GameSquare Holdings, Inc. Q1 FY2025 earnings call

• Completed divestiture of FaZe Media on April 1, 2025, valuing it at over $39 million, eliminating $10 million of debt and strengthening balance sheet.
• Core business areas are SaaS and managed services, agency and media, owned and operated IP, and FaZe Clan Esports.
• SaaS business had Stream Hatchet's largest contract with Capcom and expects new partnership with game publisher in Q2.
• Agency and media segment's Zoned continues to thrive with partnerships like Paramount and Jack in the Box.
• Owned and operated IP is advancing initiatives like GAMERGY Dallas and collegiate esports initiative.
• FaZe Esports had strong Q1 with prize money and plans for naming rights deal for headquarters.

In Q1 2025, total revenue was $21.1 million compared to pro forma revenue of $23.5 million in Q1 2024, a 10% year-over-year decrease primarily due to reduced programmatic advertising revenue. Gross margin for Q1 2025 was $3.3 million or 15.8% of sales; excluding FaZe Media revenue, gross margin would have been nearly 23%. Adjusted EBITDA loss for Q1 2025 was $3.4 million compared to a pro forma loss of $7.9 million in Q1 2024, an improvement of $4.5 million. The segments include SaaS and managed services, agency and media, owned and operated IP, and FaZe Clan Esports. The SaaS business had a large contract with Capcom, agency and media had partnerships like with Paramount and Jack in the Box, owned IP is advancing initiatives like GAMERGY, and FaZe Esports had strong Q1 with prize money from tournaments.

• Project pro forma annual revenue of at least $100 million in 2025.
• Target full year gross margin of approximately 20% to 25% and operating expenses around $20 million.
• Expect positive cash flow and adjusted EBITDA in the second half of 2025.

• Certain statements in the call are forward-looking and could differ materially from actual results due to known and unknown risks, uncertainties, and other factors. For information, refer to the 10-Q for the year ended March 31st, 2025.

Q: 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?

A: 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.

Q: 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?

A: 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 FaZe Media is included in the number. You're going to see real margin improvement and continued OpEx improvement, something that we've been really focused on is getting efficient. And I think you'll see continued OpEx improvement into Q2 and even into Q3. And just from a sort of revenue standpoint, we kind of touched on it a little bit on the call, but continued improvement in that SaaS managed services business. We talked about Capcom. We actually have a larger really exciting deal with a major game publisher that we're hoping to be able to announce you very soon, that will be in Q2, really, really exciting one. So the growth out of the SaaS managed services business is really pleasing. And certainly, our agency business Zoned. So Zoned was a little softer in Q1. Zoned is a highly profitable business unit for us. Obviously, we touched on the Paramount relationship, but they've been renewing a number of other clients, Jack in the Box. We work really closely with Converse and ESPN and sort of list goes on. So you'll see improvement in Q2 and certainly Q3 and Q4 from a Zoned perspective. They tend to have, when we talk about seasonality, a bit of a softer Q1 and really ramp up. So, yes, we're certainly expecting revenue growth out of those areas and our GameSquare experiential business seeing a lot of inflow there as well. So they're probably the main areas that I'd expect to see pickup in Q2. Yes, but certainly, certainly be looking for continued OpEx improvement, continued margin improvement as we grow revenue here and certainly on track to hit positive EBITDA and cash flow in the back half of the year.