Q1 2024 GameSquare Holdings Inc Earnings Call
During the call all participants are in listen only mode.
Operator: During the call, all participants are in listen-only mode, and 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 on 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 10-Q for the quarter ended March 31st, 2024, which is available on the company's website or with the Securities and Exchange Commission. I would now like to turn the call over to GameSquare's CEO, Justin Kenna. Justin, please go ahead.
Following the presentation, we will conduct a question and answer session.
Speaker Change: Before management discusses the results I'd like to remind everyone that certain statements on this call maybe forward looking in nature.
Speaker Change: This includes 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.
Speaker Change: For information about forward looking statements and risk factors. Please see our 10-Q for the quarter ended March 31, 2024, which is available on the company's website or with the Securities and Exchange Commission.
I'd now like to turn the call over to game Square CEO, Justin Kenna, Justin. Please go ahead.
Justin Kenna: Thank you and good afternoon to everyone joining us on today's call.
Justin Kenna: Thank you and good afternoon to everyone joining us on today's call. I'm extremely excited to review the progress we're making at Gamesquare as we pursue strategic priorities aimed at creating a fast-growing, highly profitable next generation media business. Activity across our business is extremely high, and we're making significant progress optimizing our business model, investing in long-term growth, and improving profitability. While we still have work to do, we believe our pro forma results demonstrate the meaningful accomplishments we are making to create lasting value for our shareholders.
Justin Kenna: I'm extremely excited to review the progress when might be a guidance quota.
Justin Kenna: We pursue strategic priorities aimed at creating a fast growing highly profitable next generation media business.
Justin Kenna: Activity across our business is extremely high and we're making significant progress optimizing our business model and.
Justin Kenna: Long term growth and improving profitability.
Justin Kenna: While we still have work to do we believe that pro forma results demonstrate the meaningful accomplishments, we are making to create lasting value for our shareholders.
Justin Kenna: With all the action, we've taken over the past year and a half or to use talk Tonight to review our recent M&A activity our vision for Faze clan.
Justin Kenna: With all the action we've taken over the past year and a half, I want to use my time today to review our recent M&A activity, our vision for Phase Plan, the progress we are making on reducing costs, and the GoForward strategies that we're pursuing to drive profitable growth. I'll then turn the call over to Mark, who will review our first quarter results in more detail.
Justin Kenna: As a reminder, in December 2023, we completed the $3.4 million sale of frankly non-core radio business assets. In March 2024, we completed the $10.4 million sale of Complexity Gaming, and also in March 2024, we completed the all-stock acquisition of FaZe Clan that was valued at approximately $14 million. In addition, we recently sold 49% of FaZe Media for $11 million, allowing us to retain voting control and continue consolidating FaZe Media's results in our financial statements.
Justin Kenna: We are making reducing costs and the going forward strategy that we're pursuing to drive profitable growth.
Speaker Change: I'll, then turn the call over to Mark who will review our first quarter results in more detail.
Speaker Change: As a reminder, in December 2023, we completed the $3 4 million silo frankly non core radio.
Mark: Business assets in March 2024, we completed the $10 $4 million sale of complexity gaming and also in March of 2024, we completed the all stock acquisition of five class that was valued at approximately $14 million. In addition, we recently sold 49%.
Mark: Oxide media for $11 million, allowing us to retain voting control and continued consolidated <unk> results in our financial statements.
Mark: The vast majority of five types of storage that has been associated with the assets of five media. So this new capital will support five media and position the combined business the profitability in the coming quarters to.
Justin Kenna: The vast majority of Facebook's historic burn has been associated with the assets of Fave Media, so this new capital will support Fave Media and position the combined business for profitability in the coming quarter. To summarize these recent actions, we brought in $25 million of new capital and acquired the largest eSports organization in the world for $14 million in stock. As a result, we believe that we have significantly enhanced our business with best-in-class assets. Replacing Complexity with Base Plan is an important component of our growth strategy.
Mark: To summarize these recent actions we brought in $25 million of new capital.
Mark: And acquired the largest esports organization in the world.
Mark: $14 million in stock as a result, we believe that we have significantly enhanced our business with best in class assets.
Mark: Replacing complexity with five plan.
Is an important component of that growth strategy and against good uninitiated complexity increased sales by over 220%.
Justin Kenna: Under GameSquare's ownership, Complexity increased sales by over 220% from 2021 to 2023, reflecting our success and rapidly growing sales of an esports organization. Since I joined GameSquare as CEO at the start of 2021, our strategy has been focused on developing a broader platform to pursue large market opportunities that produce greater value for GameSquare, as well as our brand partners. We believe FaithPlan allows us to quickly benefit from a broader business model.
Mark: 'twenty one.
Mark: 23, reflecting <unk> rapidly growing sales of an esports organization.
Speaker Change: Since I joined <unk> as CEO and.
Speaker Change: The start of 2021, our strategy has been focused on developing a broader platform to pursue large market opportunities that produce greater value for guidance square as well as our brand partners.
Speaker Change: We believe <unk> plan allows us to quickly benefited from our broad business model based on already has an established E sports and media assets.
Justin Kenna: FaithPlan already has established eSports and media assets. FaZe Clan, across its owned and operated social accounts, has over 35 million direct followers compared to approximately 1 million at Complexity. With a significantly larger direct following, Spaceplane is better positioned to add new brands and partners to the Gamesquare ecosystem, which supports our interconnected strategy and accelerates our path to reaching scale. The Phase Plan acquisition also adds one of the world's best and most recognized esports organizations, which includes the number one globally ranked Counter-Strike team.
Speaker Change: I plan across its owned and operated social account.
Speaker Change: And over $35 million direct followers compared to approximately $1 million at complexity.
Speaker Change: With a significantly larger direct following pipeline is better positioned to add new brands and partners to the games ecosystem, which support our interconnected strategy and accelerate our path to reaching scale.
Speaker Change: The <unk> acquisition also add one of the world's best and most recognized esports organizations, which includes the number one globally ranked counterstrike thing.
Speaker Change: In addition, <unk> plan was one of a select number of esports teams and bought it to participate in this summer's esports worldcom.
Justin Kenna: In addition, FaZe Clan was one of a select number of eSports teams invited to participate in this summer's eSports World Cup. This is the premier eSports tournament featuring one of the largest prize pools in the history of professional eSports.
Speaker Change: Is the Premier esports tournament.
Speaker Change: And one of the largest parcel in the history of professional esports.
Speaker Change: Walter kind has a leading esports organization.
Justin Kenna: While Faceplant is a leading eSports organization, as a standalone business, they lack the experience monetizing their teams and need not have dedicated assets to optimize their revenue. GameSquare's platform, on the other hand, has experience developing revenue opportunities, just like our success at Complexity. As a result, over the coming quarters, we are going to leverage our experience and resources to accelerate the growth of FaZe Esports. This includes a dedicated sales infrastructure for the esports industry that is focused on monetizing direct partnerships, sponsorships, developing events, and creating new merchandising opportunities. As you can see, we have significantly upgraded our platform with the addition of Phase Esports.
Speaker Change: Standalone business experienced monetizing the chains and you don't have dedicated assets to optimize their revenue <unk> platform on the other hand as experience developing revenue opportunities just like our success at complexity.
Speaker Change: As a result over the coming quarters, we are going to leverage out spirits and resources to accelerate the growth of pace esports. It can cause a dedicated sales infrastructure to the east.
Speaker Change: For an industry that is focused on monetizing direct partnerships sponsorships developing events and creating new merchandising opportunities.
Speaker Change: You can say, we have significantly upgraded our platform with the addition of <unk> E sports and we expect to see accelerating revenue growth from this business segment in the coming quarters as we leverage our proven monetization strategies.
Justin Kenna: We expect to see accelerating revenue growth from this business segment in the coming quarters as we leverage our proven monetization strategy. The next topic I want to review today is last week's announcement of the formation of Fave Media and the strategic investment for Matt Palish, is bound to drop. I'm extremely excited to welcome Matt to GameSquare and Faze Media. As a strategic investor, Matt has a proven track record, incredible networks, and he understands the creator economy and media businesses as well as anyone.
Speaker Change: The next topic I want to review today. These last week's announcement of the formation of paid media and the strategic investments that stylish.
Justin Kenna: His $11 million investment is for a 49% interest in Pfizer-BioNTech, with a controlling interest. GameSquare's 51% ownership means that FaZe Media and Financials will be consolidating our financial results. In addition, GameSquare owns 100% of Face eSports.
Speaker Change: A drop.
Speaker Change: I'm extremely excited to welcome Matt to game square and media.
Speaker Change: As a strategic investment that has a proven track record incredible networks, he understands a creator economy and media businesses as well as anyone.
Speaker Change: $11 million of investment needs for a 49% interest in fight media.
Speaker Change: With a controlling interest kind of a 51% ownership means a tight medium financials will be consolidated financial results.
Speaker Change: In addition, thanks Corrado 100% of esports.
Speaker Change: Esports.
Speaker Change: Most importantly, matts investment phase media reflects this confidence in the leadership and creative talent affect banks as well as that of the face Andrews and create a roster and also reflects the confidence in guidance because leading capabilities in the <unk>.
Justin Kenna: Most importantly, Matt's investment in FaZe Media reflects his confidence in the leadership and creative talent of FaZe Banks, as well as that of the FaZe founders and creator roster. It also reflects his confidence in GameSquare's leading capabilities and the platform that we are creating. FaithMedia includes revenue from content creation, talent management, and brand licensing that in 2023 represented approximately $30 million of FaithClan's overall revenue.
Speaker Change: What form that we are creating.
Speaker Change: <unk> media includes revenue from content creation cloud talent management, a brand licensing in 2023 represented approximately $30 million a fight claims overall revenue.
Speaker Change: All sides media has an established base of revenue. We believe the business was previously impacted by broken cost structure, Underinvestment and effective strategies. It didn't probably understand the appeal of the brand fits into the evolving guidance.
Justin Kenna: While Face Media has an established base of revenue, we believe the business was previously impacted by a broken cost structure, underinvestment, and ineffective strategies that didn't properly understand the appeal of the brand and how it fits into the evolving gaming industry. As a result, the vast majority of base plants that started to burn were from fake media. In the near term, there are three important strategies we are pursuing that we believe will improve Face Media's performance and create the proper infrastructure to drive its long-term success. Our third strategy is to control and eliminate costs to quickly reduce late media's cash burn.
Speaker Change: As a result, the vast majority of face claims to Star Wars.
Speaker Change: It was from five video.
Speaker Change: Over the near term there are three important strategies. We are pursuing that we believe will improve buys media performance and create the proper infrastructure to drive its long term success.
Speaker Change: Our first strategy is to control and eliminate costs quick cost to quickly reduce by immediate cash burn.
Even before we completed the acquisition March prices, reducing head count and working on initiatives to control costs.
Justin Kenna: Even before we completed the acquisition in March, FASE was reducing headcount and working on initiatives to control costs. Under GameSquare's ownership, we believe that there are $18 million of annual costs to be reduced as a result of the FASE acquisition and expect the majority of these savings to be realized during the 2024 second and third quarters. Over the near term, we expect to benefit from removing expenses associated with redundant corporate overhead, Headcount Reductions, and Optimizing Vendor Agreements.
And against because ownership, we believe that there are $80 million of annual cost synergies as a result of the <unk> acquisition and expect the majority of these savings to be realized during the 2020 for second and third quarters.
Speaker Change: Over the near term, we expect to benefit from removing expenses associated with dundon corporate overhead.
Speaker Change: Head count reductions at optimizing vendor agreements.
Speaker Change: We've not to $11 million and Definitize media or in a strategic investor to fully fund the business invest in its growth and get paid media on a clear path to profitability.
Justin Kenna: With an $11 million investment in Faze Media, we have brought in a strategic investor to fully fund the business, invest in its growth, and get Faze Media on a clear path to profitability. We are also leveraging GameSquare's experience to provide the proper structure and leadership to effectively manage Faze's talent and ensure that every dollar we spend generates a return. Our second priority is focused on creating a proper platform to maximize Faze Media's revenue opportunities.
Speaker Change: Leveraging guidance great experience to provide the proper structure and leadership to effectively manage talent and ensure that every dollar we spent generates over time.
Speaker Change: Our second priority is focused on creating a powerful platform to maximize size medians revenue opportunity are critical components of our strategy was returning tightened bounded back to the brand that they created not only re engage with their existing standby spot to reestablish the brand authenticity and increase their community engagement.
Justin Kenna: A critical component to our strategy was returning FaZe's founders back to the brand that they created to not only re-engage with their existing fan base but to re-establish the brand's authenticity and increase their community engagement. As a result, FaZe Media has welcomed back FaZe Banks as CEO, FaZe Apex as COO, and FaZe Temper as President. Matt and I will also serve on the board of FaZe Media, providing another level of oversight and guidance for FaZe.
Speaker Change: As a result, five media is welcome back site banks as CEO.
Speaker Change: <unk> is C O O anti tamper as President Matt <unk> will also serve on the board of size media promoting another level of oversight and guidance provides media.
Speaker Change: But April 27, 2020 for phase III is brand and I'm thrilled to report that the relaunch experienced unprecedented engagement across social media platforms and was the number one trending trending topic on X holding on Twitter in the U S.
Justin Kenna: On April 27, 2024, FaZe rebooted its brand, and I'm thrilled to report that the relaunch experienced unprecedented engagement across social media platforms and was the number-one trending topic on X, formerly known as Twitter, in the U.S., And it should be noted beat out the NFL draft going on at the same time. In addition, FaZe Clan's search interest was the strongest the brand has experienced on YouTube since May of 2020 and on Google since May of 2019. It was estimated to have had over 350 million social media impressions.
Speaker Change: And this also should be noted laid out the NFL draft going all of a sudden pillar. In addition, five claims search interest was a strongest the brand has experienced an issue since may of 2020 and on Google since may of 2019.
Speaker Change: Tonight to have over 350 million social media impressions.
Speaker Change: The internet and gaming to be as excited about <unk> and the steps you've taken to relaunch the brand and reprice to talent roster.
Justin Kenna: The internet and gaming community is excited by FaZe Banks' return and the steps he has taken to relaunch the brand and refresh the talent roster. As you can see, the FaZe brand continues to captivate audiences and drive engagement. In fact, FaZeFan has over 230 million aggregate followers across FaZe and Talent Social, which includes the 35 million directs that we mentioned before.
Speaker Change: As you can see the base brand continues to captivate audiences and drive engagement. In fact, 5000 230 million aggregate followers across buys in town Socials, which includes the 35 million directs that we mentioned before.
Speaker Change: The final priority, we are pursuing a phase mediated leveraging <unk> industry, leading following to drive significant revenue opportunities quarterly plan is a newly minted constant strategy.
Justin Kenna: The final priority we are pursuing at FaZe Media is leveraging FaZe Clan's industry-leading following to drive significant revenue opportunities. Core to this plan is a newly minted content strategy to take advantage of FaZe's proven content approach that resonates with gaming and youth audiences. Initiatives include new FaZe houses in Miami and LA for creators to produce continual, consistent content.
Speaker Change: The advantage of phases proven content approach that resonates with gaming and use audiences initiatives include new five pound in Miami and a life of creators to produce continue consistent console.
Speaker Change: In addition, we'll be developing cradle that shows podcast live streaming events short and long form content that will be monetized.
Justin Kenna: In addition, we'll be developing create-a-let shows, podcasts, live streaming events, short and long-form content that will all be monetizable. We are following a defined content strategy that leverages the resources of GameSquare and our established frontline studios' production assets. It's important to note that the internet and gaming communities will not see any difference in the FaZe brand from a fandom standpoint.
Speaker Change: We are following a defined content strategy that leverages, our resources and time square in our established <unk> Studios production asset.
Speaker Change: It's important to note that the Internet gaming communities were not seeing any difference in the size brands from a standard standpoint, the formation of <unk> media on the just the ownership structure and with gains kind of maintaining as controlling interest by Canadians financials will continue to be consolidated in guidance squares results.
Justin Kenna: The formation of FaZe media only adjusts the ownership structure, and with Gamesquare maintaining its controlling interests, FaZe media's financials will continue to be consolidated in Gamesquare's results. Looking at our improved cost structure and the platform we are creating in more detail, I'm extremely proud of the hard work and dedication of our global team members. After last year's successful integration of engine gaming, we are quickly replicating our efforts to successfully integrate PlaySafe
Looking at our improved cost structure and the platform, we are creating a more detail I'm extremely proud of the hard work and dedication of our global team members. After last year's successful integration of Indian gaming, we have quickly retro kind of efforts.
Speaker Change: I think firstly, you guys buy side over the past year, we have removed approximately $8 million of annualized costs associated with the engine gaining transaction.
Justin Kenna: Over the past year, we have removed approximately $8 million of annualized costs associated with the engine gaming transaction. While FASE has already begun eliminating costs prior to the acquisition, we are quickly removing additional redundant corporate expenses, and we are focused on aligning FASE Claims Cost Structure with expected revenue. As a result, we anticipate removing about $18 million of annualized operating costs, with the majority of these costs coming out during the 2024 second and third quarters.
Speaker Change: Wildfire has already begun eliminating cost prior to the acquisition. We are quickly removing additional redundant corporate expenses and we are focused on aligning fight claims cost structure with expected revenue.
Speaker Change: As a result, we anticipate removing around $80 million of annualized operating costs with the majority of these cost coming out during the 2020 for second and third quarters.
Speaker Change: As we focus on reaching profitability in the coming quarters, we continue to pursue opportunities to add additional capital to our balance sheet. During the first quarter, we successfully raised $10 million of new capital in a private placement.
Justin Kenna: As we focus on reaching profitability in the coming quarters, we continue to pursue opportunities to add additional capital to our balance sheet. During the first quarter, we successfully raised $10 million of new capital in a private placement. The recent asset sales are frankly incomplexity, yet again square a total of $14 million, including a $9.5 million promissory note on our balance sheet.
Speaker Change: Asset sales or frankly, any complexity in against Grand total of $40 million, including a $9 5 million go up.
Speaker Change: On our balance sheet.
Speaker Change: We believe Max $11 million investment in five linear will fully fund that business as we optimize its cost structure.
Justin Kenna: We believe Matt's $11 million investment in Faze Media will fully fund that business as we optimize its cost structure and begin to drive revenue growth. Finally, we are working on additional non-core asset sales and other opportunities to improve our capitalization and support our growth opportunities. Today, GAMESquare's platform comprises owned and operated IP, including content creation, played media, and our esports teams. We have full-service creative agencies that leverage our experience and connection to youth and gaming audiences to provide global brands with content, campaign management, media strategy, and placement services.
Speaker Change: And begin to drive revenue growth.
Speaker Change: Finally, we are working on additional non core asset sales and other opportunities to improve our capitalization and support our growth opportunities.
Speaker Change: Guy constant platform comprises owned and operated IP, including content creation quite media and our esports games, we have foodservice creative agencies that leverage our experience in connection to used in gaming audiences that provide global brands content campaign management media strategy and placement services.
Speaker Change: And finally, we have best in class SaaS based offerings, including launching data Influencer marketing and managed services capabilities.
Justin Kenna: And finally, we have best-in-class SaaS-based offerings, including live streaming data, influencer marketing, and managed services capability. On a pro forma basis, we generated $23.5 million in revenue in the first quarter, a slight decrease from pro forma revenue for the same quarter of last year.
Speaker Change: On a pro forma basis, we generated $23 $5 million in revenue in the first quarter.
Speaker Change: A slight decrease from pro forma revenue for the same quarter of last year.
Speaker Change: More importantly, I'm pleased to report that our adjusted EBITDA on a portfolio basis improved by $6 4 million a loss of $14 3 million for 2023 first quarter core loss of seven nine for 2024. This dramatic improvement in adjusted EBITDA. During the first quarter reflects the efforts we have been pursuing to eliminate costs and drive.
Justin Kenna: More importantly, I'm pleased to report that our adjusted EBITDA on a pro forma basis improved by $6.4 million, a loss of $14.3 million for 2023, first quarter to a loss of $7.9 for 2024. This dramatic improvement in adjusted EBITDA during the first quarter reflects the efforts we have been pursuing to eliminate costs and drive profitability. As a result, we believe we have a clear path to profitability in the coming quarters and expect to see the majority of the expected $18 million of cost synergies being removed in the 2024 second and third quarters.
Profitability as a result, we believe we have a clear path to profitability in the coming quarters and expect to see the majority of the expected $80 million of cost synergies being removed in the 2020 for second and third quarters.
Speaker Change: As you can see we've created a strong go forward platform.
Justin Kenna: As you can see, we've created a strong platform to go forward, and the final strategies that we're reviewing today are the actions we are taking to drive revenue growth in 2024 and beyond across GameSquare's ecosystem. Starting with our own and operated IP, key growth priorities include leveraging Fave Media's content through a successful reboot and new talent roster, driving growth within our emerging events business, and growing outreach and influence to launch new content initiatives, lifestyle brands, and more.
Speaker Change: Final challenges our review today are the actions we are taking to drive revenue growth in 2024 and beyond the cost guidance is ecosystem.
Speaker Change: Starting with our owned and operated as a key growth priorities include leveraging five committees content through a successful reboot and new talent roster.
Speaker Change: Driving growth within our emerging I'd business.
Speaker Change: And growing our reach and influence to launch new content initiatives lifestyle brands and more.
Speaker Change: Looking at growth opportunities you know me.
Speaker Change: And I can see businesses in 2024, we are focused on expanding publisher relationships with major players like epic games.
Justin Kenna: Looking at growth opportunities in our media and agency businesses in 2024, we are focused on expanding publisher relationships with major players like Epic Games, leveraging the success of our rapidly growing world building business, increasing our relationships with retainer clients, and growing our live stream as a service business. Finally, on the SaaS and technology side of our business, growth priorities include combining our data and insights capabilities with our creator management and activation platform to deliver a more comprehensive solution set for game publishers and brands looking to drive targeted audience and improve revenue performance, leveraging our platform for data-driven creative campaigns that yield high-performing ROI and performance-based returns and expanding our managed services offering.
Speaker Change: Leveraging the success of our rapidly growing well building business.
Speaker Change: Increasing out relationships with retaining clients and growing our large screen as a service business.
Speaker Change: Finally on the SaaS and technology side of that business growth priorities include combining our data and insights capabilities without creative management and <unk>.
Speaker Change: Device and platform to deliver a more comprehensive solution set the game publishers and brands looking to drive targeted audiences and improve revenue performance.
Speaker Change: Leveraging our platform for data driven creative campaign.
Speaker Change: New high performing ROI in performance by returns and expanding our managed services offerings.
We have developed a strong innovative and differentiated platform that supports significant growth opportunities within the game publishing category a unique advantage within these categories being recognized by some of the largest game publishers in the World. We are just getting started and I'm excited to report on our success on future calls.
Justin Kenna: We have developed a strong, innovative, and differentiated platform that supports significant growth opportunities within the game publishing category. Our unique advantage within this category is being recognized by some of the largest game publishers in the world. We are just getting started, and I'm excited to report on our success on future calls. So with this overview, I'd like to turn the call over to Mike to review our first quarter financials.
Speaker Change: So we just thought it was you know I'd like to turn the call over to Marc to review, our first quarter financials.
Marc: Thanks, Justin.
Marc: Before we looked at our 2024 first quarter financial results in more detail.
Mike: Before we look at our 2024 first quarter financial results in more detail, it's important to note that our GAAP financial statements include 24 days of phased plans resolved. In addition, Complexity, which was sold in March 2024, has been treated as a discontinued operation, and its results have been reclassed into discontinued operations in our 2024 and 2023 first quarter financial statements.
Marc: It's important to note that our GAAP financial statements include 24 days of Phase <unk> results.
Speaker Change: And the.
Marc: Complexity, which was sold in March 2024 has been treated as a discontinued operation and complexities results have been reclassified to discontinued operations during 2024, and 2023 first quarter financial statements.
As a result, we believe it's best to look at our business on a non-GAAP pro forma basis, which removes complexity from our financial statements includes a full quarter contribution of <unk> in the 2024 period and includes a full quarter contribution of engine and phased claim in the 2023 period.
Mike: As a result, we believe it's best to look at our business on a non-GAAP, pro-forma basis, which removes complexity from our financial statements and includes a full quarter contribution of phase plan in the 2024 period and includes a full quarter contribution of engine and phase plan in the 2023 period. Comparing our 2024 first quarter pro forma results to the prior year, total revenue was $23.5 million compared to $24.1 million. The slight year-over-year decline in revenue was primarily due to a $4.2 million reduction in phase plan revenue, partially offset by a $3.6 million increase in Gamesquare and Engine gaming revenue.
Marc: Comparing our 2024 first quarter pro forma results to the prior year total revenue was $23 5 million compared to $24 1 million.
Marc: The slight year over year decline in revenue was primarily due to a $4 $2 million reduction in phase <unk> revenue, partially offset by a $3 $6 million increase in gains current engine gaining revenue.
Marc: Gross margin on a pro forma basis for the 2020 for first quarter was three 7 million or 15, 7% of sales compared to $4 zero million or 16, 5% of sales for the same period last year.
Mike: Gross margin on a pro forma basis for the 2024 first quarter was $3.7 million, or 15.7% of sales, compared to $4.0 million, or 16.5% of sales for the same period last year. The declining gross margin for the year reflects a less profitable mix of sales, which temporarily impacted gross margin in the first quarter. As Justin mentioned, we have made significant strides in improving our operating cash burn figures over the past 12 months.
Speaker Change: The decline in gross margin for the year reflects a less profitable mix of sales, which temporarily impacted gross margin in the first quarter.
Speaker Change: As Justin mentioned, we have made significant strides in improving our operating cash burn figures over the past 12 months.
On a pro forma basis adjusted EBITDA loss for the 2024 first quarter amounted to $7 9 million compared to a loss of $14 3 million last year.
Mike: On a pro forma basis, adjusted EBITDA losses for the 2024 first quarter amounted to $7.9 million, compared to a loss of $14.3 million last year. As a percentage of revenue, our adjusted EBITDA improved from 59.2% for the 2023 first quarter to 33.7% for the 2024 first quarter. We believe the integration activities between GameSquare and FaceClan will yield annual cost savings of approximately $18 million in 2024 when comparing GameSquare and FaceClan pro forma combined results in Q4 2023 to results in Q4 2024. With this overview, I'll turn the call back over to Justin.
As a percentage of revenue or adjusted EBITDA improved from 59, 2% for the 2023 first quarter to 33, 7% for the 2020 for first quarter.
Speaker Change: We believe the integration activities between game, scoring baseline will yield annual cost savings of approximately $18 million in 2024, when comparing game square and Faze clan pro forma combined results in Q4 2023 to the results in Q4 2024.
Speaker Change: With this overview I will turn the call back over to Justin.
Justin Kenna: Thanks Mark.
Justin Kenna: Before we open the call to questions I want to review our expectations for the remainder of the year.
Justin Kenna: Before we open the call to questions, I want to review our expectations for the remainder of the year. After a solid first quarter, we believe we are extremely well positioned to achieve well over $100 million in revenue annually with an annual gross margin to range between 22.5 to 27.5 percent. It should be noted that Q1 is our seasonally lowest quarter, and with 23.5 million per former, we're well and truly on track.
Justin Kenna: After a solid first quarter, we believe we are extremely well positioned to achieve well over 100 million revenue.
Speaker Change: Italy was an annual gross margin to range between 22.5% to 27.5%.
Speaker Change: It should be noted that Q1 is.
Speaker Change: Our seasonally lowest quarter and was $23 5 million pro forma where we're well and truly on track.
Speaker Change: We anticipate revenue growth to accelerate in the third and fourth quarters.
Justin Kenna: We anticipate revenue growth to accelerate in the third and fourth quarters. In addition, we remain committed to pursuing strategies that expand gross margins, reduce SG&A expenses, and ultimately drive profitability. As we look to the seasonally strong second half of the year, we believe we are very well positioned to achieve our guidance and benefit from dramatic improvements in profitability. I believe our strong first quarter financial and operating performance supports our initial success in creating a fast-growing, highly profitable, next-generation media business. I look forward to updating investors on our success and our second quarter call in August. So with this overview, Lou, Mike, and I have to take any questions, sort of like the operator.
Speaker Change: In addition, we remain committed to pursuing strategies that expand gross margins reduced SG&A expenses.
Speaker Change: And ultimately drive profitability.
Speaker Change: As we look to the seasonally strong second half of the year. We believe we are very well positioned to achieve our guidance and benefit from dramatic improvements in profitability.
Speaker Change: I believe our strong first quarter financial and operating performance supports our mission success and creating a fast growing highly profitable next generation media business.
Speaker Change: I want to update investors on our on our success and our second quarter call in August. So at this point when you look Marc and I have to take any questions operator.
Speaker Change: Thank you we will now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad.
Operator: Thank you. We will now begin the question and answer session. To join the question queue, you may press star, then one on your telephone keypad. You'll hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star, then two. Our first question is from Sean McGowan with Roth Capital Partners. Please go ahead.
Speaker Change: Aratana acknowledging your request if youre using a speakerphone. Please pick up your handset before pressing any teams to withdraw your question. Please press Star then two.
Speaker Change: Our first question is from Sean Mcgowan with Roth Capital Partners. Please go ahead.
Thank you good afternoon guys.
Sean McGowan: I'm a couple of questions if I may.
Sean McGowan: Thank you. Good afternoon, guys. I have a couple of questions, if I may. Can you be a little bit more specific about what is in FASE Media and what is not relative to everything that you acquired when you took on FASE? So, what's in it, and what's not in it?
Speaker Change: Can you be a little bit more specific about what is in <unk> media.
Speaker Change: And what is not.
Speaker Change: Relative to everything that you acquired when you took on too so what's in it and what's monitor.
Sean: Yeah, absolutely Sean so.
Justin Kenna: Yeah, absolutely, Sean. So, FaZe Media is really the talent and media business and FaZe Esports is the esports business. So, what lives in FaZe Media is the FaZe brand IP, the active talent roster, which we have obviously made some recent cuts and some recent additions and we've really tightened up that roster. So, it's around 15 of the active talents and, you know, in some ways, Sean, the easiest way to think about it is probably in the opposite as into what lives in FaZe Esports because everything else effectively moving forward will live in FaZe Media and we kind of touched on that being, you know, quite a bit of burn that obviously we're getting under control, but, you know, this transaction really does help fund that burn as we get to growth.
Speaker Change: <unk> media is really.
Speaker Change: The talent and media business and size esports is the esports business. So one lives in <unk> media is the size brand IP.
Speaker Change: The active talent roster.
Speaker Change: We have obviously made some recent cuts in some recent additions and we've really tightened up that Ross says that's around 15 of the active talent.
Speaker Change: And.
Speaker Change: In some ways showing the easiest way to think about it is probably in the opposite as into what lives inside these sports.
Speaker Change: Because everything else effectively moving forward will live in media and we kind of comments on that thing.
Speaker Change: Yes, quite a bit of burn that obviously were getting under control, but you know this transaction really does help fund that done as we get to growth.
Speaker Change: On the esports side it is.
Justin Kenna: So, on the esports side, it is, you know, the active team rosters that we have and the active professional talent, the brand and sponsorship deals directly associated with those teams, and the competitive esports play. Anything outside of that lives within FaZe Media. OK.
Ross: The active team Ross is that we have in the active professional talent.
Ross: The branded sponsorship deals directly associated.
Ross: Three of those teams and the competitive esports fly anything outside of that.
<unk> lives with insight media.
Ross: Okay.
Ross: Sure.
Speaker Change: So in terms of the burn that you referred to in the income statement impact shows.
Sean McGowan: Okay, So in terms of that burn that you referred to and the income statement impact, so if I hear you correctly, you'd still expect Faze Media as a standalone entity to have a negative profit. So you'll be backing out losses in effect then, right? So you'll be showing the fully consolidated revenue and other expenses, but you'll be backing out the minority investors' portion of the losses. Is that right?
Speaker Change: If I hear you correctly, you'd still expect phase media as a standalone entity to have a negative.
Profits, so you'll be backing out losses in effect right. So youll be showing the consolidated revenue and other expenses, which should be backing out the minority investors' portion of the losses is that right.
Speaker Change: Yes, I can say that one yes, that's right, yes, 49% of phase media will be owned by minority interest and it will be an adjustment on the P&L. If there are losses it'll be a.
Mike: Yeah, I can take that one. Yeah, that's right. Yeah, 49% of Faze Media will be owned by a minority interest, and it will be an adjustment on the P&L. If there are losses, it'll be a reduction to that loss from a GameSquare shareholder perspective.
Speaker Change: Reductions in that loss from our games and game square shareholder perspective, Okay, alright. Thanks.
Speaker Change: I'm going to answer.
Justin Kenna: Okay. All right. Thank you.
Speaker Change: That.
Just to be clear.
Speaker Change: Being pretty widely publicized.
Speaker Change: You know the burn that existed at size I think that this transaction so that really de risks that from that perspective.
Sean McGowan: John, to add to that, just to be clear, I think it's been pretty widely publicized, you know, the burn that existed at phase. I think that this transaction sort of, you know, really de-risks that from our perspective. And I would say that, you know, very similarly, phase meter. In the way that we view phase as a whole, we are on a very aggressive path to get towards profitability, but there's no doubt that, in the near term, there is a loss position.
Speaker Change: I would say that yeah, very similarly sized neither in the way that we do face as a whole where we are in a very aggressive path to get towards profitability, but there's no doubt that in the near term and there is a loss position.
Speaker Change: I think if you look at comparatively kind of year on year Q1, we showed a roughly six $5 million improvement on that adjusted EBITDA line and that's really before taking out a lot of costs. So just to be clear. There is current burn, but yeah. We all right. We have very aggressive plans to get placed media.
Sean McGowan: You know, I think if you look at comparatively kind of year on year Q1, we showed a roughly $6.5 million improvement on that adjusted even dollar line, and that's really before taking out a lot of costs. So just to be clear that there is current burn, but we have very aggressive plans to get phase media, you know, to profitability. All right.
Speaker Change: Get to profitability right.
Speaker Change: Alright. Thanks.
Speaker Change: I just assume that.
Justin Kenna: Right. Thank you.
Speaker Change: And then.
Speaker Change: To drill down a little bit more as the $18 million.
Speaker Change: Costs were down I, probably asked you. This before is just like more of an update the $18 million in cost reductions not net of any other growth spending that you might see in other parts of the business other than where youre cutting here or is that net of any additions you're making somewhere else.
Speaker Change: Yes.
Speaker Change: I think the.
Sean McGowan: I did assume that. And then, you know, to drill down a little bit more, is the $18 million in cost reduction, and I probably have asked you this before, it's just more of an update, the $18 million in cost reduction, is that net of any other growth spending that, you know, you might see in other parts of the business other than, you know, where you're cutting here? Is that net of any additions you're making somewhere else?
Speaker Change: The biggest upside of this transaction has been a factor.
Justin Kenna: Yeah, so I think the... The biggest upside of this transaction has been the fact that there are so many heads on the GameSquare side that have experience in the endemic esports space, but two more specifically within the FaZe Clan ecosystem that we've been able to plug in really seamlessly. So the need for, I guess, growth spending to this point has not been required. You know, we've been obviously more on the cost reduction path now.
Speaker Change: There are so many heads on the guidance, Chris sorry didn't have experience.
Speaker Change: One in the endemic esports space, but two more specifically within the size client ecosystem.
Speaker Change: That we've been able to plug in really seamlessly so the need for I guess growth spending.
Speaker Change: To this point and not.
Speaker Change: They required.
Obviously more on the cost reduction path now look.
Speaker Change: Obviously, you're going to have to be strategic opportunities in the future, where we continued to invest in growth, but I think a really good example is.
Justin Kenna: Look, we're obviously going to have, you know, there'll be strategic opportunities in the future where we continue to invest in growth. But I think a really good example is, you know, our content studio with ForeFrame. Femi Okasanya, who runs that, was the head of content at FaZe Clan originally and really helped drive a lot of engagement and audience into FaZe's early days. So his team is working tirelessly around the new content strategy and getting a podcast network up and, you know, really consistent with a lot of content that's going to come out in the market.
Speaker Change: Our content studio and with full frame.
Speaker Change: Sandy you're Cassandra.
Speaker Change: That.
Once the head of content to Faze clan, originally and really help drive.
Speaker Change: A lot of.
Speaker Change: Geismar.
<unk> audience insights early days so his team working tirelessly around the new content strategy and getting a podcast network stood up and.
Speaker Change: You know it really consistent a lot of content, that's going to come out into the market. So.
Speaker Change: Yes, the $18 million of courses is really I guess it is net.
Justin Kenna: So, you know, the $18 million in costs is really, I guess it is net, Sean, in what we expect to be able to pull out. And we very much believe that we have the current resources required to be able to get FaZe Clan really in shape and to get to profitability. Bye.
Speaker Change: Shown in what we expect to be able to pull out.
Speaker Change: And we very much believes that we have.
Speaker Change: The current resources required to be able to get really in shape and to get to profitability.
Speaker Change: Right. Okay. That's helpful. And then last question kind of along the same lines do you think the we've got cost reduction.
Sean McGowan: And then last question, kind of along these same lines. Do you think that cost reduction and revenue growth opportunities will be enough for the company? I mean, you didn't say this, and I don't want to read into it what I shouldn't be reading into it, but do you think this would be enough to get EBITDA positive by the fourth quarter of this year?
Speaker Change: Revenue growth opportunities will be enough for the company I mean, you didn't say this and I don't want to really be read into it what I shouldn't be reading into it but do you think there should be enough to get EBITDA positive by the fourth quarter of this year.
Speaker Change: Yes, we do.
Thank you.
Justin Kenna: Yeah, we do. I think that we've been pretty transparent about some of the macro issues that we endured, obviously, in the back part of 22 and into 23. And we're starting to see that shift. And we are starting to see the return of real spend in the space, which is really, really promising. We're very confident in our revenue targets. And, obviously, we're being very aggressive on the cost part.
Speaker Change: We've been pretty transparent about.
Speaker Change: Some of the macro issues that we enjoyed obviously in the back part of <unk> two in <unk> right.
Speaker Change: We're starting to see.
Speaker Change: See that shift and we outside of say the return.
Speaker Change: Of real spend in the space, which is really.
Speaker Change: Promising.
Speaker Change: We're very confident in al.
Speaker Change: Revenue targets.
Speaker Change: And obviously, we're being very crisp on the cost side.
Speaker Change: Yeah, we do obviously you know that.
Justin Kenna: So, yeah, we do, obviously, you know, we need to execute and hit our revenue numbers for that to take place. But we are obviously controlling the controllables right now and reducing and pulling out costs, and we'll continue to get efficient. And all signs indicate that, yes, we will be able to get there. And, you know, it is somewhat revenue-dependent. But again, you know, the costs are coming out. We feel really good about the pipeline. So, we're definitely on track. Very good.
Speaker Change: We need to execute and hit our revenue numbers for that to take place.
Speaker Change: But we are obviously controlling the controllable right now producing and pulling out costs and we will continue to get efficient in all.
Speaker Change: All signs indicate that yes, we will be able to get there.
Speaker Change: Yeah, and it is somewhat revenue dependent but again the costs are coming out we feel really good about the pipeline. So.
Speaker Change: We're definitely on track.
Speaker Change: Very good thank you very much appreciate it.
Sean McGowan: Very good. Thank you very much. I appreciate it.
Speaker Change: This concludes the question and answer session and brings to a close game squares 2024, our first quarter financial results Conference call. You may disconnect. Your lines. Thank you for participating and have tightened.
Operator: This concludes the question and answer session and brings to a close GameSquare's 2024 First Quarter Financial Results Conference Call. You may disconnect your lines. Thank you for participating and have a pleasant day.