GameSquare Holdings, Inc.

Good afternoon and thank you for joining us to discuss GameSquare Esports Incorporated's first quarter of fiscal 2021 financial results conference call. On the call today, we have GameSquare's CEO Justin Kenna and GameSquare's President Kevin Wright. During the call, all participants are in a 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 caveats about forward-looking statements and risk factors, please see our MD&A for the year-ended November 30, 2020, which can be found on our company profile at cdar.com. I will now turn the conference call over to GameSquare's President, Kevin Wright. Please go ahead.

Thank you, Charisse. And good afternoon to everyone who's taking the time to join us today. As Charisse said, I'm Kevin Wright. I'm the president at GameSquare Esports. And I'd like to welcome all of you to today's conference call to discuss GameSquare Esports inaugural conference call to discuss the Q1 2021 financial results, which were filed on CDAR earlier today, along with the MD&A conference. I'll jump into the disclaimer side. Before we begin, I would like to remind you that during today's call, we will be making comments containing forward-looking information. I'd invite you to read our financial disclosure for some of the risks and uncertainty that may affect GameSquare's performance in the future. And as such, actual results may differ materially from the views expressed today. For further information, please visit CDAR, where you'll find our financial statements and NDNA. As this is our first conference call, I would like to take a moment to introduce GameSquare's CEO, Justin Kenna. Justin joined GameSquare in January of 2021, coming to us from his previous role as CFO of FaZe Clan, which is the world's largest gaming lifestyle brand. During his time there, Justin raised over $60 million from investors and saw revenues increase 10 times over the four years of his tenure. Forbes valued Faze Planet more than $300 million US and recognized the company as one of the most valuable esports organizations globally. Needless to say, I think that GameSquare is in great hands as we continue to build a world-class esports organization under his leadership. I'll now turn the call over to Justin and let him talk about his vision for the company and the industry, as well as details of our financial results for the first quarter of fiscal 2021. Over to you, Justin.

Thanks, Kev. Hi, everyone, and welcome to GameSquare's conference call for our first quarter of BISCOOL 2021. As Kevin said, I'm Justin Kenner, GameSquare's CEO. Before jumping into the financial results, I want to spend some time introducing esports to those who may not be familiar with the industry. And then I'd like to share what I consider our differentiated approach to our business, which is bridging brands to the esports industry. First, esports is competitive video games played by professional and casual gamers. It attracts massive audiences from around the world, especially to popular games, and audience sizes soared during the COVID pandemic. Without a doubt, COVID has been a global tragedy. It's changed how people live, how people do business, and how people stay healthy and connected. However, at the pandemic's onset in 2020, as traditional sports matches were suspended, many live esports competitions transitioned online. As a result, more people gravitated towards esports and gaming in general as a form of entertainment. In fact, gaming was and is a tremendous way for people to stay connected with players and enthusiasts around the world. Weekly esports hours streamed grew 81% year over year in 2020 and esports audience growth has continued in 2021. In fact, esports has been one of the fastest growing industries as more people are playing games and, in turn, the size of audiences watching gamers, streamers and influencers has grown dramatically. Twitch, Amazon's gaming channel, reported that 1.7 billion hours of content were watched in this past December alone. What makes esports and its rapid growth unique from a marketing perspective is its unprecedented engagement across a very attractive demographic, people under the age of 35. These esports fans are a generation that grew up playing and watching video games, consuming content through an internet browser rather than television or radio. However, marketing to them is quite different than marketing to older generations. Esports fans demand transparency, accountability, community and trust before they engage brands. Building trust with this demographic is not easy. But once achieved, esports fans are loyal and supportive unless brands break that trust. As I mentioned, brands recognize the massive opportunities that these esports audiences represent. What this means for businesses is that major brands are committing more marketing dollars to the space in order to reach this unreachable demographic that is consuming media in very different ways than generations before them. GameSquare's business model is to operate and acquire digital media agencies that bridge the gap between global brands and the large gaming and esports communities. We are building a highly scalable, profitable esports company with global reach, which sets us apart from every other esports company that we know of. Our agencies are growing quickly, rely on relationships built over decades of professional careers, and importantly, are profitable with healthy EBITDA margins. One of GameSquare's key differentiators is that we understand esports, esports audiences, the importance of building community and attracting influencers. These are things that many of the large incumbent agencies really struggle with. Post-quarter end, Gamescore acquired Reciprocity, a privately held gaming and esports company that has a well-established Los Angeles-based digital media group, the Gaming Community Network, or GCN, that designs and constructs bespoke campaigns and activations and then distributes and promotes them through their network of over 100 million unique viewers. GCN's network includes esports and gaming-focused websites, influencers, streaming networks, over-the-top and social platforms, pro teams, and tournament and event producers. The acquisition also came with the ownership of two popular esports teams, one in China and the other in South America, bringing with them an extensive fan base and influencers. Reciprocity is an excellent addition to Code Red, our influencer talent agency in the UK. Our ability to engage the esports and gaming community is reflected in our financials and in the commercial opportunities that we are seeing in the US and in the UK. With this introduction to the industry and our business as a backdrop, I'll move to Games Square's financial performance during our first quarter of fiscal 2021. During the first quarter of fiscal 2021, Games Square generated revenue of nearly $1.1 million an increase of over 97% over Code Red's Q1 2020. Our influencer segment generated 456,000, which represents 44% growth year-over-year, and our consulting segment reported $413,000 of revenue. As I mentioned previously, COVID caused the postponement or cancellation of many live esports events, leading to flat year-over-year performance in the broadcast segment. As of February 28, 2021, Games Square had $1.1 million of cash on hand and about $357,000 of working capital. Subsequent to the quarter, we closed an oversubscribed $7 million bought deal, putting us in a strong position for organic growth and M&A. We continue to highlight that our strategy is to fund profitable, organic growth and to accelerate our financial profile through the acquisition of EBITDA-positive digital media businesses. Our business consists of three segments, influencer, consulting, and talent management. We are pleased with the progress made in the influencer segment by Code Red in Q1. This reflects the attention the company has been devoting towards the segment, and we are seeing the benefits continuing to improve with new headcount added in the UK to support the influencer segment. We believe that this segment can continue to make progress as brands are recognising influencers as a viable marketing and engagement channel. Our consulting business also had a great quarter, partly on the back of our relationship with Bud Light Europe, which has resulted in some really interesting work. As mentioned previously, we closed on the acquisition of Reciprocity in mid-March and are very impressed with what we've accomplished there in a short period of time. Prior to the acquisition, we were hard at work integrating the business's and the priority has been optimizing GCN's operations. We pre-funded the company to enable some key hires, and that has led to some great early contract wins, including the Van Wagner deal, which will see GCN producing and promoting the largest national collegiate esports tournament across 10 NCAA conferences and multiple gaming titles. In my view, this is a tremendous example of the quality of projects and clients that GCN brings into the GameSquare family of companies. Moving on to Outlook. GameSquare is a young but growing company that has already demonstrated the ability to bridge well-known major brands to the esports industry. Post our $7 million board deal financing, we will have a strong balance sheet to execute on our business strategy. Code Red is performing very well and has some great potential deals in the pipeline. To support our expansion and pipeline opportunities, we added Jan Neumeister as our head of Europe. Jan is doing a terrific job coordinating between Europe, North America, and Asia, along with Sabrina Howe, our head of Asia. Jan has incredible connections with brands. His reputation and network are unparalleled in the industry, and he has brought in some really interesting partnership and M&A opportunities. In short, we expect growth in Europe this year, but it's too early to talk about the quantum of that growth. Preliminary results in North America, mainly from GCN business, have been very promising. GCN's management is confident in their ability to meet and potentially exceed the US $7 million revenue figure to receive their earn out. So while we are not providing formal guidance yet, we are trending well and we are focused on profitable growth within esports, sports and entertainment. We continue to grow Gamesco organically, but an important pillar of our growth strategy is M&A. Our focus is on digital agencies and complementary businesses that are EBITDA positive or have a clear path to achieving it in the near term. We have experience integrating and optimising these types of accretive acquisitions and will continue to do so going forward. We have not yet announced any potential transactions, so I won't get into specifics on our M&A targets, but what I can say is that we have a healthy pipeline of potential US and European acquisitions that are in various stages of discussions. Based on current discussions, we feel very confident that we should be able to close additional acquisitions within the next 12 months. For context, the potential targets that we have engaged with would each add $5 million to $25 million in revenue in the next 12 months with EBITDA margins typically in the 20% to 40% range. Beyond our current market, apologies, beyond our current pipeline of acquisition targets, I would say that we are operating in a highly fragmented market right to consolidation. We are confident that we can continue to find great companies serving the esports market and more broadly sports and entertainment and close acquisitions and multiples that unlock tremendous value for our shareholders. In the short time that we've been public, we have already accomplished a lot. However, we are just getting started. We've closed one full quarter of operations and generated good results financially and operationally. We are looking forward to our Q2 results when we can give our first indication of performance at GCN. We demonstrated the ability to contract with great reference customers like Van Wagner, Bud Light, and we believe that we will sign many more. My confidence in growing the business is rooted in the great bench strength that we have and that we've been recently able to add like Chris, Drew, Sabrina, and Jan, plus advisors that include Jordan Balfour, the Wolf of Wall Street. Investors believe in our story and the outlook of our businesses, as indicated by the $11 million we've been able to raise as a public company. And we have also proven that we can find, close, integrate, and optimize accretive acquisitions. We closed our first major acquisition in March, and we expect to have more great news on the acquisition front. Furthermore, we have new partnerships that we are working on that could be transformational in the way that we are viewed by the industry. With that, I'd like to thank all of our investors for your support, and I'll now turn it over to the operator to take questions. I might also add that I've been on phone calls since 6 a.m. this morning, so if my voice completely gives away, then Kevin might be fielding the questions. But thanks, guys, and I appreciate the support.