start to see that in Q2 and certainly full impact into Q3 and Q4, which we're excited about. Also in Q3 we've got -- early in Q3, we've got a few exciting things happening with the Esports World Cup, which we've talked about prior with a $60 million of prize money up for grabs and we've got a number of teams going and competing in Riyadh there and so forth. But I think what you'll see in Q2 is continued margin improvement. We did talk about, obviously, in Q1, is the last quarter that Fa

Hey, that's great to hear and really helpful. I'll pass it on.

[Operator Instructions] Since, there are no more questions, this concludes the question-and-answer session. I would like to turn the conference back over to Justin Kenna for any closing remarks. Please go ahead.

Thanks so much. We tried to keep today a little shorter and more to the point, given that we obviously had our year-end and Q4 earnings call less than a couple of weeks ago. So good to connect again. Thank you, everybody, for making the time. We're certainly pleased with progress. There's work still to be done. We make no secret out of the fact, that getting to profitability is our goal and we have a really clear plan to get there. So we're on track for that in the back half of the year and we certainly expect to get a sort of rerating here in the market with that continued improvement. So we're looking to drive value for shareholders and we're very appreciative of the continued support. So thanks for dialing in and certainly looking forward to catching up on and giving everyone progress into Q2 and how we're tracking on profitability into the back half of the year. Thanks all.