Greetings, and welcome to Motorsport Games Incorporated First Quarter 2022 Earnings Call [Operator Instructions]. As a reminder, today's conference is being recorded. I would like to turn the conference over to Jake Pisano from ICR. Please go ahead.

Thank you. Welcome to Motorsport Games first quarter 2022 earnings conference call and webcast. I am Jake Pisano, Vice President at ICR. On today's call are Dmitry Kozko, Motorsport Games Executive Chairman and CEO; and Jon New, Chief Financial Officer. By now, everyone should have access to the company's first quarter 2022 earnings press release filed today after market closed. This is available on the Investor Relations section of Motorsport Games Web site at www. Motorsport Games.com. During the course of this call, management may make forward-looking statements within the meaning of the US 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 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 its most recent quarterly report on Form 10-Q for the year ended March 31, 2022 for a detailed discussion of certain -- 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 first quarter 2022 financial results. You will find a reconciliation of these non-GAAP financial measures to their most directly comparable GAAP measures, as well as other related disclosures in the press release issued earlier today. And now, I'd like to turn the call over to Dmitry Kozko, Chief Executive Officer of Motorsport Games. Dmitry?

Thank you, and hello everyone. I'd like to start today with an update on our product roadmap as we continue to be a steward of great long term licenses that allow us to make exciting games and facilitate esports for some of the world's most captive fan bases using the Motorsport Games engine and studio. With regards to our NASCAR franchise, a few weeks ago, we published a community update that included our revised NASCAR product roadmap. This update included information about our continued improvements to the NASCAR 21: Ignition that we're planning as well as the road ahead for the remainder of 2022 and beyond. In a community update, we're now targeting the release of patch 1.5.0.0, which will introduce NASCAR 21: Ignition on Xbox series XNS and PlayStation 5 next month. We're working closely with Microsoft and Sony who are in full support of our timeline for this release. We continue to listen to our fans and value their constructive feedback about our products. We understand that there is still improvements that need to be made to our NASCAR franchise title in order for us to deliver on the excitement of the sport. We're working with our partners at NASCAR and will bring the NASCAR 2022 season expansion as [DLC] for Xbox, PlayStation and PC due out in September 2022. The season expansion will include a full 2022 Cup Series team roster, the 2022 Cup Series regular season schedule, updated UI and in race HUD, Fanatec will support and more. The reason we're delivering a NASCAR season expansion as opposed to a new game title is because delivering great gamer first experience is paramount to us. And if we're going to reset the expectation of what the NASCAR title should be, we will need more time to work…

Thank you, Dmitry. I would like to share summary financial highlights for the first quarter of 2022. Revenues for Q1 2022 were $3.3 million as compared to $2.5 million for Q1 2021, the $0.8 million or 34% year-over-year increase reflects additional gaming sales of $0.5 million in Q1 2022, primarily from our rFactor 2, which contributed 16% of our total Q1 2022 revenue. Additionally, Q1 2022 eSports revenue increased $0.3 million, primarily from the 24 hour Le Mans event held in January. eSports revenues were 11% of our total Q1 2022 revenues. Our business plan to increase and diversify our revenue stream is beginning to drive improved top line financial performance. Q1 2022 net loss was $16 million as compared to Q1 2021 net loss of $14.1 million. The $1.9 million decrease in net loss was primarily due to $11.3 million decrease in general and administrative expenses, offset by $9.3 million of write-downs for goodwill and intangible assets. The downward revisions of goodwill and intangible assets considers our current market capitalization and revisions to our product roadmap made during the first quarter of 2022, resulting in changes to the scope and timing of product releases and related development expenses as Dmitry talked about. Q1 2022 adjusted EBITDA loss was $5.6 million as compared to Q1 2021 adjusted EBITDA loss of $2.8 million. The $2.7 million increase in adjusted EBITDA loss was primarily due to $1.4 million reduction in EBITDA and $1.3 million reduction in add-backs when compared to Q1 2021 where we had an IPO with our IPO stock compensation add-backs. We expect to continue to incur operating losses for the foreseeable future as we continue to incur expenses to develop new game franchises. Our liquidity plan remains the same as year-end and the company's existing cash on hand will be insufficient to fund its current operations for the next 12 months. Dmitry has outlined the steps we are taking to provide for our liquidity requirements going forward. From an operating perspective, as Dmitry noted, our priority is rolling out fun, well performing revenue generating games as we continue to address our projected liquidity requirements. Thank you for joining us today. And now let's go to questions. Operator?

[Operator Instructions] The first question is from the line of Michael Graham with Canaccord.

Thanks for all the detail in the call and for the posting the other day. I wanted to just ask a couple. The first one was -- and you may have said this and it might have just slip by me, but once we do roll around to Ignition 23 or NASCAR 23, you have an update for us on sort of like when during the year you might expect to see that? And how you're thinking about the longer-term cadence of the NASCAR releases during the calendar year? And then I have another one as well.

We mentioned briefly on the call that we are looking to potentially release NASCAR 2023 title in mid-2023. As we talked about in some of our previous calls, our goal is to try to align the title releases as close as we can to the actual race season of that franchise. NASCAR historically starts around February time. So it's fair to assume with years to come during this long-term license relationship that we have is that we'll continue to keep walking that release schedule closer and closer to the actual NASCAR season start. But for 2023, we're targeting midyear, so sometime around summer, and we'll look forward to actually posting what that release date would be sometime in the near future.

And then the other thing I just wanted to ask is, you outlined some of your liquidity options. Just wondering when you say like raise debt or equity, if you can maybe go one layer deeper and just mention some of your options -- what some of your options might be. And also, you mentioned the ability to reduce expenses. And I just wanted to maybe ask if you could go a layer deeper on that as well in terms of like, what's the magnitude of things that you think you could do along those lines.

So as we continue to work on four franchises simultaneously, plus our KartKraft foot product plus our rFactor product, we have projected internally to continue to increase development resources to sort of make sure that we keep our foot on the gas of developing and potentially launching all of those products as fast as we can. The goal is to release them as we can. That way, we have the longest possible runway during the existing licenses to monetize on it. So when we talk about potentially reducing the expense side on it, we could just -- I'm going to simplify it, slow roll those expansion of the development, but of course, that would mean that some of our future title releases could be delayed as a result of that. It's not something we want to do. We want to continue to put our foot on the gas and hire as we need, continue to expand our internal and external resources, so we could launch these franchises as soon as possible. But if need be, we will then start to not extend the internal resource as quickly and that will come with a potential delay in the product roadmap.

[Operator Instructions] The next question is from the line of Michael Kupinski with Noble Capital Markets.

So Dmitry, you mentioned about the adding resources and development. And I was just wondering if this is an increase in the number of employees or in development, or is this -- I just wanted to know in terms of how stable right now the employee is given the disruptions that you had earlier, particularly in Russia. And so if you can just give us some thoughts on whether or not you're actually adding personnel or just shifting personnel at this point?

We are expanding our internal resources that includes all our studios worldwide. As you might recall on our previous earnings call, we talked about how we revamped our quality control department and what we're doing in terms of just increasing the quality of the type of games that we publish. Therefore, that does require us to staff up more and that goes across all departments. We need more artists, we need more senior programmers, we especially need QA folks. So our total number from Q4 end of the quarter to the Q1 that we just reported on has increased in terms of headcount. It's not necessarily shifting from one to another. It's just staffing up wherever there's great talent. And to other part of your question, our development talent that is in Russia continues to operate as usual. We don't experience any material interruptions right now. Of course, geopolitical situation could change in a year or in the future, and we'll continue to be agile. But right now, everybody sat down focusing on the four product releases that we're all working on.

And in particular, can you then give us some thoughts about the burn rate as you go into this quarter? I don't know if that -- given the fact that you are adding some staff, I'm just curious where do you think that the burn rate goes from here?

So our burn rate has been fairly consistent, and we're looking to keep it that way or take it down as we move forward [Multiple Speakers] see the operating cash flow from this quarter…

And then in terms of just general trends in terms of -- we're looking at the prospect of maybe the US maybe going to recession, who knows with this inflation and everything else going on. Can you just kind of give me a sense of how you believe that the game industry -- the gaming industry overall would be affected by an economic downturn? I know that in the past economic downturns, we've seen the gaming industry do quite well. I'm just wondering if you continue to believe that overall, the gaming industry will do as well if we were to go into an economic downturn.

Michael, this would be possibly a personal opinion of mine. But I do believe, when there is sort of these unfavorable events that happen around us, folks do turn to an alternative type of entertainment. They might not go out as much. They might stay home and might still need that interactive experience that keeps them entertained. So I could assume that they would be more in front of a television perhaps and in front of their gaming experiences. So we do foresee that should something like this happen that -- a great affordable options like our racing games could be a very good entertainment source for folks around the world. So hopefully, we don't get to that point. But if we do, we believe that, that could potentially then be good for our business.

[Operator Instructions] And I'll now turn the conference back to Dmitry for closing remarks.

Thank you very much, and thank you all for joining us and continue to follow our story. Q1 of this year has been a special period of time for us where you could see reflected in our earnings release sort of the notable milestones that we achieved. But probably, the one point to highlight is that we are finally starting to see diversity in our revenue streams. We're finally starting to see that our other products besides ones attached to our NASCAR franchise are starting to also be visible on our map. So it is important momentum for us. It is something that we continue to focus on and continue to execute on our vision to really bring the thrill of Motorsport to the masses. So thank you very much again for joining us.

That does conclude today's conference call. We thank you for your participation and ask that you please disconnect your line.