GameSquare Holdings, Inc.

optimizing our business model, and building a disruptive platform that we believe will create lasting value for our shareholders. To date, we have completed five acquisitions while divesting two non-core assets since August of 2020. Integrating acquisitions takes a significant amount of focus, resources, and time. There are also one-time expenses over the near term that we incur before we start to see the financial benefits of operating and cost synergies. I want to recognise the dedication and efforts of the board, management team and associates at Gainsquare, as well as our acquisition partners. I believe we will see the benefits of our M&A efforts in 2024 and beyond, and I want to use my time today to review our 2023 performance, the actions we have completed in 2023, and so far this year and the go-forward strategies we are pursuing before turning the call over to Mike to run through our financial results in 2023. As I said, it takes time before the benefits of an acquisition can be seen in a company's financial results. Our 2023 financial results also reflect softer growth than we had anticipated at the beginning of the year. This was impacted primarily by a slowdown in spending by several of our brand partners on the media side of our business and other delays as a result of more cautious overall spending patterns. These trends were seen across the media and advertising landscape. We were not immune from broad budget cuts in 2023. As a result, two high margin multi-million programs that we expected to recognize earlier in the year were pulled during the fourth quarter. These programs had an impact on both sales and profitability during the quarter, and our mix of revenue was more skewed to lower margin programmatic advertising sales. While budgets retracted in 2023, we don't believe this trend will continue in 2024. We are starting to see signs of normalizing advertising spend, and our pipeline remains really strong. In fact, pooled programs in 2023 remain in our pipeline, which we expect to materialize and convert into sales in the near term in 2024. As GameSquare's business has evolved during the fourth quarter, We also restructured our sales and marketing organisation to better align with our new operating model. We added a new proven head of commercial to lead our high-performing sales team. While this temporarily impacted sales during the fourth quarter, our team has done a tremendous job maintaining relationships and supporting our pipeline, which we believe will convert into new sales opportunities in 2024 and beyond, especially as our markets continue to improve. Despite this near-term impact, we've made significant progress executing against our long-term growth strategies. So let's look at the actions we've completed in more detail, starting with the engine gaming acquisition. In April of 2023, we completed the acquisition of engine gaming, which significantly enhanced our scale and added technology-based capabilities to enhance our differentiated next-generation media platform. I'm encouraged by the progress we made integrating the acquisition and removing duplicative operating and corporate expenses throughout the years. While the extent of the cost synergies have been marked by additional M&A activities, we estimate that we have removed approximately $7 million of annualized cash operating expenses from the combined business during 2023 as a result of the transaction. The end-to-end transaction also fast-tracked our efforts to list on the NASDAQ Stock Exchange in 2023, and most recently, in March 2024, we voluntarily delisted from the TSX Venture Exchange and re-domiciled the company from Canada to the US, where the majority of our operating subsidiaries, brand partners and shareholders are located. While these actions required investments during the 2023 fourth and 2024 first quarters, they have simplified our operating structure and they are expected to further reduce our operating expenses going forward. During 2023, we made strategic investments in our business to continue to provide our brand partners with new innovative technologies and services. This includes the 2023 launch of our world-building capabilities. World-building develops custom worlds for brands in popular gaming titles such as Fortnite and Roblox. And during 2023, we worked with global brands including MasterCard, Samsung, Six Flags, and Coca-Cola. Through our world-building efforts, we provide end-to-end solutions, including conceptualisation and development of gaming worlds, along with the campaign strategy, execution and amplification through the marketing services offered by our various subsidiaries. World-building has been a fast-growing, high-margin strategy, and we expect these activities to continue to drive organic growth in 2024. Another organic area of growth in 2023 was through our creator-driven marketing initiatives. The combination of Engine Gaming's best-in-class technology assets with GameSquare's award-winning agency and creative capabilities allows the company to offer unparalleled insight into consumer behaviours. It also allows us to develop data-driven creative strategies and measure and optimise campaigns towards customer acquisition goals in real time, creating impactful marketing solutions that drive ROI for GameSquirt customers. Finally, having an omnichannel engagement approach has become an important component to building audiences. As a result, during the fourth quarter of 2023, we made additional investments in our events business, including the addition of Paul Aokum to lead this division and our efforts to support our brand partners as they look to drive powerful and immersive connections with their customers. We continue to focus on investing in organic growth opportunities while optimizing our business to take advantage of large growing secular growth trends. I'm pleased to announce that over the past four months, we have completed the biggest moves in our company's history. First, because of the engine transaction, we completed the sale of non-core radio assets associated with Franklin Media in December of 2023. The radio assets had approximately $1.8 million of annual sales and added $2.75 million of non-diluted capital to our balance sheet, with another $650,000 in the fall of contingent consideration to be collected in April 2024 and 2025 if the contingencies are met. Most importantly, in March of 2024, we completed the acquisition of FaZe Clan, marking a significant milestone in our journey to revolutionise the gaming and media landscape. Baseband is one of the biggest brands and influencers across the global gaming market. The combination with Base continues our strategy of acquiring leading companies focused on esports, gaming, and youth culture to increase capabilities, grow scale, unlock cost savings in power stands and creators, and drive ultimate value for our 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 to re-establish the brand's authenticity. FaZe Banks, Temper, and Apex are highly motivated to re-engage with FaZe's core fan base and empower FaZe's creators and community. This strategic alliance strengthens our positions across global industries amplifies our ability to connect brands with elusive and influential youth audiences, and unlocks even more opportunities to support our partners with cutting edge technology. Together, we will seek to redefine the future of esports and gaming by leveraging our combined expertise to pursue opportunities for growth and innovation. Our commitment remains unwavering as we aim to lead the way in shaping the ever-evolving intersection of gaming, media, and brand engagement. As a result of the Faze acquisition, Gamesfair has built a top-created network in the gaming and esports space. Gamesfair and Faze Clan will combine a hyper-engaged global fan base with a core focus on 13 to 34-year-old audiences. We will have a powerful portfolio of brand partners that includes Porsche, Nike, Jack in the Box, Xfinity, Dairy Max, Ghost, and many more. Over the near term, we are focusing on removing costs from the combined company and identified over $18 million in future run rate cost savings supported by reduced corporate costs and focus on driving efficiencies across the organization. We're also quickly pursuing licensing opportunities for the Faze brand, leveraging Faze's success, building an innovative dual revenue model that has generated over $75 million of product sales and $7 million of high margin gross sales. co-branded product revenue. Given FaZe Clan's proven track record in the strategy of selling co-branded products at retail, compounded with the incredible resources within the Games Square ecosystem, we are excited to see continued growth of this high margin business in 2024 and beyond. As a result of the FaZe Clan acquisition and to support our growth initiatives, we successfully raised $10 million from existing shelters new investors and members of the board further strengthening our balance sheet. Finally, in March 2024, we completed the sale of our prior esports team, Complexity Gaming, for a total consideration of $10.4 million. The sale of Complexity follows a successful growth strategy, which from 2021 to 2023 saw sales increase 175%, and the number of aggregate social followers under our ownership increased by 10x. Through the phase plan acquisition, we now own one of the most successful and influential esports teams in the world. We are focused on replicating the rapid growth strategy we pursued with complexity, now with phase plan, and expect to see similar growth trends in the coming years. As you can see, it's been a very busy and exciting period at Gamesquare. To summarize the actions we have recently completed, We've unlocked significant value for our shareholders by selling non-core businesses that combined represented approximately $13 million in annual revenue last year. These efforts will contribute approximately $13.8 million in non-diluted capital once fully realised. We also recently completed a $10 million equity raise from new and existing shareholders and completed the all-stock acquisition of FaveClan that was valued at approximately $14 million and had an annual sales in 2023 of approximately $43 million. So with this overview, let me turn the call over to Mike to run through our financial results in more detail.

Thanks, Justin. Comparing our 2023 four-year results to the prior year, total revenue increased by 85.2% or by $23.9 million to $52.0 million from $28.1 million in the prior year. The increase in revenue was primarily due to the contribution from the April 2023 engine gaming transaction. Growth margin for the 2023 full year was 13.4 million or 25.9% of sales compared to 9.7 million or 34.4% of sales in 2022. The declining growth margin for the year reflects a less profitable mix of sales, which temporarily impacted gross margin in the fourth quarter. While we have made significant strides in improving our operating cash burn figures on a combined basis, adjusted EBITDA losses for 2023 amounted to 15 million compared to a loss of 13.2 million last year. As a percentage of revenue, our adjusted EBITDA improved from 47.2% last year to 28.8% in 2023. We believe the integration activities between GameSquare and Phase Plan will yield annual cost savings of approximately $15 million in 2024 when comparing GameSquare and Phase Plan pro forma combined results in Q4 2023 to combined results in Q4 2024. With this overview, I'll turn it over to Justin.

Thanks, Mike. As you can see, 2023 and the beginning of 2024, have been historic periods for the company as we work to build a disruptive and innovative next-generation media company. We are pursuing additional value-creating actions that not only optimize our business, but add additional capabilities and resources to the company. Looking to 2024 on a pro-forma basis that assumes the full year's contribution to the March 2024 phase plan acquisition, we expect to achieve over $100 million in annual revenue with an annual growth margin to raise between 22.5% to 27.5%. We are also committed to executing against strategies that reduce SG&A expenses and ultimately drive profitability. I'm extremely excited by the direction we are headed and I look forward to updating investors on our success on our first quarter conference call in May. So with this overview, Lou, Mike and I are happy to answer questions. I'll throw it back to the operator to open up on Q&A. Thank you.

Thank you. We will now begin the question and answer session. To join the question queue, you may press star then 1 on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any calls. To withdraw your question, please press star then 2. We will pause for a moment as callers join the queue. Our first question comes from Sean McGowan of Roth Capital Partners. Please go ahead.

Hi, guys. Good afternoon. If I can, I've got a couple of questions. One on the gross margin. I think, Mike, you were talking about factors that affected the full-year margin being mostly mixed. But if you look at it just for the fourth quarter, it seems quite a bit lower than just a mixed issue. Are there other you know, kind of one-time things, maybe true-ups that are in that December quarter number that would make that unusually low, or is, you know, 9% actually indicative of how low it could go?

Yeah, I can take this.

Go ahead, Justin.

Yeah, I'll jump in, and then, Mike, if you want to add some colour, feel free. Yeah, Sean, we kind of touched on it in the call a little earlier, We had a couple of projects on the agency side of the business where budgets were pulled by clients. I mean, I think we've sort of seen that across the industry in general. There was some headwinds that obviously we've been having to navigate. I think largely we've navigated them really well. But a couple of projects where budgets were pulled back, we're doing our best to get those realised here in 2024 and making some really good progress. But yeah, In Q4 of 2024, obviously, pulling back a few million dollars on these larger projects that are obviously higher margin in nature, you then get an ultimate revenue mix that has a higher percentage of programmatic revenue. So certainly not ideal in Q4. And certainly not a trend that you would expect to see continue. We've got a really strong pipeline on the agency side. That part of our business is continuing to grow. But it was something that we faced just through to some market headwinds and budgets being pulled away. So definitely due to the higher mix of programmatic revenue in Q4 and certainly not something that we expect to see continue.

Okay, thank you. One other question, and then I wanted to ask you to clarify something from your prepared remarks. The other question I had was, what would give you the confidence that that pullback that you referenced would not recur? I mean, are people not as concerned about the environment in 24 as they were in the fourth quarter of 23?

Yeah, I mean, I think So far in 2024, we've definitely seen a lot of sentiment shift in the market. I'd say our pipeline is as strong as it's ever been, if not stronger than ever. I think obviously bringing in the acquisition of FaZe Clan, we've had a huge amount of brand interest. Obviously, FaZe brings some tier one brands in itself. And there's an opportunity there from the services that we, you know, currently already provide to be able to upsell into some of those existing partners, but we're getting a lot more doors open. Currently we're starting to see that translate. And so we feel pretty confident in the sort of move forward strategy. I think, you know, last year, as I said, we, we navigated the pipeline. Well, we're still pretty young in, in, you know, the overall, uh, sort of life of the business. And so for us, it's really about executing with these brand partners when we open the doors so we can turn them into longer term relationships and more recurring revenue. And I think we are seeing the recurring revenue base go up. But yeah, unfortunately, as we mentioned, there are a couple of larger campaigns that definitely affected Q4 revenue, but we're seeing those trends shift. We're getting some deals closed. We're getting some higher longer term deals And so we feel really good about, you know, 2024 moving forward.

Okay. Thank you. And then the clarification, if I could ask you that is, I think earlier in the call, I told the beginning, you mentioned seven, I think you said $7 million worth of costs that had been taken out. And then later you referenced 15 million to come. And I was, Asking you to, you know, I'd like to know how those relate to each other is, is, are they unrelated to, you know, are they, are they two different kinds of cost reductions or is one included in the other?

Yeah. So the 7 million in cost reductions, um, is in relation to, uh, the engine gaming transaction. Okay. Um, in terms of sort of the phase. Okay. Yeah, so the annualized cost that we've been able to realize by a transaction, I think the reality is that it's been pretty tough out there in the microcap market. And I think really there's an opportunity for us to start to get to scale, right? There's no doubt that being a public company is expensive. And I think we're starting to realize that, right? Like obviously we mentioned kind of getting 100 million in revenue. That's one piece of scale, but obviously the other important piece is reducing costs and trying to get to profitability. I think we've been able to realise some real cost savings as part of the engine deal. And we think that there's more than double to be realised here with phase. And we've realised a lot already. Obviously, there's this headcount, but there's a number of duplication in costs across the businesses. And we've been able to realise a number of those already We've moved our head office to a new headquarters. Obviously, the corporate costs of being public, obviously, FASE was also public. So, you know, the list kind of continues. So we're going to be really aggressive there. We know the revenue piece is important, but we're going to be really aggressive in pulling out those costs this year and showing that trend throughout 2024.

Okay. Thank you very much.

That concludes the question and answer session. I would like to turn the conference back over to Justin Kenna for closing remarks.

Thank you, and again, thank you everybody for joining the call today. We are very appreciative of the continued support. We're working around the clock to really drive value for shareholders and feel really good about where the company is positioned to do exactly that. We're incredibly excited by the Faze acquisition. I think that we've shown a really clear roadmap on the success that we were able to achieve at Complexity. If you look at sort of the financials of Complexity from the time we took over to ultimately the sale there, I think that's a really good roadmap for what we're able to do with Faze, which is ultimately a much larger brand in terms of audiences. and reach. So we feel really good and we're really well positioned. So just want to really thank everybody for joining the call. Thanks everybody for the continued support. And we look forward to catching up in a month here in May to sort of report back on Q1 and some additional updates. So thanks everybody. Really appreciate it.

This concludes GameSquare's 2023 Financial Results Conference call. You may now disconnect your lines. Thank you for participating and have a pleasant day.