8-K: GameSquare Holdings Secures $10 Million Convertible Note, Reports Record Q3 Revenue

GameSquare Holdings announced a $10 million convertible note and record third-quarter revenue of $26.4 million, a 10% increase year-over-year on a proforma basis.

Summary

• GameSquare Holdings reported a record third-quarter revenue of $26.4 million, a 10% increase compared to the proforma results of the same quarter last year.
• The company's adjusted EBITDA loss significantly improved to $2.2 million, compared to a $10.4 million loss in the proforma third quarter of 2023 and a $5.4 million loss in the second quarter of 2024.
• GameSquare expects its 2024 annual proforma revenue to be between $105 million and $110 million.
• The company secured a $10 million convertible note with an entity controlled by Matt Kalish, which will be used to pay down existing debt and accelerate revenue growth.
• The convertible note has a 7.5% interest rate, increasing to 10% upon an event of default, and can be converted into common stock at $2.50 per share or exchanged for 5,725,000 shares of FaZe Media Series A-1 Preferred Stock.
• The company had over $11 million in cash on its balance sheet as of September 30, 2024.
• GameSquare's gross margin improved to 19.8% in Q3 2024, compared to 14.0% in the proforma Q3 2023.
• Operating expenses decreased to $8.9 million, or 33.8% of revenue, compared to $13.8 million, or 57.4% of revenue, in the proforma Q3 2023.

Sentiment

Score: 8

Explanation: The document presents a generally positive outlook with record revenue, improved profitability metrics, and a new capital raise. However, the company is still reporting a net loss and the convertible note has some risks associated with it.

Positives

• The company achieved record revenue for the third quarter.
• There was a significant improvement in adjusted EBITDA loss compared to the previous year and previous quarter.
• The company has a strong cash position with over $11 million on hand.
• The new $10 million convertible note provides increased financial flexibility.
• Gross margin and operating expenses have improved year-over-year.
• The company expects a record year for revenue in 2024.
• GameSquare has a growing pipeline and a record backlog of committed revenue.

Negatives

• The company is still reporting a net loss and an adjusted EBITDA loss.
• The convertible note includes a default interest rate of 10%, indicating a higher risk for the lender.
• The company's net loss attributable to GameSquare was $5.5 million in Q3 2024, compared to a net loss of $5.1 million in Q3 2023.
• The company's net loss attributable to GameSquare was $22.4 million for the nine months ended September 30, 2024, compared to a net loss of $13.5 million for the same period in 2023.

Risks

• The company's ability to achieve its revenue and profitability targets depends on its ability to execute its business plan.
• The company's ability to obtain future financing on acceptable terms is not guaranteed.
• The company is dependent on key personnel.
• The company is subject to general business, economic, competitive, political, and social uncertainties.
• The convertible note contains a clause that limits the number of shares that can be issued without shareholder approval.

Future Outlook

GameSquare expects 2024 to be a record year with annual proforma revenue between $105 million and $110 million and anticipates continual quarterly improvements to profitability throughout 2024 supported by sales growth, gross margin improvement, and the benefit of cost saving initiatives. The company believes 2025 will be a strong year of growth and significantly improved profitability.

Management Comments

• Justin Kenna, CEO of GameSquare, stated, 'GameSquare delivered strong third quarter financial results that were in line with our pre-announcement, and reflect the strategies underway to drive organic sales growth, complete the integration of our recent acquisitions, and build a profitable organization.'
• Justin Kenna also stated, 'We also continue to pursue strategies aimed at strengthening our balance sheet and this morning we further solidified our balance sheet with a new $10 million convertible note with an entity controlled by Matt Kalish.'
• Justin Kenna concluded, 'We expect to end 2024 with record revenue, a record backlog of committed revenue, a higher number of customers on retainer, and a growing pipeline. As a result, we believe 2025 will be a strong year of growth and significantly improved profitability.'

Industry Context

This announcement comes as the gaming and esports industry continues to grow, with brands increasingly looking for ways to connect with younger audiences. GameSquare's focus on next-generation media and its acquisition of FaZe Clan position it to capitalize on these trends.

Comparison to Industry Standards

• GameSquare's revenue growth of 10% year-over-year on a proforma basis is a positive sign, indicating the company is gaining traction in the market.
• The significant improvement in adjusted EBITDA loss suggests that the company's cost-cutting measures are having a positive impact.
• The company's gross margin of 19.8% is a positive indicator of its ability to generate profit from its revenue.
• The securing of a $10 million convertible note is a common strategy for growth companies in the tech and media space, providing capital for expansion and debt management.
• The company's focus on integrating acquisitions and streamlining operations is in line with industry best practices for scaling businesses.

Related Party Transactions

• The $10 million convertible note was issued to Gigamoon Media, LLC, an entity controlled by Matt Kalish, who is also the Secretary of FaZe Media, Inc.

Stakeholder Impact

• Shareholders may see a positive impact from the increased revenue and improved profitability metrics.
• Employees may benefit from the company's growth and improved financial stability.
• Customers may see improved services and offerings as the company continues to grow.
• Creditors may see a reduced risk of default with the company's improved financial position.

Next Steps

• The company intends to use the proceeds from the convertible note to pay down existing debt and accelerate revenue growth.
• GameSquare will continue to focus on integrating acquisitions and streamlining operations.
• The company will work to finalize and execute an amendment to the Master Services Agreement with FaZe Media.
• GameSquare will seek shareholder approval to issue more shares of common stock if required by the convertible note.

Key Dates

Keywords

GameSquare, Convertible Note, Revenue, EBITDA, FaZe Media, Financial Results, Gaming, Promissory Note, Debt Financing, Equity