Q3 2024 GameSquare Holdings Inc Earnings Call
Good afternoon, and thank you for joining us for the game Square Holdings 2024 third quarter Conference call.
On the call today, we have Justin Kennedy.
James Squires, CEO, Luiz Schwartz, President and Mike Munoz CFO during the call. All participants are in listen only mode. 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. 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.
Speaker Change: Statements.
For information about forward looking statements and risk factors. Please see our 10-Q for the quarter ended September 30th 'twenty, 'twenty, four which will be available on the company's website or with the Securities and Exchange Commission I will now turn the call over to James squares CEO Justin.
Justin: Justin you May proceed.
Justin: Thank you.
Justin: Good afternoon to everyone joining us on today's call.
Justin: I'm pleased to announce game square delivered strong third quarter financial results were in line without pre announcements and reflect the strategies under way to drive organic sales growth.
Justin: The integration of our recent acquisitions and build a profitable organization.
On a pro forma basis revenue increased 10% year over year to a third quarter record of $26 4 million.
Revenue growth during the third quarter reflects the continued success of the growth strategies, we are pursuing and improving market dynamics.
Justin: Compared to the same period last year I'm also encouraged by the significant improvements we are making the profitability when adjusted EBITDA for the third quarter exceeding our initial expectations.
Justin: Our quarterly adjusted EBITDA was a loss of $2 2 million for the 2020 for third quarter compared to a loss of $5 4 million for the second quarter and a pro forma loss of 7.9 for the first quarter and continued sequential improvements in adjusted EBITDA demonstrates the success of our ongoing efforts to.
Revenue increased gross margin and reduced operating expenses, our financial model is approaching an important inflection point and we expect our adjusted EBITDA continued to improve during the fourth quarter as we position our profitability in 2025 and beyond.
Justin: As we have stated on prior calls.
Justin: Operating plan for 2024 is focused on three main components.
Justin: Let us to complete the integration of face client acquisition and significantly reduce our cost structure.
Justin: Second to strengthen our balance sheet and divest non core assets.
Justin: To leverage our platform and operate.
Justin: Right at IP.
Agency and media and SaaS technology assets to drive profitable growth.
Justin: I believe our third quarter results demonstrate the progress we are making executing against these plans.
Justin: As a reminder, in March 'twenty 'twenty four we completed the acquisition of ice class in an all stock transaction valued at more than $8 million.
Justin: Ice clad is comprised of two assets I E sports, which is one of the world's best and most recognized esports organization and media, which we regard as the largest Paul are gaining brand in the world.
Justin: As part of their strategy can advice client acquisition, we understood that in order to face media to be successful by its founders and carry items must be at the helm have an ownership stake in the organization. It's been pallet with creative direction. As a result, we've completed three important transactions and transactions that face media tour.
Justin: In games quiet by your standards and other key stakeholders around a plan to return the brand back to its roots and where.
Justin: Good faith medians to success in 2024 and beyond.
Justin: First in my we formed phase media is a separate stand alone entity.
Justin: Combined the face create a talent roster and non esports assets into a create a little I'd say Internet media company under the leadership of CEO by banks.
Justin: Banks and our regional Vice Glenn.
We simultaneously closing at $11 million investment in place media from Matt Taylor of bandwidth droppings. We now serves on the board of size media.
Justin: Second in June we agreed to sell a 25, 25% interest in place media to an entity controlled by size May do you see your place banks under the terms of the transaction basically everything voting control of the transferred shares for a period of two years during which we will continue to be consolidated.
Justin: Financial statements.
Justin: Finally today, we announced a new $10 million convertible note with Gigamon media, an entity controlled by map kinase under the terms of the transaction the conversion date.
Justin: December 31 2025.
Justin: Wichita gigabit selection will convert into either shares of games cliffs' common stock at a conversion price of $2 50 per share or $5 72, 5 million shares of paid media series, a one preferred stock beneficially all black games, Greg if.
Speaker Change: Keep in mind, Alex to convert the note the remaining shares of phase media, even value he entity at approximately $44 million compared to games crash cart market cap of approximately $32 million.
Speaker Change: We believe this transaction is a huge win for games square tightly.
Speaker Change: Media.
Speaker Change: Actually in our lives with our operating strategy by optimizing our business model and raising non diluted capital. It also deepens the alignment between guidance quite tightly.
Speaker Change: <unk> investors, while supporting <unk> vision for the future of face media, we will use a portion of the new capital to pay down our existing equity la facility with funds managed by Yorkville, while increasing our cash position to take advantage of opportunities and accelerate revenue growth in the fourth quarter and beyond.
In addition, we believe these transactions create the proper infrastructure from phase made it to be successful as far as the median now truly is our creative and media company supported by the leadership and expertise in that calculation and full resources in times square.
Speaker Change: When we acquired Phase claimed the brand was suffering from significant losses declining community engagement and no clear strategic direction I'm extremely proud of the efforts to turn around performance and bring the brand back to life. This is a direct result of the return and hard work of the founders under the leadership of CEO in place.
Speaker Change: Banks, the strength of games squares platform apps history, with and knowledge of the brand and most importantly, our belief if managed correctly five can reengage with an extremely community community and lead to monetization opportunities in the coming months and quarters.
Speaker Change: I'd like to use this opportunity to thank everybody gave us great employees for their hard work and dedication over the past three quarters.
Speaker Change: It seems phase medians reboot in April 2020, full the Reengagement of the community has been fantastic.
Speaker Change: And to the statistics I shared on our last conference call. We recently announced the success of Facetime Silverstone.
Speaker Change: Timber of 'twenty for the month long self it's almost like a third major streaming events since the brand's reboot showcasing the success for tariff is correct as you create a roster.
Speaker Change: Some of the highlights include over 1.1 billion impressions more than 760 million video views and over 47 million guys, you've been setting new records of ice class biggest event today.
Speaker Change: You bet every 52.6 thousand concurrent viewers peaked at 132.2 thousand and got a $2 2 billion minutes watched with 257 million total views.
Speaker Change: If I cut out of a 300000, new twin subscribers.
Speaker Change: As well as 350000 total subscribers across all participating channels in fact placements the number one brand behind minutes watched on Twitch during the month of September.
Speaker Change: Driving engagement with patients can be he is an important indicator of future growth opportunities call game scrap is engagement helps support a robust pipeline of brand deals in future monetization opportunities.
Speaker Change: We continue to see a larger number of multiple seven figure deals into our pipeline, which are expected to convert to partnerships in 'twenty 'twenty four and 'twenty five.
Speaker Change: In addition to guys cause ownership and voting control in place media, we continue to own 100% of Phase E sports.
It's one of the top esports organizations in the World, We believe theres enormous opportunity to profitably grow the size and esports.
Speaker Change: Following a similar strategy that successfully grew up all the esports team by over 220% in just two years.
The third quarter phase esports had revenue of $4.8 million and contributed positive adjusted EBITDA.
Speaker Change: We are also focused on driving efficiencies and reducing costs. It buys media enphase esports when comparing the third quarter of 2024 and 2023.
Speaker Change: We have removed approximately $17 million of annualized cost and believe there are opportunities to remove additional costs during the 2020 for fourth quarter.
With a more efficient operating model and a more disciplined management structure. We believe there are a lot of opportunities to drive profitable growth at phase media and E sports, especially as each business scales, a third quarter. Adjusted EBITDA demonstrates the continued improvements we are making and the benefits of our integration strategy.
Speaker Change: The final component of our plan in 2024 I want to review today on the opportunities we are pursuing across our owned and operated IP agency and media and SaaS and technology.
Assets to grow and improve profitability.
Speaker Change: Overall, we are seeing trends continue to strengthen.
Speaker Change: And through the first nine months of the year, we have increased the number of customers on retainer.
Speaker Change: Growing our average contract value by 46%.
Speaker Change: More than tripled the number of U S. N will building campaigns deploy and achieved record monthly contract wins in August of 'twenty four.
Speaker Change: Let's turn to third quarter suffice made here in esports include a multi year multi million dollar expansion of brokerage sponsorship deal a new multiyear multimillion dollar sponsorship and licensing deal with GPU and face esports is largest in the tournament winnings in the inaugural esports World Cup, which was held in Saudi Arabia During July and August.
Speaker Change: Within our within our media business, we announced multiple new projects during the quarter, including campaigns for top golf dairy Max five out of energy and a new and already growing relationship with one of the big one of the Big Five Entertainment Studios.
Speaker Change: We are also seeing favorable trends.
Speaker Change: With in our.
Speaker Change: Our events business and we are kicking off a partnership with the NFL to launch a new traveling create a series called NFL. So the stands what.
Speaker Change: This innovative series blends the excitement of NFL band about game day, with interactive gaming and creative driven content accessible for in person and online audience. During the 'twenty 'twenty four NFL season.
Speaker Change: Finally in the rapidly evolving landscape of gaming and Influencer marketing, we continue to evolve our SaaS technology offerings.
Speaker Change: As seen on the integration of data and insights without creator management and activation platform.
Speaker Change: Our strategic approach is designed to provide game publishers and brands with a comprehensive solution set to effectively target audience audiences and optimize revenue performance.
Central to this development is equal to CRM tool, which is pain refine to meet the specific needs of our customers.
Speaker Change: Allowing them to engage meaningfully.
Speaker Change: With their most valued commercial channel influences.
This capability will enhance our differentiated position in the influence of marketing space.
Speaker Change: You know talking about strength at our streaming analytics and business intelligence platform launched an eye palette and pose Influencer discovery tool designed to redefine how brands identify and connect with creators.
These AI powered solution marks a significant breakthrough influencer marketing by using proprietary algorithms to sift through data one of the 15 million creators to find the most aligned partners, but brand campaigns. We have launched this product with tough with a customer that operates one of the largest online mobile games and we have.
Speaker Change: Interest quite quickly from other game publishers as well as brands and creators.
Speaker Change: As we look to the fourth quarter and beyond we are excited about the direction. We are headed and positive momentum is growing across our business as more brands recognize the value of our next generation media platform.
Speaker Change: Our interconnected media creative and technology capability continue to provide brands with best in class solutions to connect and engage with news audiences at scale. We expect to end 2024 with record revenue a record backlog of committed revenue.
Speaker Change: High number of customers on retainer and a growing partly as a result, we believe 2025 will be a strong year of growth and significantly.
Secondly improved profitability.
Mark: So we think all of US here I'd like to turn the call over to Mark.
Speaker Change: I'll review, our third quarter financial results Mike.
Mark: Thanks, Justin.
Mike Munoz: As a reminder, 2024 financial results include multiple corporate actions.
Mike Munoz: Most significantly the March seven 2020 for acquisition of Faze clan.
March one 2020 for sale of complexity gaming, which has been treated as a discontinued operation in our 'twenty 'twenty four and 2023 year to date results.
Mike Munoz: We also further divested noncore assets during the year on May 31, 2024.
Mike Munoz: As a result, we believe it is best to look at our business on a pro forma basis, which includes a full year to date contribution of these claims.
Mike Munoz: Comparing our 'twenty 'twenty four third quarter results to the prior year pro forma results total revenue was $26 4 million compared to 24.0 million.
Mike Munoz: 10% year over year increase in revenue was primarily due to growth from our agency and media business and owned and operated IP segment.
Mike Munoz: Gross margin for the 2020 for third quarter was $5 2 million or 19, 8% of sales compared to $3 4 million or 14% of sales on a pro forma basis for the same period last year.
Mike Munoz: We expect gross margins to improve going forward supported by a more profitable revenue mix in the fourth quarter and additional actions underway to improve gross margin.
As Justin mentioned, we have made significant strides in improving our operating cash burn figures over the last 12 months.
Adjusted EBITDA loss for the 2024 third quarter amounted to $2 2 million compared to a loss of $10 4 million on a pro forma basis last year.
Mike Munoz: As a percentage of revenue our adjusted EBITDA loss improved from a negative 43, 4% for the pro forma 2023 third quarter to a negative eight 2% the 'twenty 'twenty four third quarter.
Mike Munoz: When comparing the third quarter of 2024, and 2023 results based plan. The company has removed approximately $17 million of annualized cost that's remove additional costs during the fourth quarter of 2024.
Justin: With this overview I'll turn the call back over to Justin.
Justin: Thanks, Mike.
Before we open the call up to questions I want to review our expectations for the remainder of the year. After a solid nine months. We believe we are extremely well positioned to achieve between 105 and $110 million in annual revenue.
Justin: As I mentioned earlier, we ended the 'twenty 'twenty four third quarter with a record backlog of committed revenue higher number of customers on retainer.
Justin: Growing pipeline, which we believe provides us with good visibility into 2020 part as a result, we believe 2020 club will be a strong year of revenue growth and significantly improved profitability.
Justin: We improved our cash burn and improve profitability, we have made additional strides to strengthen our balance sheet.
Justin: At September 32024, we had over $11 million in cash on our balance sheet and added an additional 10 million of cash through today's announcement of the convertible notes.
As a result.
Justin: We have the flexibility to pay down our existing equity line facility and take advantage of opportunities to accelerate revenue growth in the fourth quarter and beyond.
Justin: 'twenty 'twenty four is shaping up to be a transformative year for games square and we believe that we are well positioned to show further sales growth and significantly improved profitability in 2025.
Justin: Lew Mark and I are happy to take your questions.
Speaker Change: Operator, please open up the call to questions. Thank you.
Speaker Change: 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 will hear attuned acknowledging your request.
You're using a speakerphone please pick up your handset before pressing the keys.
Speaker Change: So all your question. Please press Star and then two.
Speaker Change: Yeah.
Speaker Change: Our first question comes from Jack.
Speaker Change: Android with Maxim Group. Please go ahead.
Speaker Change: Hey, that's a pretty good hey, guys. Congrats on the results great great to see the strength.
Speaker Change: I have a couple maybe just a couple of questions here can you speak a bit further into the record backlog you mentioned I'm just kind of like what type of revenues does this include and it sort of just get a sense of the margin profile. As you guys may make strides to increase that gross margin overall thanks.
Speaker Change: Yeah, absolutely I can kick off their boy I flew feel free to add any any color. Jack I think what is most pleasing is a lot of the revenue growth.
Speaker Change: And a lot of these longer term sort of multiyear deals are coming from.
Speaker Change: Sort of growth you know agency business, which you know it was a big contributor to that sort of 46% average contract size increasing in the diet retainer revenue what is most pleasing about this sort of multi year seven figure deals to your point Jack around margin is that they are higher margin.
That.
Speaker Change: You'll continue to see margin expand your Q2, where there was a sort of higher than expected programmatic revenue quarter and what we're starting to see and I think you'll see more so into Q4 and specifically into 'twenty 'twenty. Five is continued growth of our SaaS business, which is.
Really high margin and.
Speaker Change: And in growth of our agency business, which you know again, we've really gone from I think over the past two years competing for.
Speaker Change: They are phased into building long term relationships now with a lot more selective with who we're working with some of the.
Clients sort of earlier in the call, but incredible clients that we're expanding our offerings with and getting more strategic with and certainly expanding margins. So we expect margins to expand I'd say that you know a lot of that growth is coming from that.
Sort of agency segment of the business.
Speaker Change: Excellent. That's helpful color and then you know I think it was in August you guys put that press release out that was that was very encouraging about I think it was like 15 million or so of of new revenue and sponsorship and licensing deals you guys are over over multiple years, obviously did you just.
Speaker Change: Give us a sense like is this is this just the tip of the iceberg I mean, how does that kind of compare to what you're expecting to kind of bring in in terms of additional licensing and sponsorship deals as you guys continue on this path here of you know getting momentum just how does that $15 million or so that was a kind of a acquired in the month of August.
Speaker Change: How does that compare to where you guys are heading I guess just to give us a sense. Thanks.
Speaker Change: Yeah.
Speaker Change: We certainly believe that it is Jack with I think what we're most sort of pleased with and excited about it suddenly you know this year. We told you that stayed very.
Speaker Change: Transformative for us as a business and.
Speaker Change: You know, it's been a lot of heavy lifting on integrating sites Glen and pulling out costs and where do you think has been the most pleasing is really the organic growth of the SaaS business and the agency business. You know one would think doing the phase clean up so I think it really is.
Speaker Change: The pod guys are starting to open up to me to be really Frank with you are sort of said this last year and.
Speaker Change: It's it's really true in the in the fact that we went through a pretty tough time and into the brand in that market and there were.
Speaker Change: It's shrinking and I think currently we're seeing the opposite I think a lot of the hand, holding we were doing and I give our team a huge amount of credit for this is these weren't lost client stays where you know budgets that were shifting to later quarters and we're starting to see the benefit there and look I think that the reality is that you know we talked to them.
Speaker Change: One of the biggest studios that we're partnered with I think the opportunity that we have to.
Speaker Change: Expand without current customer base, rather than going out and starting to try and win new work is enormous. So we're getting a expanded budgets from these really large clients because we're executing and that's really pleasing.
Speaker Change: That's one I think another one is epic games, we continue to deliver.
Speaker Change: They leave us the ethics with helping them activate.
Speaker Change: A lot of their large cultural moments Super Bowl Twitch gone Tonight. If you have a bad this weekend in Vegas, we're doing a lot of the losses that work a lot of their strategy work working a lot more closely with the mobile team now so yeah. What do you expect a huge amount of organic growth in 2020 five.
Speaker Change: Aqua is stronger than ever but I think.
Speaker Change: Hum.
Pipelines easy to say you're on I think what's the most pleasing for US is we're executing we're expanding clients and we're going to kick off 2024 hours with more sort of locked in recurring revenue than ever before so we're in good shape.
Speaker Change: Okay Fantastic to hear I think that does it for me great work guys I appreciate it I'll hop back in the queue.
Speaker Change: The next question comes from Greg Gibbous with Northland Securities. Please go ahead.
Speaker Change: Hey, great Good afternoon, Jonathan Lu and Mike Thanks for taking the questions and congrats on the quarter.
You know really nice with the additional cost savings that youre seeing and reductions. There you know you mentioned seeing additional opportunity for cost reductions in Q4 wondering if you could maybe expand on these opportunities you see and are you able to quantify them in any way.
Speaker Change: Yeah, I mean, I think Gregg, it's just continued efficiencies.
Speaker Change: I think.
Speaker Change: A lot of the sort of initial yeah.
Speaker Change: Clean up of size they still some sort of continued cleanup obviously when you come in and you integrate any asset.
It takes a wall Rogers there's some.
Clear on IV resource all contracts that you can eliminate sooner, but theres. So it suddenly Ron often in these areas as you learn to integrate different systems and and find greater efficiencies. So I think we identified when we acquired size. Yeah. We said it publicly came out and said we can say.
Speaker Change: $80 million of costs, you can see that we've achieved that on an annual basis looking at the Q2 and Q3 numbers, there's actually more than I think they're more sorry.
Speaker Change: Coming down to efficiencies rather than anything else. So I think you'll see continued improvement I think the reality is Greg that cost improvement he's not going to be at the same right. As it was in Q2 or Q3, so I'm not I won't give you sort of an exact number but I wouldn't expect that to be at the same level of cost improvement.
We certainly think that there's some further cost efficiencies what I would say is.
Speaker Change: Profitability comes from from here for Us because I think that we've done everything we said we would do on the cost side.
The ability really comes from.
Speaker Change: Increased revenue and increased margin I think that if you look at again in Q2.
Speaker Change:
Speaker Change: It was higher than expected I mean, your corner, that's great, but a lot of that sort of additional revenue did come from the programmatic area, which is lower margin what we're expecting in Q4 and certainly into 2025 is a lot of that growth in revenue is coming from our higher margin areas of business. So you will see improved costs won't be at the same writers as Q.
Q3, Q4, there'll be some continued sort of run off of contracts and in resources on the fire side, but I think you know a lot more of them.
Speaker Change: Getting efficient.
Speaker Change: Do you think we're getting to a really healthy level of sort of operating leverage I think the reality is that we have the key pieces in place at the business and you know and.
Speaker Change: Like I talked about before expanding their current clients.
Not costing us.
Speaker Change: Same level per dollar as it is to really.
Speaker Change: It really create operating leverage and drive additional revenue right like where we're seeing.
Speaker Change: Six figure and in some cases you know.
Speaker Change: Low seven figure deals translate to high seven figure deals and in some cases, some opportunities to even expand the eight figure deals and that's not we don't need to go in horror.
Speaker Change: This high percentage of sort of head count to execute on those projects.
Great that's helpful, Justin and disregarding the record backlog and current pipeline, obviously, great to see and I could maybe follow up on the first question I think you guys, whereas.
Speaker Change: Those larger number of seven figure deals that are entering the pipeline.
Speaker Change: What segments or categories, where you're seeing them and it sounds like you mentioned strength in the agency business.
Speaker Change: But just wondering if you could maybe provide any more specifics on those new deals enter the pipeline.
Speaker Change: Yeah, absolutely I think it's a it's a really healthy mix across the business to be to be really Frank I think that.
On the Fi side.
Speaker Change: Sports business, we have some really exciting opportunities I think there'll be some really positive news coming out of and that will really soon I think the phase media saw we touched on it.
Speaker Change: The reality is that you know if a part of this year, we were blacked out our social channels, which have access to a huge audience and we saw a new talent and there was a bit of a cooling off period and we'd come back and I think the suboxone in September you showed the true.
Speaker Change: The power of that brand and that is now resonating to we selling cheap fuel and draft kings and they've got a really sort of large inactive popcorn and that saw it as well. So I just see business certainly getting a lot more inbound and I think again you know.
Speaker Change: I kind of covered off on this a little bit but again he is really pleasing for us.
Speaker Change: The way that we are expanding budget with existing clients and these clients are.
Speaker Change: And I think there's opportunity to expand even further I mean, I think Greg if you have a look at even into sort of signal on the SaaS business is really healthy we're getting to scale with growing that is high margin business that we have within there.
Speaker Change: One of the top 10 game publishes as clients.
Speaker Change: Currently we're providing you know agency event Oh content services for probably three of those got so I think there's a huge opportunity for us to continue to execute and and cross sell and upsell within the group.
It's certainly something we'll be focused on in 2025. So it is a really healthy mix across the group and yeah. We would expect it said it would be getting out some pretty positive used to market soon.
Again, I know, it's easy to talk to pop, one and obviously need to execute but.
Speaker Change: We're going to be kicking off 2025, and it had a really good position.
Speaker Change: Great I appreciate the color I'll pass it on.
Speaker Change: Yeah.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Justin Kenneth for any closing remarks.
Yeah. Thank you for that and as always thank you to everybody for joining and the continued support.
Speaker Change: It really is greatly appreciated I think it's suddenly pain I, yeah, it's a challenging year.
Speaker Change: From a macro standpoint, but again.
Speaker Change: I'm extremely pleased with the way, we've been able to navigate that the way our teams have been able to.
Put their head down and really execute.
Oh God.
Speaker Change: I feel extremely bullish about the position that we're in closing out the year really strongly and entering 2025 in a period of time that I really believe is a major inflection point for us as a business and that is going from you know ultra grows and cleanup mode.
Speaker Change: Generating cash and I think that that is going to be an inflection point for us and yeah. We look forward to.
Speaker Change: I'm getting the credit the appreciation from the market as we continue to execute so thank you everyone for joining.
Speaker Change: Feel really bullish about where the company's at and sort of a path forward here. So thanks again for the support and really looking forward to updating you brought on on Q4 as we continue to execute.
Speaker Change: Yeah.
Speaker Change: This brings to a close the game's square holdings 2024 third quarter Conference call. You May now disconnect. Your lines. Thank you for participating and have a pleasant day.