GameSquare Holdings, Inc. Q3 FY2025 earnings call

• Strategic transformation: 2025 is a defining year for strategic transformation, with actions like divesting FaZe Media, winding down Frankly Media, and acquiring Click Management.
• Margin improvement: Gross margin expanded to 49.4% in the third quarter, reflecting efforts to improve profitability.
• Acquisition of Click Management: Click Management, a leading talent management firm, closed over 545 commercial deals in 2024 with $12.4 million annual revenue, and is expected to contribute $14.5 million of annualized pro forma revenue and $1.2 million of annualized pro forma EBITDA for the second half of 2025.
• Digital asset treasury strategy: Launched in July 2025, raised approximately $18 million, holding 15,618 ETH with an original cost basis of $55.5 million and an unrealized gain of $9.3 million in the third quarter, and owns $6.9 million of crypto funds and $3.8 billion of Altcoins.

In the third quarter, the segment performance was as follows: Owned and operated IP contributed $3.7 million, agency contributed $5.4 million, SaaS and Managed Services contributed $1.7 million, and the yield from the digital asset treasury strategy (DAT) contributed $600,000. The gross margin for the third quarter expanded sequentially to 49.4%, up from 15.3% in the second quarter when including Frankly. Pro forma revenue including a full quarter of Click Management was $15.5 million, and pro forma adjusted EBITDA loss was $0.2 million.

• Second half pro forma guidance: Expect second half revenue of $36.8 million and adjusted EBITDA of $2.9 million.
• 2026 outlook: Expect over 20% annual organic revenue growth while maintaining strong gross margin, targeting high single-digit to low double-digit adjusted annual EBITDA margins as the business scales.

• Crypto volatility: Digital assets are notoriously volatile, and the onchain strategy is still in early days with associated risks.
• Tariff uncertainties: Ongoing tariff issues with some global gaming companies, though not affecting closed deals yet.

Q: Nice to see the share repurchases. Could you discuss your stance on how aggressive you expect to be or your proclivity to buy back shares with the stock trading below your debt assets and cash?

A: We have approval to buy up to $5 million worth of equity. We did our first tranche of $600,000. We will continue buying back shares as yield proceeds can be used for this, and we believe we're undervalued.

Q: Wondering if you could characterize the environment, how it's trended into Q3 and whether you're continuing to see any macro-related pressures maybe ease or become a little bit more favorable?

A: Activity has picked up, with a strong pipeline and RFP flows. Tariff uncertainties are ongoing but not affecting closed deals, and the market is healthy.

Q: Could you provide a little bit more color on the 20% organic revenue growth expectations for next year?

A: 20% organic growth is conservative. Drivers include streamlining agency business, high client retention, expanding relationships, and opportunities in creative deployment, talent management, and new markets like MENA and Asia.

Q: Looking at the 2H pro forma guidance, do I interpret this correctly if I back out the 3Q pro forma numbers from this press release and that bridges to the fourth quarter and some of those is the 2H pro forma guide?

A: Yes, that's a way to look at it. We were slightly ahead of guidance within Q3, and Q4 is seasonally strong with expected growth.

Q: The Ethereum treasury strategy, does Dialectic or the whole team there have a strategy or a sense of what happens in a flat to down market?

A: Dialectic has a risk management strategy. We're not in an arms race to own the most Ethereum; it's a cash management strategy with a yield focus, and we have a strategy to divest opportunistically.

Q: Looking at the gross margin result, what does Click's gross margin look like and does it dilute that?

A: Click's margins generally fall around the 35% range. The removal of Frankly, which had low margin, improved the blended margin. DAT yield has 100% margin, and the mix will fluctuate but is expected to be in the 35% to 45% range moving forward.

Q: What was the segment revenue breakout like?

A: Of the reported $11.4 million, $3.7 million was from owned and operated IP, $5.4 million from agency, $1.7 million from SaaS and Managed Services, and $600,000 from yield.