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spk00: Thank you for standing by and welcome to Motorsport Games Inc's fourth quarter and full year 2023 earnings call. At this time, online turn a lesson only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require needed assistance, please press star zero for the operator. As a reminder, today's conference is being recorded. I would now like to turn the conference over to Ben Rossiter-Turner from Motorsport Games. Please go ahead.
spk01: Thank you and welcome to Motorsport Games' fourth quarter and full year 2023 earnings conference call and webcast. On today's call is Motorsport Games Chief Executive Officer Stephen Hood and Interim Chief Financial Officer Stanley Beckley. By now, everyone should have access to the company's fourth quarter and fall year 2023 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 U.S. 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 statement 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 to the company's filings with the SEC, including its most recent annual report on Form 10-K for the year ended December 31, 2023, for a detailed discussion of certain 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 fourth quarter and full year 2023 financial results. You will find a reconciliation of these non-GAAP measures to their most directly comparable GAAP measures, as well as other related disclosures in the press release issued further today. And now I'd like to turn over the call to Stephen Hood, Chief Executive Officer of Motorsport Games. Stephen?
spk04: Thank you, everyone, for joining this conference call today. Throughout Q4 2023, we continue to reduce spend and improve efficiencies across the business, carefully monitoring expenses and working diligently towards our Q1 2024 game release, Lomom Ultimate. This would be only our second internally developed title and something we intended to correct as a matter of urgency. The folding of other projects and efforts was designed to focus our effort around the kind of game experience we believe will set us on the right path, releasing innovative games designed to foster a large player base of engaged users we can call a community. As we focused on the development of Le Mans Ultimate, we came to the understanding that this form of racing suited our vision for the future racing and driving landscape. Motorsport games is all about player participation and not simply the dog-eat-dog world of traditional racing games, where only one player can be crowned the winner and where friends become enemies. We believe in building an accessible, highly polished ecosystem, which puts community and, most importantly, teams at the heart of the experience. Look at many of the wildly popular games on the market today, and you will see they center their experience around team play. This is starkly absent in almost all racing experiences. In Le Mans Ultimate, Teams comprise three drivers taking turns to drive their part of an endurance race. This title is our springboard for a vision we have been working towards for the last several months, which we believe signifies a turning point in the recent history of our company. We are finally seeing the results of decisions set in motion many months prior, and they are delivering better than expected results, not least with the recent release of our new game, Le Mans Ultimates. This has been especially pleasing given the challenges encountered by the business and the tough decisions we've made to try and turn the ship around. The first real signs of positivity have been encouraging, but we recognize that we have some way to go to deliver on what we believe the business to be capable of. The positive reception to our recent release has given us a real sense of satisfaction and provides us with a valuable stepping stone. And it seems to be resonating with our customers Within the first 36 hours of release on February 20, into the early access, I might add, Le Mans Ultimate sold as many units as we had projected for the opening 10 days. It has gone on to continually sell above expectations, and we have revised internal forecasted sales numbers to account for this higher than expected update. We had anticipated, with a strong tailwind, selling 18,000 copies in the opening 10 days. In reality, the reception was so strong that we sold more than 55,000 copies. Our development team continues to push out fixes and updates to continually improve the product, which has resonated well with our audience. These green shoots are the result of an enormous effort throughout and prior to Q4 2023. We're now pushing ahead on continual development of the title throughout the remainder of this year. We plan to bring exciting new content and features to the Le Mans Ultimate Experience, as well as complementary services, which we anticipate will, in due course, provide additional revenue streams. Race Control, our online service providing multiplayer functionality to our R Factor 2 and now Le Mans Ultimate game, launched five months ago. It continues to play an important role in the ecosystem we are building around our product, and has now broken through more than 100,000 account registrations, up from 15,000 the last time I reported on its growth. Race control drives regular activity within our games and is vital to our future strategy around community and complementary services. Enabling conversation around our game experiences, even when a user is not playing the game, is important, and to this end, race control is expected to soon have a more friendly interface, making it accessible from any web browser. With race control, users will be able to learn more about the games, tips and tricks to get the most from the experiences, become a better virtual driver, and more. In time, our plan is to have users to be able to manage their account and experience from this site using any mainstream connected device, phone, desktop, laptop, tablet, and so on. Bringing those parts that made R Factor 2 so successful across and into the Lamont project has proven instrumental in landing the core gameplay experience. The update to this technology now forms the basis for an engine we own and expected leverage for existing and any new licensing opportunities, as well as entire new titles. Our licensing agreement with Kindred Concepts to power their F1 Arcade experience using our game technology is one such area of further opportunity. We are proactively exploring new ideas that may be of benefit to motorsport games. F1 Arcade rolls out to the US site of Boston later this month of April, and we have been supporting this expansion to ensure our technology is experienced in the most positive way. The focus for the year ahead is to continue building the positive momentum around our recent game release with new updates, additional services through race control, downloadable content, and to tap into the highly valuable marketing opportunities. For example, the actual 24 hours of Le Mans race takes place in June. We believe this will be another opportunity for increased visibility and sales for our Le Mans Ultimate game. as well as the perfect launch pad for our anticipated reveal around the future of Le Mans Virtual Series, one of the world's most watched racing esports events of the last few years. Now, I would like to invite Stanley Beckley, our interim chief financial officer, to talk about the financial results for the fourth quarter and full year 2023.
spk03: Thank you, Stephen, and good evening, everyone. As with previous earnings calls, I wouldn't be offering any forward-looking guidance today. Instead, I will focus on providing an update on our financial results and highlights from the fourth quarter and full year 2023. Revenues for the quarter were 1.7 million, down by 2.1 million or 53.7% when compared to the same period in the prior year. Lower digital and retail game sales were primary drivers for the decrease as a result of no NASCAR games being released in fiscal year 2023. This decrease was partially offset by decreases to sales allowance as a result of lower game sales and increases to downloadable content, or DLCs, specifically related to the NASCAR Heat 5 Next Gen Car Update DLC that was released in June 2023. Net income for the quarter was $2.7 million, an increase of $7.5 million when compared to the same period in the prior year. The increase in net income was primarily driven by lower cost of revenues and operating expenses required to develop and release additional new games, as well as a $3 million gain from the sale of the NASCAR license to iRacing in October 2023. Consequently, EPS for this quarter was 1.35, compared to negative 4.17 for the same period in the prior year. The reduction in overhead spend was in part driven by actions taken under the company's 2022 restructuring program, which has helped us lower our overhead costs by approximately $6.7 million on an annualized basis as of December 31, 2023, exceeding our target of $4 million in annualized savings by the end of 2023. These savings were achieved through changes in global headcounts reducing certain overhead expenditures and improvements in our internal processes. In addition to the 2022 restructuring program, on October 29, 2023, the company announced a further restructuring of its business due to its ongoing liquidity constraints. The announcement confirmed the closure of the company's Australian development studio and resulted in a reduction of the company's workforce by approximately 40 employees, the majority of whom were based in Australia and the United Kingdom, representing approximately 40% of the company's global workforce. The company recorded a restructuring expense of approximately $0.5 million related to the workforce reduction primarily consisting of severance and redundancy costs in the fourth quarter of fiscal year 2023. We are reporting an adjusted EBITDA gain of $0.5 million for the fourth quarter of 2023, compared to an adjusted EBITDA loss of $3.2 million for the same period in the prior year. The improvements in adjusted EBITDA gain are the same as those discussed in respect of the change in net income for the period and comparative quarter. For full year 2023, revenues were $6.9 million, down $3.4 million when compared to the prior year period, primarily due to lower digital, mobile, and retail game sales, driven by lower volumes of sales as a result of no NASCAR games being released in fiscal year 2023. Net loss was $14.3 million for 2023, compared to $36.8 million for 2022. Adjusted EBITDA loss was $8.9 million for 2023, an improvement from the $21.2 million loss for 2022. Non-cash asset impairment losses of $4 million and $9.6 million for 2023 and 2022 respectively accounted for a significant portion of the difference between net loss and adjusted EBITDA for the respective periods, as well as the $3 million gain on sale of the NASCAR license in October 2023. EPS loss for 2023 was 5.06, compared to an EPS loss of 30.73 for 2022. As it relates to liquidity, this continues to be a key area of focus for the company. Net cash used in operations for the 12 months ended December 31st, 2023, was approximately 12.9 million, representing an average monthly net cash earned from operations of 1.1 million. down $0.5 million when compared to the average monthly cash burn of $1.6 million for the year ended December 31, 2022. As of December 31, 2023, the company had cash and cash equivalents of $1.7 million, which decreased to $1.3 million as of March 29, 2024. which we believe is insufficient to fund operations over the next year and that additional funding will be required in order to continue operations. In order to address this liquidity shortfall, we are actively exploring several options, including, but not limited to, additional funding in the form of potential equity and or debt financing arrangements or similar transactions. Strategic alternatives for our business, including but not limited to, the sale or licensing of our assets in addition to the recent sale of our NASCAR license, and further cost reductions and restructuring initiatives. Thank you all for your time, and now I will turn the call back to Stephen for closing remarks.
spk04: Thank you, Stanley, and thank you to those joining us today. If there is anything to take away from what I've said today, I'd like you to know that we feel like a games company again. With the recent release of Le Monde Ultimate to a very receptive market, we're doing what we know best. And I look forward to speaking further about this on our next call to discuss Q1 2024 results.
spk00: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star four by the one on your telephone keypad. You will hear a three-tone prompt acknowledging your request. Questions will be taken in the order received. Should you wish to cancel your request, please press star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from the line of Jason Tilchen from Canaccord Genuity. Please go ahead.
spk07: Great.
spk06: Thanks for taking the question and congrats on the strong momentum surrounding the Le Mans game release. One thing I'm curious about, maybe you could talk a little about how you marketed the game, what channels performed really well and helped sort of demand outpaced expectations. And you mentioned the upcoming race in June and how you plan to sort of build awareness around that. Maybe if there's anything else you can share around those plans as well, that'd be greatly appreciated. Thanks.
spk04: Hi, Jason. It's Steven here. Thank you for the question. And good question. We were very interested as to what the reception would be like for Le Mans title, bearing in mind there hadn't been a Le Mans game for many years. I think it's about 20 years now. So we were going to be treading new ground. And through the duration of the development of the project throughout 2023, we did sense that there was a very positive kind of uptake as to the news around Le Monde Ultimate without us pretty much spending a dime on marketing. So we knew that the raw kind of understanding and the willingness and the engagement from the community existed for this kind of title. And we think that's tallied particularly well with the, new manufacturers coming back into the World Endurance Championship, which is built around Le Mans. And we've been surfing off that wave. So you have teams like Ferrari doing incredibly well, Lamborghini coming back into the space, they're battling with Porsche, BMW are in now. So all the world's big manufacturers are in there in the new kind of hypercar class. And we've seen a huge upswell in interest in this championship. And we've surfed that wave without really spending any money. We've taken a more direct approach to engaging with the community in order to turn a page with the perception of multiple gains, which historically, certainly through 2022 and most of 23, wasn't particularly strong. So instead of just trying to spend the dollars and push the marketing message out there, we've been very open and transparent with the community. And that seems to have done incredibly well. So we haven't been pushing typical marketing channels, but we've been engaging almost directly with consumers on social platforms like Discord, X, and Facebook. And this direct communication with the community and now consumers of Le Monde Ultimate has gone down incredibly well and I think has also shown a very different face for the company. that has meant that our consumers, again, trust the delivery of motorsport games to a great extent. So it's been a lot of guerrilla marketing tactics, and we managed to pull that one off.
spk07: It's a really helpful overview.
spk06: One follow-up, just in terms of liquidity position and where everything stands today. I know you guys laid out some of the potential options in the prepared remarks, but just wondering with the release of the game, now behind you and some additional revenue coming in from that. Just wondering if that at all has changed the strategy around your cash position going forward.
spk02: Hi, Jason. I can handle that.
spk03: So in the grand scheme of things, it hasn't gotten us out of the need to get more funding. It helps a bit, but the game has been released for uh just under a month and a half now um you know and you know we have some some relief there um but that's that's very short-term in nature i don't think um and we alluded to this in our 10k that still does not relieve us as the need for for the need to go out for more funding and to look at more um you know financing options um like we mentioned uh specifically note one of our footnotes in the 10K. So in the grand scheme of things, some short-term relief, but I think we're still under a liquidity crunch. We're still managing our expenses and our cash as much as we can. For reference, we had, as we disclosed in our 10K, $1.7 million in cash in hand as of the end of December. And as of Friday, we had about $1.3 million So the cash position has dipped slightly, but I don't think it's completely turned around the fortunes of the company. But it does look promising, like Stephen alluded to, as it relates to the initial reception we received from the release of the game.
spk07: Great. Thank you very much.
spk04: If I can, Jason, if I can just add to that as well. So you're asking about the marketing effort around the Le Mans and the upcoming race in June. I mean, it's very true that we see various peaks throughout the year being related to the calendar of the World Endurance Championship and in particular Le Mans in June. And we expect to do particularly well in terms of visibility and additional sales during those periods. And the key thing to take away is that with Le Mans, This Le Mans title, we have a joint venture with the ACO, the group behind Le Mans. So there's a joint interest in trying to raise the awareness of the game, gain additional visibility, and certainly with the immediate uptake for the product, which has taken us all by surprise, I'm pleased to say, the ACO and Le Mans have been supporting us with additional advertising at the track, and we have a great presence at Le Mans. There are some real benefits to this joint venture, which I think will certainly add fuel to the fire in terms of marketing and visibility, which we intend to capitalize upon.
spk02: Great. Very helpful. Thanks a lot.
spk00: Thank you. And your next question comes from the line of Michael Kopinski from Noble Capital Markets. Please go ahead.
spk05: Thank you. Thanks for taking my questions. So I know if I was wondering if you can just give me an update on, you know, I know that you went through this significant reduction of employee and headcount and closing some offices. What's left at this point? What do you have? And where are those offices located?
spk04: Hi, Michael. It's Stephen. Good question. I mean, throughout 23, as you're well aware, we were trying to refocus and reposition the business. And One of the key takeaways for us was trying to pick a path and follow it. And that meant trying to concentrate our efforts around the Lamont title, which we think is a springboard for the kind of products and experiences that we intend to launch in future. This concept of racing games being built around communities and team play, rather than just individuals on their own driving as fast as they can. We believe in this being almost a festival of speed and enjoyment of racing and eventually driving. And the focus was built entirely around Studio 397. That was our pick. Studio 397 are our internally owned development team. We brought them much closer into motorsport games and rallied around that operation so that we could provide them with the infrastructure and the expertise that they needed to deliver what we knew they were capable of, which is delivering great racing experiences using the technology from our factor and the engine that we own. And that scaling back meant removing other operations that were working on other projects, such as IndyCar project, which was built almost entirely out of our Australian studio. Throughout 23, we also closed our Russian office in Moscow. bolded all of those operations back so that we could just concentrate on delivering a high quality product. For us, it was a no-brainer to deliver great games again. And we needed to scale that back, not only to save costs, but actually to give us the focus to concentrate on what does quality mean for motorsport games? And I think Le Mans Ultimate is a great showcase of that strategy.
spk05: So are all the employees now based in the UK, or is that the main office now?
spk04: It's Europe and the UK. These days we have to say Europe and UK after the split, but they're a lot closer to home to where I am and my accent in the UK. So a lot of the supporting team in the financial operation is still in the U.S., So we are a 24-7 company still, but a lot of the development effort and the marketing effort is UK and Europe.
spk05: Gotcha. And in terms of just thinking about Le Mans and bringing it to the next level, I know that tournaments and, you know, the esport element of that is kind of important. How do you, how are your plans to focus on tournament play and, really kind of bringing the next level of the game to developing a community like that. Where do you think you are and how your plans are to develop that?
spk04: Great question, Michael. A lot of people ask us the route to success is to make more titles. For us, it is not. For us at Motorsport Games, it is really around building this community and activity around the racing games and the driving experiences that we do launch. They have to go hand in hand. You'll hear me talking a lot about building an ecosystem, and that's quite simply because in this day and age, our player base expects to find events and tournaments and competitions, daily activities, and reasons to engage with a product online, not just driving as a solo experience from the comfort of their home, but being connected in today's age means being part of a community. And that's why I'm very, very excited about the race control platform that we have built on our own technology. This is the funnel to people playing our racing games with others. This is the funnel to becoming part of a team, to rejoicing in the joy of driving racing games and being part of a team, having activities. That is already in full flow with over 100,000 people now subscribed to the system of race control. That means we have the community in one hand and we have the game experience in the other. All of this is based on our own technology. That for us is incredibly powerful. This is really the springboard for where we need to go. And Le Mans is only in something called early access right now, which is Industry speak for almost being an alpha that's released to the public. We've got a long way to go with the product, but it's already in a very strong place because it's built off technology and a product that we owned previously in our factor too. So we know what we're doing here. We've built the community. Now we've got to find ways to really bring those together and capitalize on it. And one big springboard could be at Le Mans when we start talking about one of the world's biggest esports events, Le Mans Virtual coming back. And for us, this is not about throwing prize money out there to attract the top 1% of professional esports players. Really, that is yesterday's news. What we really care about is 99% of the player base. People who aren't necessarily trying to be the fastest, but want to be part of the community, want to imagine the fantasy of being a racing driver, want to contribute to something, and want to have fun and entertainment online. That's very different from what people have typically done in racing esports previously. And we think we're in a great, great place to harness that this year.
spk05: That answer probably answers a portion of this next question. If you were flush with cash, what would be the benchmarks and what would be the roadmap that an investor would expect from the company to then deliver profitability and move towards a growth platform?
spk04: Well, there's many different paths, and I think we have to be quite flexible based on where we are today. We're exploring many different paths forward, different avenues, different opportunities that come to the door, and certainly the number of people that are coming to us offering opportunities and ideas has increased as we've managed to launch a new project that's gone down particularly well. We've gone through the restructuring period of 23, which has been difficult for us all, But that is intended to set us on the right path. And that is to make great products. I think the important thing for us right now is to drive home that advantage around Le Mans. We really can't take our foot off the gas. It's gone down very well. There's very positive reception. The numbers are very good. Now we have to drive home the product quality. There's many more things that we need to incorporate on that, and we can see a lot of people are still sitting on the fence as to, shall I buy in now or shall I buy in later? There's many more things that we need to do with it in terms of providing content and opportunities, potentially subscriptions to the race control service as well. Once that's up and running and we've really got the wheel spinning around our ecosystem, I think the further step will be something we're quite excited about, which is utilizing the technology from Le Mans Ultimate in a new gaming experience, which is built around driving. That's certainly one opportunity that we have in front of us. But I'm adamant that we have to get the near-term opportunities solidified and working properly before we expand. We've made a mistake in the past and we're doing things correct now. Without giving too much away, I think we've got plenty of ideas. If you wanted to write that blank check, Michael, I've got the ideas for you. All right, Stephen.
spk05: Thank you. That's all I have, Dave. No problem. Good luck. Thank you.
spk00: Thank you. Once again, should you have a question, please press star then the number one on your telephone keypad.
spk02: There are no further questions at this time. Please proceed. Hello, there are no further questions at this time. Please proceed.
spk03: I thought Steve was going to close us out, but thank you all for joining. We appreciate your time. Operator, I think we can close this out now.
spk00: Thank you. That concludes our conference for today. Thank you all for participating. You may all disconnect.
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