Motorsport Games Inc.

Welcome to today's Motorsports Games Incorporated Third Quarter 2021 Earnings Call. At this time, all participants are on a listen-only mode. Later, we will conduct a question and answer session. I'll now turn the call over to your host, Ashley DeSimone of ICR. You may begin.

Thank you, Operator. On today's call are Dimitri Kosko, Motorsport Games Executive Chairman and Chief Executive Officer, Stephen Hood, President, and John Liu, Chief Financial Officer. By now, everyone should have access to the company's third quarter earnings press release filed today after market close. This is available on the investor relations section of Motorsport Games' website at www.motorsportgames.com. During the course of this call, management may make forward-looking statements within the meaning of the federal securities laws. These statements are based on management's current expectations and beliefs and involve risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements. Except as required by law, the company undertakes no obligation to update any forward-looking statements made on this call or to update or alter its forward-looking statements, whether as a result of new information, future events, or otherwise. Please refer to today's press release and the company's filings with the SEC including the company's most recent annual report on Form 10-K and the company's quarterly report on Form 10-Q for the period ended September 30, 2021, for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. In today's conference call, we will refer to certain non-GAAP financial measures, such as adjusted EBITDA, as we discuss the third quarter 2021 financial results. You will find a reconciliation of these non-GAAP measures to our actual GAAP results, as well as other related disclosures in the press release issued earlier today. And now I'd like to turn the call over to Dimitri Koskov, Chief Executive Officer of Motorsport Games. Dimitri?

Thank you, and hello, everyone. My name is Dimitri Koskov, Executive Chairman and Chief Executive Officer of Motorsport Games. It's a pleasure to discuss our third quarter results with you today, along with Stephen Hood, our president, and John Yoo, our chief financial officer. Please take a look at our Q3 highlights video and Q3 earnings slides posted on the landing page of our IR website. We'll share some visuals from our just-released NASCAR 21 Ignition Game and a glimpse of the first round of 2021-2022 Le Mans Virtual Series eSport event. We hope that these quarterly videos and now our quarterly earnings slide continue to give you a sense of Motorsport Games' progress towards our vision to become the household brand name for racing games and esports. I want to say thank you to our new and existing stockholders and racing fans who have been patiently waiting for the release of our new NASCAR 21 title. The wait is over. We choose to pull forward our normally scheduled quality earnings conference call to get you not only our Q3 results, but also the information related to the recent launch of our NASCAR 21 title. I'm excited and humbled to say that NASCAR 21 Ignition was launched on October 28th. This is a significant milestone for our young company, particularly because this is the first title that was built on our proprietary Motorsport Games internal development platform, leveraging Unreal Engine and our factory technologies. There has been a lot of excitement around NASCAR 21 Ignition. During the pre-release period, we experienced technical glitches. This is common whenever a new game is launched on a new engine, and I'm pleased to report that due to the flexibility of our new Motorsport Games engine, and the hard work of the internal development team, we were able to release patch updates very quickly. In fact, for the PlayStation and PC platform, we were able to get the patch out to users early in the morning of the official October 28th release in the U.S. and the Xbox users within 45 hours after the U.S. release, just ahead of the NASCAR Martinsville race weekend. where the game, in fact, was featured as the eNASCAR Village for fans to play on-site. We thank our community for your patience, understanding, and ongoing support. The work is not over, though, and it is our commitment to continue to update the game with patches as we learn more and implement feedback we are receiving. The game is the newest installment in the officially licensed NASCAR gaming franchise and is available physically or digitally for Sony PlayStation 4, Microsoft Xbox One, and PC through the Steam Store. The console versions come with a free upgrade pack for the Sony PlayStation 5 and Microsoft Xbox Series X app, with free downloadable upgrades available for those users. This year's game comes complete with new updates and additions built upon the foundations of the previous iteration of our NASCAR title. For example, we developed a brand new paint booth offering unparalleled level of customization to create NASCAR paint schemes complete with iconic race numbers, which we're already seeing fans praising while creating some amazing personalized paint schemes. When we first announced the pre-orders of NASCAR 21 Ignition on August 12, we immediately saw great demand in pre-orders, which carried through all the way through the launch date. Overall, pre-order revenue, including estimates for the launch date, were approximately 18% higher when compared to NASCAR E5 for the same period. This included one of our largest selling orders to date as much for games from GameStop, Walmart, Amazon, Best Buy, and more. Digital pre-order part of the revenue significantly increased year-over-year to approximately 157% when compared to NASCAR T5. We believe that our digital revenue would generally have a higher gross margin relative to the packaged goods will continue to increase during the remainder before 2021. Launch date was a very momentous occasion for us. It is clear to us how passionate our fans are about NASCAR 21 admission and racing games in general. We share that passion and have been capturing community feedback. We're actively working on addressing this feedback received from our community and hope to have our next We've got patches live soon that address quality of life and new feature requests. We're pleased to see all the passionate feedback pouring in across all our social channels. In particular, we stay transparent with our community and partners, and most importantly, showcase that we deliver on our promises and that we truly care. Shortly after the launch and implementation of the patches for our platforms, we saw positive community sentiment and appreciation. We're building our games for the future, and we believe it's important for us to invest in our community. The launch of NASCAR 21 Ignition is an example of a primary growth strategy, which is to create great racing games that we could scale by expanding our portfolio of brands into multiple franchises with multiple games each, paired with a dedicated esport offerings. Starting with our NASCAR partnership, we have officially announced we will be launching the first-ever NASCAR title for Nintendo Switch platform. This is the first time we're expanding to the Nintendo Switch and are excited to invite a whole new audience of gamers and fans. Our fans have long waited for the Nintendo Switch version of NASCAR, and we're excited to give them a portable version of such games. NASCAR Heat Ultimate Edition Plus for Nintendo Switch It's targeted to launch on November 19th with pre-orders currently live across retail and digital stores. Sell-in orders for this product have already exceeded our initial internal projections and will be ready to hit the shelves in time for this holiday season. NASCAR Seek Ultimate Edition Plus on Nintendo Switch includes everything found in NASCAR Seek 5 Ultimate Edition, the console, plus the 2021 NASCAR Cup Series cars, rosters, and primary paint teams. The previous 2020 official teams, drivers, cars, and schedules from the three NASCAR National Series and Extreme Third Tour races featuring 39 authentic tracks remain in this game as well. Further feature content includes 2020 throwback and playoff paint teams. and Tony Stewart as a playable character cross-form. We continue to make progress on development of our BTTC, Le Mans, and now IndyCar games, leveraging as much innovation from Motorsport Games Engine as possible and building on top of the learning and evolution of NASCAR 21 Ignition. Additionally, we continue to evolve our Early Access Car Craft game by releasing more upgrades and content while bringing the car factor closer to a full release for PC, which we expect will be before the end of this year. We also continue to integrate our R Factor 2 platform into our Motorsport Games Engine and add additional content as well as use R Factor 2 to run our official eSport events. Let's dive a little bit more into the details about our eSport initiatives. We continue to value the growing importance of eSports to our business, which has funneled new users across our product base and driven prior fan engagement and new potential revenue stream from sponsorships. We dedicate ourselves to being the leading player in the Wacom eSports team, and we believe that our combination of world-class events around unmatched iconic IP and effective user engagement with our fans will help us get there. We have officially launched the extended 2021-2022 Le Mans Virtual Series in the first quarter of 2021. The first two rounds have been completed with entertaining thrills for the fans, and we are anticipating a spectacular grand finale event for the 24-hour Le Mans Virtual as a live and televised event from the 2022 Autosport International Show on January 15th to 15th in 2022. We're incredibly proud of the level of the participants from famous drivers, world-class teams, manufacturers, and partners. We welcome Frostmaster as our official hardware partner, Rolex as our official timepiece partner, Polo Energy as our official energy partner, Goodyear as our official tire partner, Lego Technics as our official engineering partner, and Algorand as our official blockchain partner for this 2021-2022 Lamont virtual series. Official events like this continue to bring awareness to our product offering, such as R-Factor 2 and the rest of the motorsport games. This year, we plan to announce more official annual esport events and leverage our community platform, Traction.gg, as it continues to grow in audience and engagement. We continue to focus on developing and bringing capabilities to our community through Traction that will allow fans and friends to compete against each other, rank amongst others, and develop their virtual racing careers. Lastly, I would like to formally welcome Peter Moore to our Board of Directors. Peter is no stranger to the gaming industry, and brings us 30 years of gaming, board entertainment, and consumer industry experience. Formerly COO of Electronic Arts and a head of EA Sports, and currently he serves as the Senior Vice President and the General Manager of Sports and Live Entertainment at Unity Technologies. We're excited to have him on board to give us the opportunity to leverage his career experience as we continue to grow from a single-franchise company to a multi-franchise company in a racing game shop.