Q1 2025 GameSquare Holdings Inc Earnings Call
Good afternoon, and thank you for joining us.
James Graham Holdings, 2025, first quarter conference call on the call today, we have definitely cannot against Kras CEO Lew Schwartz President and my CFO during the call. All participants are in listen only mode. Following the presentation. We will conduct a question and answer session before management discusses the results I'd like to remind you.
We want that certain statements in this call may be forward looking in nature.
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.
Information about forward looking statements and risk factors. Please refer to our 10-Q for the year ended March 31st 2025, which will be available on the company's website or with the securities and Exchange Commission.
Speaker Change: I'll now turn the call over to games Chrusciel just in Kenna Justin. Please go ahead.
Speaker Change: Thank you and good afternoon to everyone joining us on today's call.
Speaker Change: Our first quarter results reflect steady progress as we continue to optimize our platform with the goal of achieving profitability.
Also the cash flow in 2024.
Speaker Change: Results were inline with expectations and was shaped by seasonal trends long programmatic advertising revenue in the fourth quarter of 5 million inclusion financials.
Speaker Change: As a reminder, on April one 2025, we completed the divestiture of phase, maybe youre selling our remaining 25, 5% stake back towards founders' transaction value, maybe along at almost $39 million compared to our original $40 million stock based acquisition.
Speaker Change: Phase E sports and video.
Speaker Change: Beginning in Q2, 2000, 25 million will no longer be reflected in our financial results change, we expect to significantly enhance profitability.
Speaker Change: In Q1, we incurred approximately $2 3 million in operating expenses related to <unk> and <unk>.
Speaker Change: Media had an adjusted EBITDA loss of $2 $3 million.
Speaker Change: Additionally guidance gross margin would've been nearly 23% if we exclude advice median revenue in Q1.
Speaker Change: The divestiture also strengthened our balance sheet, eliminating approximately $10 million of debt as of April one 2025. The only remaining debt includes a two point I can go into a lot of credit and $1 $6 million convertible note held by.
Speaker Change: One of our directors with improved profitability and a lean our capital structure, we are well positioned to pursue initiatives that can further reduce our cost of capital.
Speaker Change: This strategic shift also simplifies our business model and it lowers our working capital needs.
Speaker Change: We now operate across four core areas.
Speaker Change: Added services agency and media owners.
Speaker Change: Alright, and update and of course fight esports.
Speaker Change: We have built a differentiated platform that enables deep partnerships with top game publishers and global brands and our platform is uniquely designed to reach valuable gaming and Gen Z audiences at scale.
Speaker Change: As brands look to gain market share in a challenging economic environment. We are confident in our ability to grow organically abuse supported by recent partnerships a robust sales pipeline and strong momentum heading into Q2.
Speaker Change: As shared in our last call at 2025 strategy focuses on expanding managed services Skylake agency and media business accelerating growth in phase esports about really prioritizing profitability.
Speaker Change: Our core SaaS business is off to a great start earlier this year stream actually saw its largest contract to date with capital to support the launch of Monster Hunt was in the second quarter, we expect to announce a new strategic partnership with another leading game publisher.
Speaker Change: These collaborations reflects the growing strength of our platform and extreme patches evolution from a data analytics provider to a full service marketing engine capable of delivering value to customers on a global scale.
Speaker Change: The addition of managed services has opened the door to multiple seven figure opportunities offline.
Speaker Change: Despite strong growth in this area throughout 2025 and beyond.
Speaker Change: Furthermore, these engagements are expected to serve as a foundation for long term SaaS I mean, if you go ahead Martin your relationships with major game publishes.
Speaker Change: Turning to our media segment at Creative Agency and continues to thrive with in game World building campaigns and by delivering strategic marketing and activation solutions to top tier brands as announced today, we signed a new license agreement with Paramount game Studios to develop Spongebob Squarepants thing.
Speaker Change: Within four or not.
This strategic partnership deepens, our relationship with Paramount and reflects the success of that previous collaborations Zionism assisting momentum in multiyear partnerships during the quarter, we renewed our agreement with Jack in the box extending the box you're able to study this really highlights the effectiveness of our strategy and underscores our capability to.
Speaker Change: <unk> gaming and pop culture through high impact digital marketing.
Speaker Change: Our agency business.
Speaker Change: You can see business is also expanding beyond guidance.
Speaker Change: They are increasingly recognized.
Speaker Change: Go to experts in digital and youth culture, enabling collaborations with mainstream brands community driven initiatives and new use cases with proprietary technology assets.
Speaker Change: We continue to make progress growing our owned and operated segment after adding proven team members and resources to our platform over the past 12 months.
Speaker Change: We're advancing long term initiatives, including our recently announced partnership with Gigi Tech to bring the global Esports Festival game Digi to Dallas in March of 2026.
Speaker Change: Since its founding in 2016 guidance all of a sudden over 20 events worldwide and countries, including Spain, Argentina, Egypt, Panama, El Salvador and Mexico.
Speaker Change: And we'll provide full platform support including event strategy design talent marketing and operations, but currently in phase one and planning for <unk> Dallas focus on strategy development programming end use market positioning I used two will begin in June and we will emphasize partnership and saddles I'm pleased to report that we've already had really.
Speaker Change: It would be possible in a lot of strong interest from brands and publishers on this front.
Speaker Change: As part of that partnership with Gigi Tech, we are launching a collegiate esports initiatives to foster can be engagement across U S campuses detection University esports program one of the largest in the World has reached over 2000 universities 9000 teams at 100000 participants globally, we see this as a high potential Avenue to do.
Speaker Change: Keep in our presence in the collegiate dining space.
Speaker Change: Turning to our ice class esports business.
Speaker Change: E Sports had a really strong first quarter, which included $1 million in prize money from winning the February 2025, Rainbow six invitational.
Speaker Change: We are actively pursuing opportunities that leverage the strength of <unk> sports and continue to monetize the brand in the coming months, we plan to announce a new 90 odd steel for our headquarters of the star in Frisco, Texas transforming it into a performance hub and official volume of ice class E. Sports. This is part of a broader strategy to Alabama, Alabama sites.
Speaker Change: Esports is a premier esports asset and drive long term value overall I'm encouraged by the direction. We're heading in Q1, we made substantial improvements to adjusted EBITDA compared to pro forma results last year any guidance reflect.
Speaker Change: Improved gross margin and reduced operating expenses.
Speaker Change: We are continuing to implement cost efficiency initiatives to further strengthen profitability with a streamlined structure, a robust pipeline and positive momentum across key business units. We believe that we're on track to grow revenue and improve profitability organically in 2025. So with this overview I'd like to turn the call over to Mark to review our 2020.
Mike: Five first quarter financial results Mike.
Mark: Thanks, Justin.
Mark: We believe it's best to compare our reported Q1 2025 financial results to our Q1 2020 for pro forma results, which removes complexity from games of course financial statements and includes a full quarter contribution of today's client for the three months ended March 31 2024.
Mark: Comparing our 2025 first quarter reported results to the prior year total revenue was $21 1 million compared to pro forma revenue of $23 5 million.
Mark: The 10% year over year decrease in revenue was primarily due to reduction in programmatic advertising revenue, partially offset by growth across our other business segments.
Mark: Gross margin for the 2025 first quarter was $3 3 million or 15, 8% of sales compared to $3 7 million or 15, 7% of pro forma sales for the same period last year.
Mark: Excluding fees media revenue, our gross margin for the 2025 first quarter would have been 22, 8%.
Mark: We expect gross margin to improve going forward supported by a more profitable revenue mix in 2025, and additional actions underway to improve gross margin.
Mark: Adjusted EBITDA loss for the 2025 first quarter was $3 4 million compared to a pro forma loss of $7 9 million last year, an improvement of $4 5 million.
Mark: Supposed to even though the trend will continue to improve throughout 2025 with positive EBITDA and cash flow in the second half of 2025 as Justin will outline.
Mark: So with this overview I'll turn the call back over to Justin to review our guidance in more detail.
Mark: Yeah.
Justin: Thanks Mark.
Justin: First quarter financial results were in line with expectations and we remain confident in our 2025 outlook. We continue to project pro forma annual revenue of at least $100 million in 2025.
Justin: Profitability remains essential focus of that 2025 strategy, we continue to target full year gross margin of approximately 20% to 25% and operating expenses around $20 million at first quarter results clearly demonstrate the operational progress, we're making and we are actively pursuing opportunities to accelerate our path to profitability.
Justin: As we've noted previously our business typically sees approximately 60% of annual sales in the second half of the year as such we expect seasonality to influence both revenue and profitability in the coming quarters that said, we are already seeing sequential trends in Q2 to improve further based on our current trajectory we expect.
Justin: Next to achieve positive cash flow and adjusted EBITDA in the second half of 2020 fought two critical milestones in our transformation.
Justin: We look forward to keeping you updated on our continued progress throughout the year. So as these others you lose market happy to take your questions.
Justin: Brian Please open the call to questions. Thank you.
Justin: Thank you Nathan I began the question and answer session. During the question queue. You May Press Star then one on your telephone keypad.
Justin: Her talent acknowledging your request.
Justin: If anything a speakerphone, please pick up your handset or passing any pool.
Justin: Your question. Please press Star then two.
Speaker Change: First question comes from Greg Goodbye with Northland Securities. Please go ahead.
Greg Goodbye: Hey, good afternoon, Justin Lou Mike Thanks for taking the questions congrats on the quarter and congrats on the expanded relationship with Paramount.
Greg Goodbye: Wondering if you could maybe elaborate on the development plan with Spongebob and kind of the general structure of that arrangement.
Greg Goodbye: Yeah, I can I think kick off there to show you know, we really thought we actually.
Greg Goodbye: I agency team.
Speaker Change: With Paramount in New York This weekend.
Greg Goodbye: Yeah.
Greg Goodbye: Funding our altogether lost not of a very excited about what we're doing there we've been working with Paramount and now for some time, we help them with sort of the marketing and.
Greg Goodbye: Growth of teenage mutant Ninja turtles into Fortnite last year, which we talked about which was really exciting and obviously you've been working on a number of games with them with Spongebob and so forth and this is the next step I think we've done a really good job and we've gone it would move from.
Greg Goodbye: I, just sort of build and market to actually co owning and driving revenue together, so really exciting the agreement is a two year contract.
Three three games minimum per year so.
Greg Goodbye: Yeah, we're very excited we've got one in the works.
Greg Goodbye: So some of that in the coming months, you'll you'll you'll see one.
Greg Goodbye: At market, which I'm really excited about and really looking.
Greg Goodbye: To maximize profitability on that and very laclede will be launching in mobile which is really exciting. So yes to your contract minimum for you guys.
Greg Goodbye: Year option to Mike after eight games per year.
Greg Goodbye: And a number that are in the works already so you'll see a launch of our first game in the coming months here.
Speaker Change: Great that's helpful Jos.
Speaker Change: If I could follow up I think you mentioned sequential trends improving in Q2, just wondering if you could maybe provide some color on what business units youre seeing positive momentum.
Jos: Yeah, Vishal I think.
Jos: We expect the modest improvement in Q3, and Q4 seasonality generally in the back half of the year, we see.
Jos: Pick up pipeline is really strong we've got deals closing and I think you'll start to see that in Q2 and suddenly you know full impact.
Keith rainfall, which we're excited about it also keeps the rigs we've got.
Jos: In Q3, we've got a few exciting things happening with the esports World Cup, which we've talked about trial.
Jos: With a $60 million of prize money up for grabs and got a number of things going and competing in Riyadh.
Jos: And so forth, but I think what you'll see in Q2 is continued margin improvement.
Jos: Okay that'll be saying Q1 was the last call. It five years included in that number.
Jos: You're going to see real margin improvement and continued opex improvement something that we've been.
Really focused on is getting efficient.
Jos: And I think you'll see continued opex improvement into Q2 and even into Q3.
Jos: And just from a revenue standpoint, and kind of touched on it a little bit.
Jos: Paul but continued improvement in our SaaS managed services business, we talked about Caf com.
Speaker Change: I am a larger.
Jos: Really exciting deal with a major game publisher that I'm, hoping to be able to announce it very soon.
Jos: Being Q2 really really exciting one for the garage out in SaaS managed services businesses.
It's really pleasing and certainly IFC business doing so.
Jos: Joining a little soft during Q1.
Jos: As you know a highly profitable business unit for us.
Jos: We touched on the Paramount relationship, but the thing.
Jos: Renewing a number of other cons Jack in the box and we work really closely.
Jos: It was called us and them.
Jos: ASB and then sort of list goes on so you'll see improvement in Q2, and certainly Q3 and four from a Saar perspective. They tend to have you know when we talk about seasonality being a a soft to Q1 and really ramp up. So yeah. We're certainly expecting revenue growth out of those areas and getting square experiences experian.
Jos: Actual business, taking a lot of in Florida, there as well so they are probably the main areas of unexpected to see pick up in Q2.
Jos: Yes, certainly certainly be looking for continued Opex improvement continued margin improvement as we grow our revenue here and.
Jos: Certainly on track to hit our policy of EBITDA and cash flow in the back half of the year.
Speaker Change: Hey, that's great to hear and really helpful. I'll pass it on.
Speaker Change: Once again, if you have a question. Please press Star then one.
Speaker Change: Is there no more questions. This concludes.
Speaker Change: <unk> and answer session I would like to turn the conference back over to Dustin cannot for any closing remarks. Please go ahead.
Dustin: Thanks, So much yeah, we tried to can't deny a little shorter and more.
More.
Dustin: To the point given that we obviously had our year end and Q4.
Dustin: Earnings call.
Dustin: Yes, less than a couple of weeks ago. So good.
Dustin: Could you connect again, thank you everybody for making the time you know we're certainly pleased with progress of this work still to be done we make no secret out of the fact that I'm.
Dustin: Getting to profitability is our goal and we Havent really clean plan to get there. So yeah. We're on track for that in the back half of the year.
Dustin: Certainly expect.
Dustin: Yeah.
Dustin: To.
Dustin: Get a sort of rewriting here in the market with that continued improvement. So we're looking to drive value for shareholders and we're very appreciative of the continued support so thanks for dialing in and certainly looking forward to catching up on and giving everyone for you guys into Q2, and how we're tracking on profitability until the back half of the year. Thanks al.
Dustin: This concludes please go ahead.
Speaker Change: 2025 first quarter financial results Conference call. You may disconnect. Your lines. Thank you for participating and have a pleasant day.
Speaker Change: [music].