GameSquare Holdings, Inc.

Hey everyone, as I mentioned earlier, I am doing something different on my live stream today. As you may know, I'm the Chief Innovation Officer of GameSquare, a NASDAQ listed company that trades under the ticker GAME. Every quarter, our company hosts a conference call, which we thought would be a great opportunity to feature on my live stream. So you will see more of what I do at GameSquare. We also thought it would be a great opportunity to host investors on my Twitch channel to get the live streaming experience that is such a big part of our community. I'm sure there will be questions, so the chat will be emotes only for today, and I'll pin a message that can take you to GameSquare's website where you can learn more about our business and ask questions. Justin Kenna, who is GameSquare's CEO, is hosting today's stream from Complexity's live streaming room in Frisco, Texas. You know, at the address they share with the NFL team, that the Lions will be absolutely destroying in a few weeks. Complexity is also owned by GameSquare. The entire thing gives me conflicting feelings about being a Detroit Lions fan, but I better be on my best behavior and not go there today. Most importantly, he is Tim's, Cloak's, and my boss, which also kind of makes me him and Cloaksy's boss, but we also won't go there. Not today. So let me hand over the stream to Justin for some formalities before we talk about what the future holds at Game Square.

Thanks, Ninja, and good luck on December 30 when the Lions come to town. I think you might need it. I'm extremely excited to be here today and to review the progress we are making at Game Square as we create a leading technology-enabled platform that helps connect brands to gaming fans and youth audiences globally. Today's live stream is being broadcast over Twitch, as well as our social channels and our company website. We believe that we're the first public company ever to live stream a quarterly conference call on Twitch, reflecting our core focus of driving stakeholder engagement through innovation. I'll start today's stream with an overview of the progress we are making, including the recently announced definitive agreement to acquire FaZe Clan. before joining Ninja in a Q&A discussion on the future of Game Square and the innovation we are bringing to our markets, our customers, and gaming fans across the world. Before we begin, I have to satisfy our lawyer's advice by stating 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 see our MD&A for the quarter ended September 30, 2023, which can be found in our company profile at cdar.com and on the company's website. So with these formalities out of the way, let's get down to business. For those not familiar with GameSquare, our journey started only a couple of years ago with one operating subsidiary and annualized revenue of approximately $3 million. Since our inception in the end of 2020, our strategy has been focused on creating a leading media company focused on gaming and youth culture and rapidly getting to scale. I'm extremely encouraged with our success of the past three years as we've announced five acquisitions, including recently announced FaZe Transaction, which will create a company with approximately $138 million in revenue. Our ability to grow revenue by over 45 times in under three years is a result of the comprehensive platform of media and agency solutions, gaming and esports organizations, production services and technology capabilities that we've assembled. Our modern end-to-end media platform continues to drive growth even during challenging market conditions. Brands are coming to GameSquare because of our ability to provide clients with best-in-class technology assets, a large influencer network, and award-winning agency and creative capabilities. As a result, GameSquare can offer unparalleled insight into consumer behaviors, develop data-driven creative strategies, and measure and optimize campaigns towards customer acquisition goals in real time, creating impactful marketing solutions that drive strong returns for our customers. During the third quarter, revenue increased 13% over the second quarter to a record $16 million and was up 58% from the same period last year. reflecting the benefits of the engine gaming acquisition and strong organic growth. Our third quarter results also reflect the strides we are making to improve our cash burn. For the third quarter, our adjusted EBITDA loss was $3.6 million, a $0.5 million or $500,000 improvement from the second quarter of 2023. We also continue to strengthen our balance sheet to support growth and invest in our business. During the quarter, we announced a $10 million working capital line with SLR Capital Partners that matures in September of 2026. After the third quarter closed, we announced that we entered into a definitive agreement to sell our non-core radio business assets for $4 million. We expect the transaction to close by the end of November, which will further strengthen our balance sheet and will allow us to streamline our focus to support our marketing technology capabilities. We ended the third quarter with a solid pipeline for the fourth quarter and a strong outlook for 2024. We expect sales in our fourth quarter to be up significantly from third quarter levels, reflecting strong seasonality and solid demand for our media and creative services and technology solutions. Our strong outlook reflects the solid integration of the April 2023 acquisition of Engine Gaming, which significantly enhanced our scale, removed duplicative operating and corporate expenses, and most importantly, added technology-based capabilities to complete our differentiated end-to-end marketing technology platform. As a result of this transformative acquisition, we have quickly expanded our client offerings to take advantage of notable commercial trends that enable brands and game publishers to target key audiences and measure performance and attribution data points. Engine gaming is creating exciting revenue opportunities, including the growing success of new performance marketing strategies as companies are increasingly looking at ways to maximize their returns on marketing investments. During the third quarter, we announced multiple new clients representing over 2 million of annual revenue in 2023. Based on our current pipeline and customer relationships, we expect performance marketing sales can grow to eight to 10 million in annual revenue in 2024, with gross margins between 25 and 30%. And we are increasing our investment to accelerate growth even further. As we've highlighted in the past, by currently serving eight of the top 10 largest game publishers in the world, we are able to uncover trends through our comprehensive data and insights access. Game publishers are currently generating 60% of their revenue through creators and brand ambassadors. Being able to manage and activate those relationships through our creator marketing platform has opened up a number of game publisher relationships and enabled us to cross-sell these additional platform capabilities to drive more revenue per customer. We are also seeing growing adoption for our Unreal Editor for Fortnite or UEFN services that leverage GameSquare's design, production and digital experience capabilities. These innovative marketing campaigns build custom worlds for brands in popular gaming titles such as Fortnite. During the third quarter, we announced four new UEFN campaigns with prominent blue chip global brands worth nearly $1 million. We expect growing demand for our UEFN services as large brands look at ways to engage with gaming audiences by creating custom gaming worlds. The activations also reflect GameSquare's ability to create a seamless bridge between brands and gamers by offering a unique platform for interactive brand experiences in the digital world. We believe this will be an important growth engine in 2024 and beyond. As you can see, the engine gaming acquisition has contributed to significant revenue and cost synergies, and we are focused on replicating its success with the recently announced acquisition of FaZe Clan. FaZe Clan is one of the biggest brands and influencers across the global gaming market. The combination with FaZe Clan continues our strategy of acquiring leading companies focused on esports, gaming, and youth culture to increase capabilities, grow scale, unlock cost savings, empower fans and creators, and ultimately drive value for shareholders. We believe there are significant strategic and financial benefits to the acquisition as we leverage the powerful infrastructure we have created and full spectrum of resources within the Gamescore ecosystem to reinvigorate and drive value at FaZe. I'm extremely excited to welcome back three of FaZe Clan's founders to lead FaZe and re-establish the brand's authenticity. FaZe Banks, Temper and Apex are highly motivated to re-engage with FaZe Clan's core fanbase and empower FaZe's creators and community. As a result of the FaZe Clan acquisition, Gamesquare will be the top creator network in gaming and esports with over 250 million hours of content watched annually. The company will have a powerful talent network that includes Ninja, Tim the Tapman, Trayvon Diggs, Max Holloway, Cloaksy, Dick Merckx, FaZe Banks, Rudd, Temper, Apex, and FaZe Bronny, just to name a few. GameSquare and FaZe Clan will also combine a hyper-engaged global fan base with over 1 billion of combined audience, with a core focus on 13 to 34-year-old audiences. We'll have a powerful portfolio of brand partners that includes Porsche, Nike, Jack in the Box, Xfinity, Miller Lite, and Ghost. Finally, we have identified over $18 million in future run rate cost savings supported by reduced corporate costs and focus on driving efficiencies across the organization. The combination of Game Square, Engine Gaming, and FaZe Clan have created a business with approximately $138 million in annual revenue and an annual gross margin of over 26%. We will have taken nearly $30 million of costs out of merging corporate overhead and other cost-saving actions. Going forward, significant cost savings combined with expected double-digit organic revenue growth will support a highly profitable financial model. With one quarter remaining in 2023, I'm extremely excited about the progress that we've made so far this year and the opportunities to drive value for our shareholders in 2024 and beyond. We entered the fourth quarter with a robust pipeline and expect sales will be up significantly from third quarter levels, which we believe will drive positive adjusted EBITDA in the fourth quarter. I'm thrilled by the direction that we are headed and I look forward to updating you on the continued progress that we're making. So with that, I'd like to bring Ninja back and let's jump into a little bit of Q&A.

Alright Justin, now it's my turn. We have both been in the business of gaming, esports and youth culture for a while. How has the overall market influenced GameSquare's financial results, and how do you see the market evolving in 2024 and beyond?

Great question, Ty. Yeah, look, there's no doubt it's been sort of a challenging brand and ad market, and there's been a number of sort of macro factors. I think to sort of touch on esports firstly, I think that there's been some different sentiment out there around esports winters and other pieces. I think Yeah, esports in general is going through a very sort of natural growth stage of consolidation. I think we remain really bullish on the future of esports and we're seeing publishers and orgs come together and partner together a lot more. I think we'll continue to see that. We see a lot of opportunity in that space. More broadly in the sort of gamer and creator economy in general, look, by every metric in terms of audience and eyeballs, it's only going north. So we feel really good about how we're positioned to take advantage of that. As we start to see markets return it, and they will, we're starting to see that brand and those brand and ad dollars come back. And I think that we're really well positioned at GameSquare to take full advantage of that. Ninja, you've built a very large following, and as one of the original streamers, how do you continue to engage with your following and produce compelling and relevant content?

Woo! All right, there's your daisy. You know, that's what it's all about, Justin. I think that for me, like, it's just continuing to, as a streamer, the way that I've been producing content my entire life has been, it evolves with the game that I play or the games that I play, right? So, it started off early in my career where it was, um, Halo competitively. Uh, so, and 1v1s. So like, that was like my way of entertaining my viewers. Um, and then that evolved into, you know, still competing for a very long time. And then that evolved into Destiny, right? Switching games to Destiny, then switching games to, then Battle Royales came out, right? H1Z1, PUBG, Fortnite. And now, I'm starting to... Obviously, we've added the podcast, right? We're starting to go a different route that way. And we are about to start... New Year's is going to be another incredible event. So I think just continuing to give really cool experiences and something... giving people something to look forward to um you know and it's like a small event here and there to attend and just giving them the content that they've always like they continue to want you know i mean if it isn't broke don't fix it and like what i've always loved to do with my content and how i've always like something i've lived by is i just want to entertain people with my my Like, voices, you know, any funny voices, accents I can do, impressions, references, and my gameplay. And also offer a little bit of, like, humor, right? Alongside of just the daily streams in and out. So, like, just things like that, man. I'm going to continue to stream, continue to produce, you know, funny content, hit clips, and just keep popping off, man. I don't know. Just... As long as I love it, I feel like it's just natural. And, you know, we come out with content daily. Like, and it's just, you know, it makes, it literally writes itself. It makes itself, especially when I'm playing with my boys and some of my friends. Then at that point, it's just like, it's just reload, right? Everyone loves a good squad game when we get the boys on.

Awesome. Can you tell people what you've accomplished so far and what's in store for the remainder of the year?

Goal year, our goal for year one is to be innovative, innovative, have new experiences and create content. So innovative experiences and creating content is our goal for year one. Our goal for year two, we're going to be focused on accelerating more growth and driving more product-based sales. This is one of the shirts I'm wearing right now. This is actually one of the shirts that we did with a super small release. Um, like we just wanted it to, to kind of get out there. And this is literally one of the, like the most favorite shirts I own. Uh, and everyone talks about the quality. It's incredible quality and it looks amazing. And everyone is super happy that they, like the people who did buy it when we dropped a small launch are ecstatic. And people have been asking, you know, and this is something so small. It was just like a little tiny merch shop, right? Like a drop in the bucket to, to literally the things that we can accomplish. Um, but yeah, this is one of my favorite shirts and one of my, one of my community's favorite shirts. And they always ask me to bring it back. Um, so just, you know,

Why don't you tell everyone what attracted you to GameSquare and how we support your efforts to drive innovation and engagement within the gaming community?

Great question, Justin. It's a great question. I think the thing that attracted me the most about GameSquare is, I mean, you just did an incredible job selling it to me when we were talking about what it is that you guys do differently than all those other companies out there, especially with complexity as well. And I think what what really just drew me to you guys over, over picking anyone else over starting something, my own over, um, over anything like that is you guys just absolutely have, uh, and this, you kept, you always say, you always say this in your pitch, babe, you guys have like a, a front to back, like, right. Like a start to beginning, a start to end like process of, of being able to run events, right. Being able to start events and then being able to literally get everything that goes into those events. And you guys actually also understand the space, right? So the fact that you guys don't have to go out of your way to reach out to other companies or other people, um, to accomplish the things, uh, to, to get things done, right. Take Tim and Tim, Tim, the tap man's event, for example, uh, Tim and Tim and tailgate and Dallas was one of the most amazing events ever. I was, I was super blessed to be a part of it. Um, it was out of this world and a knockout of the park. And you guys were able to do all of that, um, in house, right. Uh, with, with the companies that, um, that rock with game square. So that, and just, again, I think that the true understanding of the gaming space, um, and the culture and like you guys get it. Uh, and I think that's, that's very, very important. You can't buy that. Um, and that's, uh, that's what drew me to you guys. Justin, there have been so many sports, gaming, and media companies that are trying to figure out how to compete in the market and engage with youth audiences. How is GameSquare able to differentiate itself and create a successful business when so many other companies have not been successful?

Yeah, I mean, people joke about the hard-to-reach audience, but to us, that represents a real opportunity. And I think... It really is a focus on data and on technology. The acquisition of Engine Gaming really did give us differentiation with Stream Hatchet and access to data in-house and understanding this audience and these communities. Obviously, having a world-class team that can execute is important, but I think understanding the audience first and foremost is critical. And then having a media network in-house that is specifically designed to reach these audiences, this really does give us a differentiated end-to-end solution that nobody else in the market has. Now, we do have competitors in these different areas, but from an end-to-end solution from data, marketing and creative services, technology and media, it's unmatched. And I think that it's proving to be the right formula.

How do you envision FaZe as a part of GameSquare?

Yeah, I mean, it's an incredibly exciting opportunity. I was actually talking about this the other day. And for those that aren't as close to the industry, FaZe really is the New York Yankees, or more importantly, the Dallas Cowboys of the gaming world. And they truly are. the biggest global gaming brand in the space. I see a lot of really immediate opportunities in the infrastructure that we've built. We currently already work with FaZe, but there are a lot of areas at FaZe that they do outsource that we'll be able to bring in-house and really sort of capture a lot more revenue and expand margin. I think there's sort of a really good blueprint there. We acquired Complexity sort of two and a half years ago. In that time, we've grown aggregate audience 10 times, grown revenue by over 200%, and taken a burn and reduced that by around $10 million to a point where we're effectively breakeven. I think if you sort of look at that blueprint as to what we're going to be able to do with FaZe, that's a pretty good indicator. We're extremely excited. I mean, again, FaZe is the largest gaming brand by audience, and they have a larger audience across their sort of core platforms than any other sporting team in the world. So, yeah, the opportunities are there for us. I think we've built the right infrastructure. We're extremely excited to get to work.

But, yeah, that's it, man.

It's been a lot of fun, Ninja. Thank you for joining today's call and for helping expand Game Square's offerings. To everyone on today's live stream, we are just getting started and we believe the long-term opportunities at Game Square are immense. 2024 is going to be a transformative year for Game Square as a result of strong organic growth and the successful integration of the FaZe Clan acquisition. I'm thrilled by the direction that we are headed and excited to report on our success in the coming months. We hope that you'll continue to follow us. I appreciate everybody tuning in. Thanks very much.