Motorsport Games Inc.

your program is about to begin. If you need assistance during your conference today, please press star zero. Thank you for standing by and welcome to Motorsport Games Inc's fourth quarter and full year 2024 earnings call. A section of our call has been prerecorded. As such, cash used in operations for the year ended December 31st, 2024, and our average monthly net cash burn from operations have been adjusted. This information will be updated at the end of the call during the Q&A session. As a reminder, today's conference is being recorded. I would like to turn the conference over to Ben Rossiter-Turner from Motorsport Games. Please go ahead.

Thank you and welcome to Motorsport Games' fourth quarter and four-year 2024 earnings conference call and webcast. On today's call is Motorsport Games Chief Executive Officer Stephen Hood and Chief Financial Officer Stanley Beckley. By now, everyone should have access to the company's fourth quarter and four-year 2024 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 meanings of 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. These refer to today's press release and the company's filing to the SEC, including its most recent annual report on Form 10-K for the year ended December 31, 2024, 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 discussed the fourth quarter and four-year 2024 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 earlier today, which is also available on the Investor Relations section of Motorsport Games' website at www.motorsportgames.com. And now I'd like to turn over the call to Stephen Hood, Chief Executive Officer of Motorsport Games.

Stephen.

thank you everyone for joining today's conference call our last earnings call in november came at a pivotal moment the motorsport games while our latest title le mans ultimate had launched with strong potential we faced the necessary headcount reductions the prior month and publicly stated our intent to explore strategic alternatives we never thought our turnaround would happen overnight i think we've been incredibly diligent and unwavering in doing what needed to be done to right-size the company Costs, be they associated with headcount or prior licensing deals, we've analyzed with a call head and changed the organization and output of the business. We had to balance aggressive cost reductions with an unwavering commitment to improving product quality. Despite the challenges, Le Mans Ultimate was resonating positively with both consumers and industry influencers. However, as an early access title, it remained a work in progress, requiring us to build and sustain goodwill in the face of a difficult corporate backdrop. On December 10th, we launched a planned yet significant update to Le Mans Ultimate, which sparked a surge of positivity around the game. Player numbers climbed to levels not seen since our initial launch in February 2024 and in the lead up to the 24 Hours of Le Mans. Motorsport's most iconic endurance event and the inspiration behind our game. For months, the game had been increasingly well received in many circles, but this update helped us break through to an even wider audience. Many players who were previously skeptical of our brand and our ability to deliver a game worthy of its prestigious name gave it a chance and came away impressed. Remarkably, this momentum was achieved without investment in paid marketing, demonstrating the power of organic word of mouth from influencers, media, and passionate players. Some may view this as an overnight unscripted success, but in reality, it was 18 months in the making, driven by hard work, resilience, strategic execution, and understanding. We were acutely aware of the issues that had led to the company to falter previously, and we set out to do things the way we believed they needed to be handled. We set out to reconnect with players and prove ourselves with a passion project. At the core of our progress, is our talented team at Studio 397, who not only excel in technical expertise, but also understand our fundamental mission to entertain and engage. And the numbers prove it. LMU, Le Mans Ultimate for short, is captivating a rapidly growing audience and earning widespread industry respect. More recently, our February 25th update led to another notable spike in player numbers and sales, just as encouraging is our improving player retention, showing that users are staying engaged for longer periods between releases, strengthening our ecosystem and proving to us that our audience is peeling away from competitor products and increasingly becoming heavily engaged with our offering. We provide the game and the multiplayer funnel with technology we own and control. Our battle has always been on multiple fronts, and we continue that fight in the areas that matter so that we can provide a more complete and accessible environment for our players. What we find motivating, beyond the black and white numbers, is the perception shift among sim racing enthusiasts. Our game and community platform are being compared favorably to industry giants like iRacing and Assetto Corsa Competizione, a testament to our progress despite being the perennial underdog. This is friendly competition. Ultimately, we believe the racing market to be underserved and collectively, we think top tier racing developers are helping to grow this segment. If we can rub shoulders with longer established and much better financed titans, imagine what we can do if we start investing in the opportunity in front of us. This success translates into the improved health of our company. Increased revenue from greater sales across product, downloadable content extras, and our recently introduced subscription offerings. The widespread industry acclaim and renewed face of the company has opened additional conversations with potential investors, publishers, and partners for future projects, such as console ports, which would enable us to bring them on Ultimate to PlayStation and Xbox console owners. This is an opportunity that has long been called for by our growing player base. but something we were only willing to explore once proven on the PC platform. Whilst we cannot comment on specific opportunities in negotiation today, we can say that we're having positive conversations around options that were not available to us three, six, or even 12 months ago. In December, we launched our subscription service via racecontrol.gg, a revenue stream previously untapped and a longstanding opportunity for our business. In the first 21 days of this accounting period, the service generated over $120,000 in gross revenues. As of today, we're within touching distance of 6,000 active subscribers, showing strong early adoption and long-term monetization potential without any spend towards a paid marketing campaign. Our subscription service enables us to build a more engaging platform for student renting, in a way that would not be possible if we solely relied on product revenues from, say, a yearly product release. Our product is continually updated, and whilst players do not go out of their way to praise the concept of subscriptions, we appreciate it's a crowded scene, we're gaining recognition for continually improving the product and platform. It's also optional for players. We don't force anything on our consumers. We know the business element is showing the green shoots of recovery. It's taken time, but we're now seeing the benefits, and our recent momentum is carried along with positive player sentiment. DLC, or downloadable content, extras like cars and tracks, has further helped drive Le Mans Ultimate's uptake. Our 2024 Pack 3 introduced the first LMGT3 car models, staples of modern GTR racing, featuring iconic brands such as Ferrari, Corvette, and BMW. Additionally, we offered all players the McLaren 720S as free DLC and introduced the legendary Interlagos circuit in Brazil, making this our most successful DLC pack to date, whilst boosting season pass sales, a method for players to sign up to a paid tier, delivering all the content as and when it's released. This year, we'll be adding more of the very popular GT3 class cars, as well as an additional circuit, completing our 2024 content roadmap. Beyond content, we have informed players of some of the headline feature updates we have in the works, namely livery creation and driver swaps. The former will enable customization of car appearance, and the latter will enable more than one player to share the same car, taking turns and swapping control during pit stops. This will form the backbone for large-scale endurance esports events set to return to Le Mans shortly. These features are already generating significant anticipation among players, and we are working hard to deliver the next round of updates. I earlier made reference to the corporate backdrop so readily picked up on by today's well-read and connected players. We're winning there too. We recently announced a settlement with Luminous, the company from whom we bought the original Studio 307 and technology, which served as the springboard for where we are today. This resolution improved our financial position by $180,000, and upon completion, we'll clear any remaining barriers to full ownership of Studio 397 and their original technology contribution to Le Mans Ultimate. This settlement should see us bring down the curtain on a long-running issue which has been resolved amicably, and we thank the individuals involved for their support in making this happen. We also received a positive ruling in our Innovate Corporation litigation and secured a summary judgment in our favor on all counts. This could alleviate some of our existing legal fee liabilities, improving our stockholders' equity situation. Now, I would like to invite Stanley Beckley, our Chief Financial Officer, to talk about the financial results for the fourth quarter and full year 2024.

Thank you, Stephen, and good evening, everyone. As with previous earnings calls, I won'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 2024. Revenues for the quarter were 2.0 million, up 0.3 million, or 13%, when compared to the same period in the prior year. Higher digital game sales from the release of Le Mans Ultimate in February 2024 were primary drivers for the increase. Net loss for the fourth quarter of 2024 was 2.9 million compared to net income of 2.7 million for the same period in the prior year, a decrease of 5.6 million. The increase in net loss is driven by an increase in other expenses of 2.2 million, which is primarily comprised of falling currency gains incurred in measuring transactions denominated in a currency other than U.S. dollars. Furthermore, in Q4 2023, Other operating income included a 3.0 million gain related to the sale of a NASCAR license to iRacing in October 2023. Consequently, net loss attributable to Class A common stock was 0.89 for the fourth quarter of 2024, compared to net income of 0.97 for the same period in the prior year. We are reporting an adjusted EBITDA loss of 2.5 million for the fourth quarter of 2024. compared to an adjusted EBITDA of $0.4 million for the same period in the prior year. The reasons for the decline in adjusted EBITDA are the same as those discussed in respect of the change in net income or loss for the period and comparative quarter, as well as the decrease in stock-based compensation compared to the prior year period. For full year 2024, revenues were $8.7 million, up $1.8 million, when compared to the prior year period, primarily due to $3.0 million in digital game and downloadable content sales relating to the sales of Le Mans Ultimate released on PC in February 2024, offset by $0.5 million and $0.4 million in lower revenues for NASCAR and R Factor II titles, respectively. Net loss was $3.0 million for 2024, compared to 14.3 million for 2023. Adjusted EBITDA loss was 3.9 million for 2024, an improvement from the 9.3 million adjusted EBITDA loss for 2023. The decrease in adjusted EBITDA loss of 5.4 million was primarily due to the same factors driving the previously discussed change in net loss for the fourth quarter of 2024 when compared to the same period in the prior year. as well as a decrease in stock-based compensation compared to the prior year. Net loss attributable to Class A common stock was 0.94 in 2024, compared to a net loss of 5.56 in the prior year. As it relates to liquidity, this continues to be a key area of focus for the company. Net cash used in operations for the year ended December 31, 2024, was approximately $3.2 million, representing an average monthly net cash burn from operations of 0.3M. Down 0.8M when compared to the average monthly cash burn of 1.1M for the year ended December 31st, 2023. As of December 31st, 2024, the company had cash and cash equivalents of 0.9M, which had increased to 1.2M as of February 28th, 2025. Based on our cash position and the average monthly cash burn, we do not believe there is sufficient cash in hand 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 a debt financing arrangement or similar transactions, strategic alternatives for our business, including but not limited to the sale or licensing of our assets, in addition to the sales of our NASCAR license and traction, 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.

Thank you, Stanley, and thank you to everyone joining us on this call today. In November, I stated that with the right financing, we had the opportunity to grow this business. That belief remains stronger than ever. In the sim racing industry, respect is earned, not bought, and we are earning it. Motorsport Games, with Studio 397 firmly at the heart of who we are today, is no longer going in circles. With our recent successes, a drastically improved financial position and strong momentum, We are a revitalized boutique entertainment studio poised for the next stage of development and growth.

We're certainly not short of suitors, and we're excited for the road ahead.

Net cash used in operations for the year ended December 31st, 2024 was approximately 2.8 million, representing an average monthly net cash burned from operations of 0.2 million. down $0.9 million when compared to the average monthly cash burn of $1.1 million for the year ended December 31, 2023.

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