GameSquare Holdings' Q3 2025 Earnings Call: Contradictions Emerge on Stock Buybacks, Ethereum Strategy, Macro Impact, and Gross Margins

Date of Call: None provided

Financials Results

• Revenue: $11.3M reported in Q3 2025, up 22% YOY (vs $9.3M); pro forma Q3 revenue $15.5M
• Gross Margin: 49.4% of sales in Q3 2025 ($5.6M), up 4.1 percentage points YOY (45.3% prior year); materially higher than Q2 2025 (15.3%)

Guidance:

• Pro forma 2H 2025 revenue expected to be $36.8M and pro forma adjusted EBITDA $2.9M.
• 2026: expect >20% organic revenue growth while maintaining strong gross margin.
• Targeting high single-digit to low-double-digit adjusted annual EBITDA margins as the business scales.
• Management will provide more detailed guidance prior to year-end.

Business Commentary:

• Operational and Financial Improvement:
• GameSquare reported net income of $5.9 million from continuing operations in Q3 2025, marking a significant turnaround from a pro forma EBITDA loss of $3.5 million in Q2 2025.

• The improvement was driven by the divestiture of low-margin operations, integration of Click Management, and the launch of a digital asset treasury strategy.

  

• Margin Expansion and Cost Control:

• The company's gross margin expanded by 20 percentage points to 49.4% in Q3 2025, compared to 15.3% in Q2 when including Frankly.

• This increase was due to the divestiture of noncore, low-margin operations like Frankly Media and the strategic focus on higher-margin areas such as agency, media, and technology.

• Strategic Acquisitions and Organic Growth:

• GameSquare's acquisition of Click Management 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.

• The acquisition accelerated access to top-tier talent and brand relationships, enhancing the company's reach and expanding its revenue streams.

• Digital Asset Treasury Strategy:

• GameSquare's digital asset treasury strategy raised approximately $18 million and generated $600,000 in yield in the last two months of Q3.
• This strategy is designed to enhance the balance sheet, unlock scalable treasury yield, and drive Web3 market growth, supporting long-term shareholder value.
  

  Sentiment Analysis:

  Overall Tone: Positive

  • "GameSquare has never been in a stronger strategic, operational or financial position." Reported $5.9M net income from continuing operations; gross margin expanded to 49.4%; management expects >20% organic revenue growth in 2026—all indicating an optimistic tone.

Q&A:

• Question from Gregory Gibas (Northland Securities): Nice to see the share repurchases. Could you, I guess, 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?
  Response: Company will be aggressive with buybacks using DAT yield proceeds; $5.0M authorization with ~$4.4M remaining after initial ~$600k tranche.

• Question from Gregory Gibas (Northland Securities): Tariff uncertainty impacted timing of several large deals last quarter. How has the environment trended into Q3 and are macro-related pressures easing?
  Response: Activity and pipeline have picked up materially; Q4 is very busy though some China‑headquartered deals remain stalled by tariff issues.

• Question from Gregory Gibas (Northland Securities): Could you provide more color on the 20% organic revenue growth expectations for next year and the primary drivers?
  Response: 20% is a conservative target based on annualizing the back‑half run rate (~$75M); growth drivers are agency expansion, Click integration, creative deployment, publisher managed services and new market expansion.

• Question from Jack Vander Aarde (Maxim Group): For the 2H pro forma guidance, can I back out Q3 pro forma numbers to bridge to Q4 or is there more to consider?
  Response: Yes; pro forma Q3 was ~$15.5–16M, implying Q4 around ~$21M—improvement driven by Frankly cleanup, Click inclusion and cost discipline.

• Question from Jack Vander Aarde (Maxim Group): The Ethereum treasury strategy is generating above‑market yields; what's the strategy if markets are flat or down and how do you derisk?
  Response: Dialectic and GameSquare employ disciplined risk management; the strategy is cash‑management focused (not pure accumulation), with opportunistic derisking and no immediate need to liquidate—yields are used for buybacks and operations.

• Question from Jack Vander Aarde (Maxim Group): Q3 gross margin jumped to ~49%—what is Click's gross margin and should we expect these margins to persist?
  Response: Management expects normalized blended gross margin around ~40% (35–45% range); Click margins ~35% and DAT yield is effectively 100% margin; removal of Frankly materially improved blended margins.

• Question from Jack Vander Aarde (Maxim Group): Can you provide a high-level segment revenue breakout for Q3 while we wait for the 10‑Q?
  Response: Reported $11.4M: Owned & Operated IP $3.7M; Agency $5.4M; SaaS & Managed Services $1.7M; Yield (DAT) $0.6M; full segment tables will be in the 10‑Q.

Contradiction Point 1

Stock Repurchase Strategy

It directly impacts the company's financial strategy and shareholder expectations regarding the utilization of funds.

How aggressive will you be in buying back shares when the stock is trading below debt and cash assets? - Gregory Gibas (Northland Securities)

20251114-2025 Q3: We will be aggressive in buying stock. Share repurchases are a great use of yield funds, indicating our confidence in undervaluation. - Justin Kenna(CEO)

Can you explain your approach to stock repurchases, given the stock is trading below your net cash? - Gregory Gibas (Northland Capital Markets, Research Division)

2025Q3: We're going to continue buying stock due to our undervalued status. We believe it's a great use of yield funds, and we expect to continue using these funds to buy back shares. - Justin Kenna(CEO & Executive Director)

Contradiction Point 2

Ethereum Treasury Management Strategy

It involves the company's cryptocurrency management strategy, which is crucial for investors considering the volatility of cryptocurrency markets.

What is the strategy for Ethereum treasury management in a flat or declining market? - Jack Vander Aarde (Maxim Group)

20251114-2025 Q3: We're not in an Ethereum acquisition arms race. Our strategy involves disciplined cash management and yield generation. We are opportunistic and have a derisking strategy, with a focus on patient capital deployment. - Justin Kenna(CEO)

Can you outline the Ethereum treasury strategy in a flat or declining market? - Jack Vander Aarde (Maxim Group LLC, Research Division)

2025Q3: Our strategy is cash management-focused, not Ethereum acquisition. We're generating higher yields than market rates. We'll be opportunistic, using proceeds to buy back shares and grow the business. - Justin Kenna(CEO & Executive Director)

Contradiction Point 3

Macro-related Impact on Deal Timelines

It directly impacts expectations regarding the effects of macroeconomic pressures, such as tariffs, on deal timelines and company revenue, potentially influencing investor expectations.

How have macro pressures, such as tariffs, affected deal timelines, and are there any signs of easing? - Gregory Gibas (Northland Securities)

20251114-2025 Q3: We've seen increased activity, especially in Q4, with a strong sales pipeline. Macro pressures, like tariffs, haven't eased, but there's been no material impact on new deals. - Justin Kenna(CEO)

What factors caused Q2 revenue to fall slightly below expectations? When will the 15+ active crypto deals close? - Gregory Thomas Gibas (Northland Securities)

2025Q2: Three main factors impacted Q2 revenue: macro factors such as tariffs affecting deals - Justin Kenna(CEO)

Contradiction Point 4

Gross Margin Expectations

It involves changes in financial forecasts, specifically regarding gross margin expectations, which are critical indicators for investors.

What caused the 49% gross margin, and how did Click's acquisition affect it? - Jack Vander Aarde (Maxim Group)

20251114-2025 Q3: Partly due to Frankly's divestiture. Going forward, margin should be in the 40% range. - Justin Kenna(CEO)

What factors could drive gross margin higher or lower, given Q2's expected YoY decline and Q3/Q4 guidance in the low 40s%, and when will the margin improve? - KenSidebar (William Blair)

2025Q1: We expect our Q2, Q3 and Q4 gross margins to be in the low 40s. We expect full year 2025 gross margins to be in the mid-40s. - Michael Munoz(CFO)