GameSquare Holdings - Earnings Call - Q2 2025

Executive Summary

• Q2 revenue of $15.85M fell 11% YoY and declined sequentially vs. Q1 ($21.1M), driven by delayed closings and weaker programmatic ads; gross margin improved to 15.3% vs. 14.1% YoY and adjusted EBITDA loss narrowed YoY to $(3.50)M.
• Results missed Wall Street consensus: revenue $21.66M est vs. $15.85M actual and Primary EPS $(0.15) est vs. $(0.174) actual; coverage remains thin (2 estimates)*.
• Management cited tariff headlines impacting two large China-based gaming deals and programmatic ad weakness, but pointed to a robust pipeline with expected sequential growth in Q3 and further in Q4.
• Post-quarter catalysts: launch of an onchain ETH yield program (8–14% target), $5M buyback funded by ETH yield, $2.5M AOR win with Animecoin/Azuki, and plan to reintroduce full-year guidance in Q3.

What Went Well and What Went Wrong

What Went Well

• Margin and profitability trajectory improved: gross margin up 120 bps YoY and adjusted EBITDA improved 16% YoY, with additional ~$5M annualized OpEx savings identified for H2.
  Quote: “We’ve reduced SG&A by 15% and expanded gross margin by 120 bps, driving a 16% improvement in adjusted EBITDA year over year… and identified a further $5,000,000 in annualized savings”.
• Commercial momentum and product wins: StreamHatchet signed its largest contract (Monster Hunter Wilds), added a managed services agreement with Ubisoft, and launched an AI-based solution for creative/audience targeting.
  Quote: “This engine uses machine learning to decode creative content, audience sentiment and engagement patterns…”.
• Strategic repositioning and capital deployment: divested remaining FaZe Media stake (simplifies mix), launched Ethereum treasury strategy and authorized $5M buyback funded by onchain yield; treasury assets and liquidity considerably stronger post-quarter.

What Went Wrong

• Top-line miss vs. estimates and YoY decline: revenue $15.85M vs. $21.66M est, down 11% YoY on programmatic ad softness and delayed closings.
• Macro frictions: tariff headlines slowed two multiyear, seven-figure China-headquartered gaming contracts expected to close earlier, contributing to Q2 softness.
• Still loss-making in Q2: adjusted EBITDA loss $(3.50)M and GAAP net loss $(3.02)M despite YoY improvement; sequential revenue declined vs. Q1.

Transcript

Speaker 2

Good afternoon, and thank you for joining us for the GameSquare Holdings 2025 second quarter conference call. On the call today, we have Justin Kenna, GameSquare CEO, Louis 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. 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 statements. For information about forward-looking statements and risk factors, please see our 10-Q for the quarter ended June 30, 2025, which will be available on the company's website or with the Securities and Exchange Commission. I will now turn the call over to GameSquare CEO Justin Kenna.

Justin, please go ahead.

Speaker 3

Thank you, and good afternoon to everyone joining us on today's call. 2025 is on track to be a transformative year for GameSquare Holdings as we aggressively execute against a bold vision aimed at building a leading digital-first platform at the intersection of media, technology, gaming, and on-chain finance. While our roots are in media, technology, and gaming, and those businesses continue to deliver strong revenue and operational performance, we have also recently launched a differentiated crypto-native treasury management strategy. Since its official launch in July using the August 13, 2025 closing price, our treasury strategy has already generated over $19 million in unrealized gains, and we now hold 15,630 ETH with a current market value of $74.3 million. We believe GameSquare Holdings is one of only a few companies globally that combines a proven high-performing operating business with a large-scale actively managed Ethereum treasury.

This unique model positions us to capture meaningful appreciation and yield from our crypto strategy while leveraging the financial and operating performance of our core businesses. Our operating businesses and on-chain treasury management strategy are complementary. In fact, our growing on-chain presence is beginning to fuel new opportunities in our operating business, creating the potential for a powerful growth flywheel. Our strategy is also designed to smooth the volatility of the crypto market by balancing it with consistent diversified revenue streams. Over time, the cash flow and value creation from our treasury activities are expected to fund additional ETH purchases, opportunistic share repurchases, and reinvestment in our core businesses. With over $71.5 million in trailing 12-month revenue and a scalable on-chain model built for both growth and resilience, this structure sets GameSquare Holdings apart and creates an extremely compelling value proposition for our shareholders.

With this, I'll jump into our operating performance before I share our early observations from the launch of our treasury management strategy in the third quarter. As we stated on our first quarter earnings call, our priorities this year are focused on achieving profitability, streamlining operations, and driving higher margin revenue opportunities across our core media, technology, and gaming businesses. I'm pleased with our progress. On a consolidated basis, we've reduced G&A expenses by 15% and expanded gross margin by 120 basis points, driving a 16% improvement in adjusted EBITDA year over year. Additional restructuring efforts are underway, and we've identified a further $5 million in annualized savings that are expected to begin contributing in the third quarter. We also anticipate stronger gross margin in the second half of the year, supported by higher seasonal revenue and a more profitable mix of business.

During the second quarter, we completed the domestic share of FaZe Media, selling our remaining 25.5% stake back to its founders. This valued FaZe Media at over $39 million compared to our original $14 million stock-based acquisition of both FaZe Clan Esports and FaZe Media, and further simplifies our business while reducing working capital requirements. Today, GameSquare Holdings operates across four focus areas: B2B and managed services, agency and media, owned and operated IP, and FaZe Clan Esports. We believe this differentiated end-to-end platform enables deep partnerships with top game publishers and global brands. Our reach into gaming and Gen Z audiences is unmatched, and as brands compete for share in a challenging economic environment, we are confident in our ability to grow organically, supported by recent partnerships and a robust sales pipeline.

While consolidated revenue in the second quarter was slightly below expectation due to extended closing timelines and several large deals, we're entering the seasonally strongest part of our year with significant momentum. The demand environment in our agency business is accelerating. Our pipeline is as strong as it's been all year, and many of the opportunities that shifted out of Q2 are now on track to close in the coming months. We expect meaningful sequential growth with Q3 revenue higher than Q2, and Q4 building further on that growth, supported by both new wins and expansion with existing partners. This momentum positions us for a powerful finish to 2025 and a strong launch into 2026. We are also advancing multiple growth initiatives across the portfolio, including scaling our managed services business, launching new products, and expanding owned and operated relationships.

Highlights here include Stream Hatchet, China's largest contract to date, supporting the launch of Monster Hunter Wilds this week, and also announced a new managed services agreement with Ubisoft to support the launch of Tom Clancy's Rainbow Six Siege. These wins underscore Stream Hatchet's transformation from a pure data analytics provider into a full-service marketing engine, delivering measurable value for customers on a global scale. During the quarter, Stream Hatchet launched a proprietary AI-based solution that helps game publishers, global brands, and agencies connect with Gen Z and millennial audiences across leading live streaming and social platforms. This engine uses machine learning to decode creative content, audience sentiment, and engagement patterns, enabling brands to identify high-performing influencers and design campaigns with surgical precision. Within GameSquare Experiences, we've launched a collegiate esports program to engage campuses nationwide in partnership with a national retail chain.

In July, GameSquare Experiences successfully produced and managed a 100 Thieves' Summer Block Party, further showcasing our ability to execute large-scale, high-profile events. Importantly, the strength of our operating momentum complements our on-chain treasury strategy. The same relationships, reach, and capabilities driving wins in media, technology, and gaming are opening doors with crypto-native companies that see value in our expertise and our access to audience. We are currently in active discussions with more than 15 crypto-native organizations, representing eight figures of potential deal value that are seeking partners with proven capabilities to help them reach and engage audiences at scale. GameSquare Holdings' established operating platform positions us uniquely to meet this demand. We believe these relationships will not only deepen our presence in the on-chain ecosystem, but also generate incremental high-margin revenue streams.

Based on our current pipeline, we expect initial wins to begin in the third quarter, like our recently announced $2.5 million agency and record win with Azuki, and building further into the fourth quarter, creating another powerful growth driver for our business. That operating momentum makes this the perfect time to review our emerging on-chain treasury strategy, which we officially launched on July 1. Our goal is straightforward: to build one of the most sophisticated yield-generating Ethereum strategies of any public company, and to do so alongside a high-performing operating platform. Unlike pure crypto plays, our model is designed to compound value while buffering against volatility. We are pursuing a three-pronged crypto-native growth strategy, which includes, firstly, an Ethereum treasury strategy through Dialectic's on-chain yield platform, targeting annualized yields of 8% to 14%. This kicked off, and we're excited to provide yield results at the end of the month.

Secondly is our financialized art and culture asset strategy that looks to acquire culturally significant digital assets and NFTs, targeting 6% to 10% annualized stablecoin yields. Third, and finally, a Web3 operating strategy, leveraging GameSquare's creative agency and gaming businesses to help crypto-native organizations grow global audiences while also adding high-potential digital assets and yield opportunities to our treasury. This has already resulted in $2.5 million of high-margin revenue for the back half of the year through our agency and record deal with Azuki. The cash flow and appreciation from these activities are intended to fund additional ETH purchases, return capital to shareholders through buybacks, and reinvest in our operating business, creating a self-reinforcing cycle of growth across both pillars of our company. We have built a dedicated on-chain platform supported by best-in-class infrastructure and guided by proven leaders in the crypto and DeFi space.

This includes a team at Dialectic, who bring deep expertise in structuring, managing, and optimizing institutional-grade on-chain portfolios. Our strategy is also supported by seasoned advisors such as Ryan Zurah of Dialectic, Robert Lesnar of SuperState, and Ryan Lee of Goth Capital, all of whom have been instrumental in refining our portfolio construction, risk management, and yield generation strategies. This platform allows us to actively manage our ETH holdings in real time, identify high-conviction opportunities, and move capital efficiently across strategies. Importantly, the systems we've put in place are built for scale, enabling us to increase capital deployment as our treasury grows while maintaining robust oversight and compliance controls. Although still in its early days, our on-chain strategy has already begun to generate meaningful results.

As of August 13, 2025, we held 15,630 ETH with an original cost basis of $55 million and a market value of $74.3 million, reflecting an average cost per ETH of approximately $3,519 and a market price of $4,751. We own one of only 24 ETH CryptoPunks in existence, acquired on July 24, 2025, for $5.15 million, or 1,084 ETH. Our NFP yield strategy, managed by One of One, is targeting annualized yields of 6% to 10%. On August 1, we funded our yield strategy with Dialectic that is currently tracking within our targeted 8% to 14% annualized return range. As of August 13, 2025, our ETH, NFT, and cash totaled $99.4 million, or $1 per share, with total debt of just over $1 million. As you can see, GameSquare Holdings has never been in a stronger financial position.

This strength provides significant flexibility to pursue strategic investment initiatives, invest in our operating platform, and return capital to shareholders. Reflecting this confidence, our Board of Directors has approved a share repurchase program, authorizing the company to buy back up to $5 million of our common stock. The program will be funded directly from the net proceeds of our on-chain yield strategy, ensuring that our treasury activities directly translate into shareholder value creation. With this overview, I'd like to turn the call over to Mike to review our 2025 second quarter financial results. Mike.

Speaker 0

Thanks, Justin. It's important to note that our second quarter financial results do not reflect the July launch of our treasury management strategy. The contribution of this strategy will begin to be reflected in our financial results starting in the third quarter. Comparing our 2025 second quarter reported results to the prior year, total revenue was $15.8 million compared to $17.8 million. The 11% year-over-year decline in revenue was primarily due to a reduction in programmatic advertising revenue, partially offset by growth across our other business segments. Gross margin for the 2025 second quarter was $2.4 million, or 15.3% of sales, compared to $2.5 million, or 14.1% of sales for the same period last year. 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.

Adjusted EBITDA loss for the 2025 second quarter was $3.5 million, compared to a loss of $4.2 million last year and a loss of $3.0 million for the first quarter of 2025. Before I turn the call back over to Justin, I want to quickly review some balance sheet items after the second quarter that take into account our recent equity offerings, on-chain purchases, and debt repayments. As of August 13, 2025, GameSquare Holdings had approximately 99 million common shares outstanding, cash and cash equivalents of $20 million, on-chain treasury assets of $79.4 million, total debt of $1.25 million, and a market cap to net asset value ratio of 0.92 times. As you can see, GameSquare Holdings has a strong financial position with excellent liquidity to pursue strategic initiatives, invest in our operating platform, and return capital to shareholders. With this overview, I'll turn the call back over to Justin.

Speaker 3

Thanks, Mike. As a result of the strong performance since the launch on July 1, 2025, of our Ethereum treasury strategy and continued restructuring initiatives aimed at streamlining operations and accelerating the path to profitability, we plan to reintroduce full-year guidance in the third quarter of 2025. That said, I want to provide investors with the following assumptions that we believe will add some insight into why we expect the second half of 2025 to be meaningfully stronger. As we've discussed, we launched our Ethereum yield strategy on August 1, which is targeting annualized on-chain yields of 8% to 14%. Approximately 60% of 2025 revenue is expected to be generated in the second half of the year, in line with typical seasonal trends. We expect revenue growth combined with a more profitable mix of revenue will further improve consolidated gross margin in the second half of the year.

Opportunities have shifted out of the second quarter and are now on track to close in the coming months. We expect meaningful sequential growth with third quarter revenue higher than second quarter, and fourth quarter building further on that growth, supported by both new wins and expansion with existing partners. We expect additional wins in the crypto space, like the $2.5 million recently announced Azuki deal, to continue that were not modeled into our original numbers. Ongoing restructuring initiatives are expected to lower operating expenses in the second half of 2025, with approximately $5 million of additional annualized savings expected by the end of the third quarter. Taken together, the strength of our operating platform, the seasonally stronger revenue mix, our ongoing expense discipline, and the contribution from our on-chain treasury strategy give us confidence in a significantly improved performance in the back half of the year.

GameSquare Holdings is building what we believe is a category-defining model that combines a high-performance operating platform with one of the most sophisticated actively managed Ethereum treasuries in the public markets. Our dual strategy is designed to deliver growth, yield, and appreciation while providing the resilience to outperform across market cycles. We are focused on expanding our reach profitably into traditional and on-chain economies and translate this advantage into meaningful, lasting shareholder value. We believe the second half of 2025 will show the full potential of what our platform can deliver. With this overview, Louis, Mike, and I are happy to take questions. Operator, please open the call to questions. Thank you.

Speaker 2

Thank you. To join the question queue, you may press star, then one on your telephone keypad. You will 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. The first question comes from Gregory Thomas Gibas with Northland Securities. Please go ahead.

Speaker 1

Greg, good afternoon, Justin, Lou, and Mike. Congrats on the early progress and success with that Ethereum treasury strategy. I wanted to just kind of follow up on your revenue performance in terms of, you know, a little lighter than you expected. Could you provide maybe a little bit more color on what may be panned out differently than expected and simply, you know, was it kind of deal timing or were there other impacts? I appreciate the comments on kind of the expectations into the back half.

Speaker 3

Yeah, absolutely. Thank you, Greg. I think there's three main factors in Q2, which I think the most sort of pleasing, you know, most pleasing factor of that is that they're sort of macro-related and that these deals are very much on the table. I would say number one was really, you know, the effect of the tariffs. I think that, you know, we had two sort of large deals with global gaming companies that are headquartered in China. These were multi-year seven-figure deals. They haven't gone away, but they certainly slowed down. One that we were expecting to paper, you know, in short order, that was certainly slowed down by, I think, the confusion that, you know, some of the announcements around tariffs, you know, created.

I certainly think that, you know, from an advertising and sort of agency perspective, you know, I do think that there was sort of some pain felt, you know, across those segments. Certainly, you know, we weren't isolated there. I think the pleasing part of that is that, you know, these deals are very much on the table. We've got real inventory. I hate to sort of continue to use the word pipeline because, you know, these deals are translating into real revenue. Again, you know, I touch on sort of the Azuki deal that we just announced. It's $2.5 million of really high margin revenue that wasn't even factored into the model at all. Feel really good about Q3 and Q4 revenue. Q2 a little softer for sure. I think one, certainly kind of the tariff, you know, announcements.

I'd say number two was a sort of slowdown in our programmatic advertising revenue. This is a part of the business. I think we've been pretty vocal about it. It's been really low margin sort of revenue for us. When we talk about being a next-generation media company, you know, certainly our focus is not on, you know, programmatic advertising. We're really focused on a map-building business, connecting brands authentically with these audiences, large-scale campaigns, really high margin areas of our business. That really, I think you'll see a continued focus there. Certainly kind of from a top-line perspective. What I think you will see in the back half of the year is really material margin growth. Certainly, you know, top-line came off a little bit. Again, I think if you look year on year, there is adjusted EBITDA improvement.

To kind of touch on that, Greg, because I think that's really key, right, if you think about that EBITDA piece right into Q3 and how you kind of get to profitability, if you're looking at a burn of just sort of over $1 million a month, I think if you look at, and this isn't even sort of taking into account the increase in revenue and margin, which we expect, but just from that $5 million of annualized restructuring costs, if you take into account that and even just the sort of yield off our current Ethereum treasury strategy, you're already sort of at break-even, right, before you even look at that revenue growth. We feel really good about the operating business. I think the third factor is really just a renewed sort of focus on this crypto space.

We kind of touched on the pipeline there, but there are 15-plus active conversations going on. This is not a pivot in terms of our services. I'd really note that. We're just seeing a lot of inbound from these blockchain gaming companies, exchanges, wallets, neobanks that are all wanting to reach youth audience at scale. They're all wanting to reach these traditional gaming audiences. We're seeing a huge amount of inbound there. Just to sort of summarize, I'd say it's the macro factors with tariffs, certainly a bit of a slowdown in programmatic revenue. Again, year on year EBITDA improvement. We know the job's not done by any extent, but I think there's a really clear path here to profitability. That's not to sort of, we're not just looking at our unrealized gains on Ethereum, which is, as we talked about, $19 million. We're trading currently below cash in Ethereum.

We certainly think there's significant upside, but we certainly think just from an operating standpoint that we'll be getting to profitability in the near term.

Speaker 1

Yeah, Greg, really appreciate the detailed color there. It does make sense, you kind of beat me to a follow-up question as well. I guess I'll just ask too, you mentioned the 15-plus active conversations in the crypto space. That's exciting. Wondering if you could maybe characterize the timing of those opportunities. Could you say those are longer term or could those be contributors in the back half? I guess just secondly or lastly, as it relates to your guidance, do you have a sense of the timing on when you're, is it just getting a better sense of the treasury strategy and how that's trending? Sorry, I guess if I could throw in another one, just in terms of the incremental restructuring, maybe where you expect to derive those savings from in the business.

Speaker 3

Yeah, absolutely. Feeding there, I'd say we'll touch on the restructuring first and we can go backwards from there. On the restructuring front, we've been talking about for some time really consolidating our technology platforms, Stream Hatchet and Psychics. We've made some really big strides there. We've continued to pull out efficiencies within the business. We've obviously integrated, you know, Engine Gaming and then FaZe Clan over the past, you know, two years. We've been continuing to look at efficiencies, really just around streamlining our offering. I think you'll see that sort of net effect of that in Q3 and Q4. We're going to be operating really efficiently. I think from that point, it's really about one, hitting profitability and two, obviously scaling from there. I think that we can really hit operational efficiency from there and again, really see scale into 2026.

In terms of the crypto revenue category, it's been an interesting one. I think it's certainly been one we've been involved in this space for some time. We've certainly been on the sidelines watching as these treasury strategies have appeared. We certainly looked at it from a perspective of we're not in an arms race here with BitMine and others to own the most Ethereum. We, one, believe that our strategy is really differentiated by the fact that we have an exclusive partnership with Dialectic. From a public company standpoint, that is an exclusive relationship. We believe that we can generate the greatest yields on Ethereum. We certainly believe at the end of this month, when we can report our first month and actual results on yield, that people will start to see that and hopefully the market will see those actual results.

We think that we have a differentiated approach by the fact that our operating business really does work within this space, right? That is through our core businesses in technology, agency, events, marketing, media. These gaming audiences are living on the internet. There's enormous crossover with these crypto communities, right? They're all digitally native. It's really servicing everything internet culture. We have done that. We've worked with a number of blockchain gaming developers in the past. Our largest sponsor on the FaZe Clan Esports site is Rollpit, which is another crypto-native betting site. We have had experience in the past, Greg, but we've sort of made this a real emphasis here of growth. I think we're going to really start to see some material results into the back half of the year. This isn't like a 2026, 2027 strategy. You need to wait three, four quarters to see the results.

We've had a huge amount of inbound since we announced the treasury strategy. We've done a lot of work with our staff around the space and really educating everybody around the space. We think we're really uniquely positioned to be that leading internet culture digitally native agency. We talk about kind of how fragmented the gaming space is. I think the crypto space even more so, right? They're not engaging the big traditional agencies like a lot of gaming publishers and brands now are. I think there's a huge opportunity for us to be the go-to when it comes to IRL events, when it comes to marketing campaigns, when it comes to content. We saw an announcement yesterday with Azuki against $2.5 million of revenue. It's going to hit our books in Q3 and Q4.

We expect there to be a number of other deals that will be closed and announced within sort of Q3 that will hit our books in Q3 and certainly within Q4 and into next year.

Speaker 1

That's great. Thanks very much, Justin.

Speaker 2

This concludes the question and answer session. I would like to turn the conference back over to Justin Kenna for any closing remarks. Please go ahead.

Speaker 3

Thank you. I just want to thank everyone for jumping on today's call. We've certainly received a lot of inbound around the treasury strategy and understanding the different pieces there, and why the company is trading below cash and Ethereum. I think that as frustrated as we certainly are as management, we're going to continue to keep our heads down and drive the business forward and get to profitability to prove out the yield strategy to continue to really drive for long-term sustained shareholder success. That's really what we're in this for. I think that we mentioned it in the script, but we really look at this strategy as a long-term strategy. This isn't about just riding the appreciation in price of Ethereum, which is certainly nice. The sort of $19 million unrealized gain is certainly nice, but this is about long-term sustained success.

It's about generating real yield that we can invest into the operating business and that we can continue to execute. As I mentioned, we're really uniquely positioned here as a service provider to the crypto space. We see this as a new vertical and new revenue stream for us. We're going to continue to be a leader in the gaming space, but we think that we're extremely well positioned for future growth. I really appreciate the support of all the investors. We're certainly here if anybody has questions about the strategy or wants to understand more, we're always available. We feel really bullish about where things sit today and where we're headed. We're really, really excited about Q3 and Q4. Nothing has changed in our ruthless pursuit of profitability. We're really excited to update shareholders with our Q3 results and deliver those results for shareholders.

Again, thank you everyone for jumping on today. The company really appreciates it. Thank you.

Speaker 2

This brings to a close GameSquare Holdings' 2025 second quarter financial results conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.