Good afternoon, and thank you for joining us for the GameSquare Holdings 2024 First Quarter Conference Call. On the call today, we have Justin Kenna, GameSquare's CEO; Lou Schwartz, President; and Mike Munoz CFO. [Operator Instructions].

Before management discusses the results, I'd like to remind everyone that certain statements on 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 March 31, 2024, which is available on the company's website or with the Securities and Exchange Commission. I would now like to 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. I'm extremely excited to review the progress we're making at GameSquare as we pursue strategic priorities aimed at creating a fast-growing, highly profitable next-generation media business.

Activity across our business is extremely high, and we're making significant progress optimizing our business model, investing in long-term growth and improving profitability. While we still have work to do, we believe our pro forma results demonstrate the meaningful accomplishments we are making to create lasting value for our shareholders.

With all the actions we've taken over the past 1.5 years or a year's time today to review our recent M&A activities, our vision for FaZe Clan, the progress we are making, reducing costs and the go-forward strategies that we're pursuing to drive profitable growth.

I'll then turn the call over to Mike, who will review our first quarter results in more detail. As a reminder, in December 2023, we completed the $3.4 million sale of Frankly's noncore radio business assets.

In March 2024, we completed a $10.4 million sale of Complexity Gaming and also in March of 2024, we completed the all-stock acquisition of FaZe Clan that was valued at approximately $14 million.

In addition, we recently sold 49% of FaZe Media for $11 million, allowing us to retain voting control and continue consolidating FaZe Media's results in our financial statements. The vast majority of FaZe Clan's historic burn has been associated with the assets of FaZe Media.

So this new capital will support FaZe Media and position the combined business with profitability in the coming quarters. To summarize these recent actions, we brought in $25 million of new capital and acquired the largest esports organization in the world for $14 million in stock.

As a result, we believe that we have significantly enhanced our business with best-in-class assets. Replacing Complexity with FaZe Clan is an important component of our growth strategy. Under GameSquare's only share Complexity increased sales by over 220% in 2021 to 2023, reflecting our success rapidly growing sales of an esports organization.

Since I joined GameSquare as CEO at the start of 2021, our strategy has been focused on developing a broader platform to pursue large market opportunities that produce greater value for GameSquare as well as our brand partners.

We believe FaZe Clan allows us to quickly benefit from a broader business model as FaZe Clan already has established esports and media assets. FaZe Clan across its owned and operated social accounts adds over 35 million direct followers compared to approximately 1 million at Complexity.

With a significantly larger direct following, FaZe Clan is better positioned to add new brands and partners to the GameSquare's ecosystem, which supports our interconnected strategy and accelerate our path to reaching scale.

The FaZe Clan acquisition also adds 1 of the world's best and most recognized esports organizations, which includes the #1 globally ranked counterstrike team. In addition, FaZe Clan was one of the select number of esports teams invited to participate in this summer's eSports World Cup.

This is the premier esports tournament featuring 1 of the largest price pool in the history of professional esports. Whilst FaZe Clan has a leading esports organization, as a stand-alone business, they lack the experience in monetizing their teams and they don't have dedicated assets to optimize their revenue.

GameSquare's platform, on the other hand, has experienced developing revenue opportunities just like our success at Complexity. As a result, over the coming quarters, we are going to leverage our experience and resources to accelerate the growth of FaZe esports.

It includes a dedicated sales infrastructure to the esports industry that is focused on monetizing direct partnerships, sponsorships, developing events and creating new merchandising opportunities.

As you can see, we have significantly upgraded our platform with the addition of FaZe esports, and we expect to see accelerating revenue growth for this business segment in the coming quarters as we leverage our proven monetization strategies.

The next topic I want to review today is last week's announcement of the formation of FaZe Media and the strategic investment from Matt Kalish, the founder of DraftKings. I'm extremely excited to welcome Matt to GameSquare and FaZe Media.

As a strategic investor, Matt has a proven track record, incredible networks, he understands the creator economy and media businesses as well as anyone. His $11 million investment is for a 49% interest in FaZe Media. With a controlling interest GameSquare's 51% ownership means that FaZe Media's financials will be consolidated in our financial results.

In addition, GameSquare owns 100% of FaZe esports. Most importantly, mass investment in FaZe media reflects its confidence in the leadership and creative talent of FaZe Banks as well as that of the FaZe founders and creative roster. It also reflects it's confidence in GameSquare's leading capabilities and the platform that we are creating.

FaZe Media includes revenue from content creation, talent management and brand licensing that in 2023 represented approximately $30 million of FaZe Clan's overall revenue.

While FaZe Media has an established base of revenue, we believe the business was previously impacted by a growth in cost structure underinvestment and ineffective strategies, we didn't properly understand the appeal of the brand and our fits into the evolving gaming community.

As a result, the vast majority of FaZe Clan's historic burn was from FaZe Media. Over the near term, there are 3 important strategies we are pursuing that we believe will improve FaZe Media's performance and create the proper infrastructure to drive its long-term success.

Our third strategy is to control and eliminate costs to quickly reduce FaZe Media's cash burn. Even before we completed the acquisition in March, FaZe was reducing head count and working on initiatives to consult costs.

Under GameSquare's ownership, we believe that there are $80 million from annual cost synergies as a result of the FaZe acquisition and expect the majority of these savings to be realized during the 2024 second and third quarters.

Over the near term, we expect to benefit from removing expenses associated with redundant corporate overhead, head count reductions and optimizing vendor agreements.

With that $11 million investment in FaZe Media, we have brought in a strategic investor to fully fund the business, investing its growth and get FaZe Media on a clear path to profitability.

We are also leveraging GameSquare's experience to provide the proper structure and leadership to effectively manage FaZe's talent and ensure that every dollar we spend generates a return. Our second priority is focused on creating a proper platform to maximize FaZe Media's revenue opportunity.

The critical components to our strategy was returning FaZe's founders back to the brand that they created to not only reengage with their existing fan base but to reestablish the brand's authenticity and increase their community engagement.

As a result, FaZe Media has welcomed back FaZe Bank as CEO, FaZe Apex as COO; and by FaZe Temperrr as President. Matt and I will also serve on the board of FaZe Media, providing another level of oversight and guidance for FaZe Media.

On April 27, 2024, FaZe rebooted its brand and I'm thrilled to report that the relaunch experienced unprecedented engagement across social media platforms and was the #1 trending topic on X or be known as Twitter in the U.S. And this also should be noted beat out the NFL draft going on at the same time.

In addition, FaZe Clan's search interest was the strongest a brand has experienced on YouTube since May of 2020 and on Google since May of 2019, and was estimated to have over 350 million social media impressions.

The Internet and gaming community is excited by FaZe Bank's return and the steps he has taken to relaunch the brand and refresh the talent roster. As you can see, the FaZe brand continues to captivate audiences and drive engagement.

In fact, FaZe Clan has over 230 million aggregate followers across FaZe and Talent socials, which includes the $35 million directs that we mentioned before. The final priority we are pursuing at FaZe Media is leveraging FaZe Clan's industry-leading following to drive significant revenue opportunities.

Core to this plan is a newly minted constant strategy to take advantage of FaZe's proven content approach that resonates with gaming and use audiences. Initiatives include new FaZe houses in Miami and L.A. for creators to produce continual consistent concept.

In addition, we'll be developing creator led shows, podcast live streaming events, short and long form content that will all be monetizable. We are following a defined content strategy that leverages the resources of GameSquare and our established Fourth Frame Studios production asset.

It's important to note that the Internet and gaming communities will not see any difference in the FaZe brand from a fandom standpoint. The formation of FaZe Media on the adjusted ownership structure and with GameSquare maintaining its controlling interest in FaZe Media's financials will continue to be consolidated in Games Square's results.

Looking at our improved cost structure and the platform we are creating in more detail. I'm extremely proud of the hard work and dedication of our global team members. After last year's successful integration of Engine Gaming, we are quickly replicating our efforts to successfully integrate FaZe Clan.

Over the past year, we have removed approximately $8 million of annualized costs associated with the Engine Gaming transaction. While FaZe has already begun eliminating cost side to the acquisition, we are quickly removing additional redundant corporate expenses, and we are focused on aligning FaZe Clan's cost structure with expected revenue.

As a result, we anticipate removing about $18 million of annualized operating costs with the majority of these costs coming out during the 2024 second and third quarters. As we focus on reaching profitability in the coming quarters, we continue to pursue opportunities to add additional capital to our balance sheet.

During the first quarter, we successfully raised $10 million of new capital in a private placement. The recent asset sales or frankly, in Complexity and again square a total of $14 million, including a $9.5 million promissory note on our balance sheet.

We believe max $11 million investment in FaZe Media we'll fully fund that business as we optimize its cost structure and begin to drive revenue growth. Finally, we are working on additional noncore asset sales and other opportunities to improve our capitalization and support our growth opportunities.

Today, GameSquare platform comprises owned and operated IP, including content creation, FaZe Media and our esports teams. We have full-service creative agencies that leverage our experience and connection to use in gaming audiences that provide global brands with content campaign management, leading strategy and placement services.

And finally, we have best-in-class SaaS-based offerings, including live streaming data, influencer marketing and managed services capabilities. On a pro forma basis, we generated $23.5 million in revenue in the first quarter, a slight decrease from pro forma revenue for the same quarter of last year.

More importantly, I'm pleased to report that our adjusted EBITDA on a pro forma basis improved by $6.4 million, a loss of $14.3 million for 2023 first quarter total loss of $7.9 million for 2024. This dramatic improvement in adjusted EBITDA during the first quarter reflects the efforts we have been pursuing to eliminate costs and drive profitability.

As a result, we believe we have a clear path to profitability in the coming quarters and expect to see the majority of the expected $18 million of cost synergies being removed in the 2024 second and third quarters.

As you can see, we've created a strong go-forward platform and the final strategies I want to review today are the actions we are taking to drive revenue growth in 2024 and beyond the cost and for the ecosystem.

Starting with our owned and operated IP, key growth priorities include leveraging FaZe Media's content through a successful reboot and new talent roster, driving growth within our emerging ad vets business and growing our reach and influence to launch new content initiatives, lifestyle brands and more.

Looking at growth opportunities in our media and agency businesses in 2024, we are focused on expanding publisher relationships with major players like Epic Games, leveraging the success of our rapidly growing well building business, increasing our relationships with retainer clients and growing our live stream as a Service business.

Finally, on the SaaS and technology side of our business, growth priorities include combining our data and insights capabilities with our creative management and activation platform to deliver a more comprehensive solution set the game publishers and brands looking to drive targeted audiences and improve revenue performance.

Leveraging our platform for data-driven creative campaigns, it yields high-performing ROI and performance-based returns and expanding our managed services offerings. We have developed a strong, innovative and differentiated platform that supports significant growth opportunities within the game publishing category.

Our unique advantage within this category is being recognized by some of the largest game publishers in the world. We're just getting started, and I'm excited to report on our success on future calls. So with this overview, I'd like to turn the call over to Mike to review our first quarter financials..

Thanks, Justin. Before we look at our 2024 first quarter financial results in more detail, it's important to note that our GAAP financial statements include 24 days of FaZe Clan's results.

In addition, Complexity, which was sold in March 2024, has been treated as a discontinued operation and Complexities results have been reclassed into discontinued operations in our 2024 and 2023 first quarter financial statements.

As a result, we believe it's best to look at our business on a non-GAAP pro forma basis, which removes Complexity from our financial statements includes a full quarter contribution of FaZe Clan in the 2024 period and includes a full quarter contribution of Engine and FaZe Clan in the 2023 period.

Comparing our 2024 first quarter pro forma results to the prior year, total revenue was $23.5 million compared to $24.1 million. The slight year-over-year decline in revenue was primarily due to a $4.2 million reduction in FaZe Clan revenue, partially offset by a $3.6 million increase in GameSquare and Engine Gaming revenue.

Gross margin on a pro forma basis for the 2024 first quarter was $3.7 million or 15.7% of sales compared to $4.0 million or 16.5% of sales for the same period last year. The decline in gross margin for the year reflects a less profitable mix of sales, which temporarily impacted gross margin in the first quarter.

As Justin mentioned, we have made significant strides in improving our operating cash burn figures over the past 12 months. On a pro forma basis, adjusted EBITDA loss for the 2024 first quarter amounted to $7.9 million compared to a loss of $14.3 million last year.

As a percentage of revenue, our adjusted EBITDA improved from 59.2% for the 2023 first quarter to 33.7% for the 2024 first quarter.

We believe the integration activities between GameSquare and FaZe Clan will yield annual cost savings of approximately $18 million in 2024 when comparing GameSquare and FaZe Clan pro forma combined results in Q4 2023 pro forma results in Q4 2024. With this overview, I'll turn the call back over to Justin..

Thanks, Mike. Before we open the call to questions, I want to review our expectations for the remainder of the year. After a solid first quarter, we believe we are extremely well positioned to achieve well over $100 million in revenue annually with an annual gross margin to range between 22.5% to 27.5%.

It should be noted that Q1 is our seasonally lowest quarter and with $23.5 million pro forma, we're well and fully on track. We anticipate revenue growth to accelerate in the third and fourth quarters. In addition, we remain committed to pursuing strategies that expand gross margin, reduce SG&A expenses and ultimately drive profitability.

As we look to the seasonally strong second half of the year, we believe we are very well positioned to achieve our guidance and benefit from dramatic improvements in profitability.

I believe our strong first quarter financial and operating performance supports our initial success in creating a fast-growing, highly profitable next-generation media business. I look forward to updating investors on our success on our second quarter call in August. So with this overview, Lou, Mike, and I are happy to take any questions.

So throw it over to you operator..

[Operator Instructions]. Our first question is from Sean McGowan with ROTH Capital Partners..

I have a couple of questions, if I may. Can you be a little bit more specific about what is in FaZe Media that -- and what is not relative to everything that you acquired when you took on FaZe. So what's in it and what's not in it..

Yes, absolutely, Sean. So FaZe Media is really the talent and media business and FaZe esports is the esports business. So one lives in FaZe Media is the FaZe brand IP, the active talent roster which we have obviously made some recent cuts and some recent additions, and we've really tightened up that roster. So it's around 15 of the active talent.

And in some ways, Sean, the easiest way to think about it is probably in the opposite as into what lives in FaZe esports, because everything else effectively moving forward will live in FaZe Media.

And we kind of touched on that being quite a bit of burn that obviously, we're getting under control, but transaction really does help fund that burn as we get to growth. So on the esports side, it is the active team rosters that we have and the active professional talent.

The branded sponsorship deals directly associated to those teams and the competitive esports play. Anything outside of that lives within FaZe Media..

Okay. So in terms of that burn that you referred to and the income statement impact. So if I hear you correctly, you'd still expect FaZe Media as a stand-alone entity to have a negative profit.

So you'll be backing out losses in effect then, right? So you'll be showing the fully consolidated revenue and other expenses, but should be backing out the minority investors portion of the losses.

Is that right?.

Yes, I can take that one. Yes, that's right. Yes, 49% of FaZe Media will be owned by minority interest. And it will be an adjustment on the P&L. If there are losses, it will be a reduction to that loss from a GameSquare shareholder perspective..

And Sean, to add to that, just to be clear, I think it's been pretty sort of widely publicized the burn that existed at FaZe. I think that this transaction sort of really derisked from our perspective.

And I would say that very similarly FaZe Media in the way that we do FaZe as a whole, we are on a very aggressive path to get towards profitability, but there's no doubt that in the near term there is a loss position.

I think if you look at comparatively kind of year-on-year Q1, we showed a roughly $6.5 million improvement on that adjusted EBITDA line. And that's really before taking out a lot of costs. So just to be clear that there is current burn, but we have very aggressive plans to get FaZe Media to profitability..

Right I did assume that. And then to drill down a little bit more, is the $18 million in cost -- I know probably you've asked this before, it's just like more of an update, the $18 million in cost reductions.

Is that net of any other growth spending that you might see in other parts of the business other than where you you're cutting here? Are you -- is that net of any additions you're making somewhere else?.

Yes. So I think the biggest upside of this transaction has been the fact that -- because there are so many heads on the GameSquare side that have experienced one in the endemic esports space, but 2 more specifically within the FaZe Clan ecosystem that we've been able to plug in really seamlessly.

So the need for, I guess, growth spending to this point has not been required. We've been obviously, more on the cost reduction path now. Look, we're obviously going to have the strategic opportunities in the future, where we continue to invest in growth. But I think a really good example is our content studio with Fourth Frame.

Femi Okusanya who runs that was the head of content of FaZe Clan originally and really helped drive a lot of engagement and audience into FaZe early days. So his team are working tirelessly around the new content strategy and getting a podcast network stood up and really consistent, a lot of content that's going to come out into market.

So the $18 million of cost is really, I guess, it is net, Sean, and what we expect to be able to pull out, and we very much believe that we have the current resources required to be able to get FaZe Clan really in shape and to get to profitability..

Right. Okay. That's helpful. And then last question, kind of along the same lines. Do you think the -- do you think that cost reduction and revenue growth opportunities will be enough for the company. I mean you didn't say this, and I don't want to read into it what I shouldn't be reading into it.

But do you think this will be enough to get EBITDA positive by the fourth quarter of this year?.

Yes, we do. I think that we’ve been pretty transparent about some of the macro issues that we endured obviously in the back part of ‘22 and into ‘23, and we’re starting to see that shift. And we are starting to see the return of real spend in the space, which is really promising. We’re very confident in our revenue targets.

And obviously, we’re being very aggressive on the cost front. So yes, we do. Obviously, the – we need to execute and hit our revenue numbers for that to take place. But we are obviously controlling the controllables right now and reducing and pulling out costs and we’ll continue to get efficient.

And all signs indicate that, yes, we will be able to get there. And – it is somewhat revenue dependent. But again, the costs are coming out. We feel really good about the pipeline. So we’re definitely on track..

This concludes the question-and-answer session and brings to a close GameSquare's 2024 First Quarter Financial Results Conference Call. You may disconnect your lines. Thank you for participating, and have a pleasant day..