GameSquare Holdings, Inc.

Greetings and welcome to the Engine, Gaming, and Media third quarter conference call. Please note this conference is being recorded. Before we begin, I would like to caution listeners that comments made by management during the call may include forward-looking statements within the meaning of applicable securities laws. These statements involve material risk and uncertainties, and actual results could differ from those projected in any forward-looking statement due to numerous factors. for a description of these risk and uncertainties please see engines financial statements and mdna for its third quarter its fiscal year 2022 ended may 31st 2022 available on cdar and edgar important qualifications regarding forward-looking statements are also contained in engines earnings released distributed earlier this afternoon and also available on cdar and edgar furthermore the content of this conference call contains time-sensitive information accurate only as of today, July 14, 2022. Engine undertakes no obligation to revise or otherwise update any statements to reflect events or circumstances after the date of this call. I would now like to turn the conference over to Mr. Lou Schwartz, Chief Executive Officer, and Mr. Tom Rogers, Executive Chairman of Engine Gaming and Media. Please go ahead.

Thank you, operator, and thanks to everyone for joining us on our fiscal third quarter earnings call. To begin, total revenue for the third quarter of fiscal 2022 increased 15% to $9.2 million from $8 million in the same period a year ago. This takes into account the disposition of Eden Games. The two key revenue streams of our business are SaaS, also known as software as a service, and advertising. SAS revenue for the third quarter of fiscal 2022 was $2 million, an increase of 22% from $1.6 million in the third quarter of fiscal 2021, and 5% higher sequentially when compared to $1.9 million in the second fiscal quarter of 2022. During the quarter, our SAS business segment experienced double digit percentage growth in the number of clients year over year. Secondly, advertising revenue for the third quarter of fiscal 2022 was 7.2 million, increasing 13% from the year-ago period of 6.4 million and up 2% quarter-over-quarter from fiscal 2022 second quarter revenues of 7.1 million. The second quarter is usually a seasonally low advertising quarter. Turning to expenses, for the fiscal third quarter of 2022, there were 14.9 million an improvement of approximately $1 million when compared to $15.8 million on a sequential basis. The company's run rate expense reduction from the end of this calendar year going forward is expected to substantially improve to the approximate $16 million of expenses being eliminated relative to where the company was a year ago on a go-forward basis. For the quarter, net income improved substantially to 8.8 million versus 1.6 million in the comparable year-ago quarter. Additionally, for the nine-month period ended May 31, 2022, net income was 735,610 compared to a net loss of 25.8 million. For the third quarter, adjusted EBITDA improved on a sequential basis to a loss of 5.2 million, a nearly 1 million improvement compared to the fiscal second quarter of 2022. The company has been taking aggressive action to reduce costs associated with our B2C gaming businesses. These expense reduction initiatives will continue to be more apparent in coming quarters. Additionally, we will continue to rationalize all spending across the company with an eye toward attempting to achieve cash flow breakeven on a run rate basis in fiscal 2023, while continuing to narrow our focus on a core set of assets with predictable streams of revenue and significant growth characteristics. We remain extremely mindful of the turbulence in the U.S. and Canadian capital markets, and we recognize the importance of preserving and allocating capital wisely while working towards maximizing shareholder value. With our cash on hand at the end of the last quarter and the proceeds from the recently completed Eden transaction and subsequent to quarter end completion of the UMG sale, We have sufficient cash to meet our operating needs as we continue to drive shareholder value moving to profitability. I want to note there are many companies in similar positions to that of GAIM who have strong assets and believe their companies are undervalued. We remain open to finding common ground with companies that find themselves facing similar challenges as well as other potential strategic partners to strengthen our businesses to achieve greater scale. I would like to pass it off to our executive chairman, Tom Rogers. Tom?

Thanks, Lou. If you are new to the engine portfolio of companies, it's important to point out we sit at the epicenter of the so-called creator economy and the growing importance of social media influencers. Our key assets in this area include StreamHatchet and Sidekick. Social influencers in both social media and live streaming platforms are now at the forefront of the creator economy and are evolving as vital elements of digital marketing campaigns. These influencers are key to connecting with the hard to reach, especially younger audiences, enabling the influencer to drive brand awareness and direct response campaigns to their loyal followers. ultimately resulting in e-commerce transactions in addition to other services and offerings. We provide our clients up-to-date, accurate, and reliable audience analytics that are particularly vital to navigating where gaming and media meet in social influencer communities. During the third quarter, Stream Hatchet signed numerous extensions and new commercial agreements with AAA game publishers, such as Epic Games, Activision, Electronic Arts, and Take-Two, esports teams such as FaZe Clan, and major endemic and non-endemic gaming brands such as Nestle, NVIDIA, and Benefit Cosmetics. In total, Stream Hatchet's active clients grew 27% in the third quarter compared to the previous year, from 63 to 80 clients. In addition, Stream Hatchet formerly launched Stream Hatchet Brands, a tool and comprehensive database that allows marketers to track earned media value from over 2,300 major brands on video game streaming platforms. Also, another very important development was that Stream Hatchet launched its consumer streamer module, enabling live streaming creators to self-manage first-party demographic data through real-time in-stream paneling. Measuring a brand's impact and audience resonance within social influencer communities is key to building an impactful marketing strategy that drives real ROI. The link between top performing creator content and commerce is stronger than ever. Leveraging the platform tools and features from Sidekiq's offerings make it an invaluable partner to the many companies navigating this complex social influencer sphere. Sidekiq released major updates to its creator relationship management and influencer marketing platform during the third quarter, including optimizations of its campaign management workflow tools, enhancements to its audience insights, an influencer recommendation engine, and improvements to its social commerce conversion and revenue tracking capabilities. Sidekick also signed commercial extensions and added numerous new clients, including Invisalign, Nike, Universal Music Group, Turtle Beach, and Cartoon Network. In total, active clients in the third quarter for Sidekick grew 10%, year over year. We believe that a tougher economy will result in fewer marketing dollars being allocated to brand advertising and increasing allocations to digital advertising and marketing. However, given developments that have resulted from privacy concerns, making many elements of digital advertising less effective, Within digital marketing, we expect increasing dollars to be dedicated to social influencer marketing, where the improved targeting services we offer can be a major enhancement where traditional targeting is now less effective. On the Franklin Media Minute, Franklin Media continues to optimize its advertising solutions technology, now working with 50-plus demand partners to monetize video, including live video on demand and connected TV, display, and mobile in-app inventory, now with partners such as the Trade Desk, Amazon, and Criteo. Frankly increased both third quarter fiscal 2022 CPMs and RPMs by 27% and 13% respectively compared to a year ago period, maintaining its strong performance quarter over quarter, despite increasingly challenging market conditions. As we make significant strides in defining our core portfolio companies by reorienting our focus toward our B2B units, reducing costs, and minimizing corporate overhead, we are moving toward our goal of 2023 run rate break-even. In sum, our narrowed focus on Franklin, Sidekick, and Stream Hatchets D emphasizes our B2C gaming endeavors, increasingly defining the company as one that, through its data and analytics, guides companies active in marketing to gaming audiences, as well as addressing a broader array of brand sponsors, performance marketers, and media sellers' needs. As I outlined, our offerings are bridging and connecting gaps in the creator economy and which is seeing a rapid increase in marketing dollars going forward as toward the growing social influencer space. I think we'll now take a few questions, and thank you.

Thank you. At this time, we'll be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start keys.

One moment, please, while we poll for questions. Your first question comes from the line of Jason Chilchin with Canaccord.

Please proceed with your question.

Yep, thanks for taking the question, and I appreciate all the details and the prepared remarks. I guess you spent a good amount of time in the prepared remarks talking about um the the focus on the core businesses um one one thing that we didn't hear about was um windu games which is sort of the last remaining piece on the b2c side so maybe if you if you are able to if you could provide some uh some color on what uh the strategic plans are for windu and then a follow-up after that thanks uh good question jason i i'd say uh in keeping with our reduced focus on

B2C gaming in favor of our B2B businesses. We've been seeking strategic partnerships for WindView that will enable us to continue to pursue WindView with far less cash obligation. I'd say to the extent we cannot find a partner in short order, we may decide to discontinue the operations in order to accelerate driving our overall business to cash flow breakeven, which is our core goal. In saying all that, though, I want to be clear. I'm speaking here of the WindView operating business, not of our patent portfolio and how we ultimately deal with those interests.

Okay, great. That's helpful. And then also, Lou had mentioned exploring strategic partnerships or other sorts of avenues with other businesses that are also facing sort of challenges in the current operating environment, especially in the capital markets. Is that exclusively related to what you were just talking about with WindView and potentially finding a partner there? Or what other opportunities are you potentially exploring down that avenue?

Sure. Well, if I might add to Lou's comments, we're talking more broadly about potential strategic transactions there beyond WindView. No doubt there are a lot of companies in our boat with operations that are not being fully valued by the market in any sense, especially with the extreme volatility of the last few months we've seen. Many smaller companies digital media and gaming stocks have really been hit, as have larger companies in these categories as well. On the other hand, we're looking at this as creating opportunity in that we are very open to having various conversations with companies with strong operations, but find themselves with a disconnect in terms of their value in the market, opportunities for conversations where we can build scale or finding unique synergies that can be pursued with those companies that find themselves in similar situations than ours. So that's an overall broad focus for us, not focused on any particular unit.

Okay, great. Thanks a lot. Your next question comes from Mike Kapinski with Noble Capital.

Please proceed with your question.

Thank you. And congratulations on quickly executing on your cost reduction strategy, by the way. I know that you made some hard decisions there. A couple of questions. First, in your prepared remarks, you mentioned about the opportunities that the company may have with these privacy measures and that the companies are expected to implement next year. particularly Google, and that your social influencer company, StreamHatch, and so forth might benefit, how would, frankly, react with that prospect of seeing additional privacy measures by the likes of a Google, for instance? How would that be influenced with your business?

Yeah, I'll take that one. Thanks, Mike. Well, listen, as you know, Frankly has developed a network of quality publishers with audiences that are brand safe. And as the quality of our publisher partner inventory and transactional paths have improved, it gives us some sense that there's additional pricing upside in our inventory, which will be a counterforce to somewhat sort of lower demand that will hit traditional brand advertising first and will have some impact on digital advertising as well. So the PNP or private marketplace demand has opened up for us relative to more commodity-priced open market inventory sales. And this should also help us in a tougher ad market.

So ads... Yeah, go ahead. No, go ahead and finish. I'm sorry, I didn't mean to interrupt.

Yeah, and again, I think to your earlier sort of question about sort of privacy sort of related issues, you know, as... cookies become less sort of relevant in the future. Having sort of access to some of the tools within our influencer sort of marketing platform such as Sidekick and Stream Hatchet, it'll give us access to targeted audiences that are far more directed than what you could get through cookies today and not quite as as targeted as first-party data, but far more informative and far more directed against sort of the brands and marketing partners that we deal with today at Franklin.

And you had a great quarter with Franklin, and I just want to understand about the nature of the comment that you had where you indicated that there was some headwinds, and I just want to be clear that those headwinds are just, you're talking about just the general economy or things like that, but that it may be just to kind of give us the tone of the business that frankly, you know, because the second quarter was, you know, nicely up. And so I'm just wondering what you were referring to in terms of the headwinds.

Well, I think that, you know, the general climate has been a bit sort of challenging for a number of publishers that rely exclusively on advertising as a source of income. And I think the most impacted area of advertising has been sort of direct brand. As it relates to sort of programmatic, we've been in sort of a unique position to be able to trade off the value and quality of our publishing customers, as well as our ability to leverage what is a very safe brand safe and targetable demographic, typically women in the 35 to 55-year-old sort of category, and being able to place those through private marketplaces. These are brands and advertisers that are purchasing specific demographic data, and that can only be found through a private marketplace as opposed to just general open market programmatic purchases, enables us to establish higher RPM and CPM value for the inventory. So that's the way we've been able, you know, to navigate around sort of this challenging market is be able to price our inventory at a premium given sort of the quality of publishers and the brand safety of our audiences.

And you mentioned this in your prepared comments. You obviously have assets which are like at the intersection of gaming and media. And I was wondering if you can just provide a little bit more color on the opportunity to take the gaming audiences, which is, of course, both in the live streaming and social media world, and attach the detailed information about the audience demographics of those influencers that are really driving the gaming audiences. And then if you could just kind of provide us with the targeting capability that you have, in terms of those further interests of not only the major gaming brands, but also the major brands that want to reach those gaming audiences? If you can just kind of give us the color of that whole opportunity.

Good question. So our narrowed focus around our B2B assets has enabled us to target more resources on developing cross-marketing, cross-positioning, and deeper product integrations between Sidekiq and Stream Hatchet platforms. The biggest opportunity is providing our integrated platform to game publishers who currently view us as a trusted partner for measuring influencer activity across live streaming platforms. With the combined capabilities of Stream Hatchet and Sidekiq, we have the ability to help drive top of the funnel sales and influencer driven marketing activity attribution, and commission reconciliation at scale. And this is an area within the game publisher ecosystem that we were unable to reach. Video game sales this year will reach 100 billion globally. And creator and influencer-led discovery is how games are being found and licensed. So for instance, like the overwhelming number of mobile apps that are cash generating relate to mobile gaming. And both publishers and brands are looking at how they can better monetize those audiences. The ability for us to pinpoint and target through influencers where the appropriate game audiences can be found and smartly penetrated is best done through the unique insights and tools that we deliver.

Gotcha. And then finally, my last question, obviously the stock has been down and out here and I was just wondering how would you characterize the stock at current trading levels?

I mean, listen, along with many other small and micro-cap public companies, we're certainly disappointed by our current stock price. I mean, listen, our reported cash for the quarter was $13.5 million, and our market cap is $17 million. That's today. We're looking at the first nine months at $30 million in revenue with businesses in high-growth areas, which clearly we're getting almost no value for. So ultimately, as we get credit for these businesses, we believe the market will reflect a much higher value in our stock.

Great. That's all I have. Thank you. Thanks, Mike.

Ladies and gentlemen, there are no additional analysts with questions, so I'd like to turn the call back to Mr. Tom Rogers for closing remarks.

Thanks, everybody, for joining us. We will keep you up to date on our progress, and glad that we were able to share this with you today. Thanks again.

This concludes today's conference. You may disconnect your lines at this time. Thank you all for your participation.