Thank you for standing by, and welcome to Motorsport Games Inc.’s First Quarter 2023 Earnings Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] As a reminder, today’s conference is being recorded. I’d like to turn the conference over to Ken Godskind from Motorsport Games. Please go ahead.

Thank you, and welcome to Motorsport Games first quarter 2023 earnings conference call and webcast. On today’s call is Motorsport Games’ Chief Executive Officer, Stephen Hood and Chief Financial Officer, Jason Potter. By now, everyone should have access to the company’s first quarter 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 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 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 its most recent quarterly report on Form 10-Q for the quarter ended March 31, 2023 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 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 earlier today. And now, I'd like to turn the call over to Stephen Hood, Chief Executive Officer of Motorsport Games. Stephen?

Thank you, everyone, for joining the call today. I'd first like to tackle head-on a question some of you like to have around my return to the business months after my departure. Having put a lot of energy into the formation of Motorsport Games, I've always believed in the opportunity. When I was approached about potential return and my availability, I reviewed the opportunity and came to the realization that this could be improved and success attain with a heavy focus on delivery of quality products, service and entertainment features, I believe we can point the company in the right direction. In only a few weeks since my return, it has been apparent the entire team across the Motorsport Games business are energized about what we can deliver if we are united and decisive. I am firm in my belief about what can be achieved and hope to be a catalyst for the change of fortunes for the most for games business. My background is in game development. I understand the requirements, the infrastructure and innovation necessary to compete in this space, but I also understand that we first need to deliver products to market. This opening period is one of rapid review, reorganization and tactical progress. My review of the business increased markedly on April 19th, when I assumed the role of Chief Executive Officer. This position provides me with the authority necessary to leave no stone unturned when refactoring the business, short to medium and long-term effectiveness. As a result, and the full support of my leadership team, we have made the decision to close two micro studios in Orlando, Florida and Vince and Georgia. This results in a minor headcount reduction, but more importantly, it allows us to architect and manage our development resources in a more…

Thank you, Stephen, and good evening, everyone. As in previous earning 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 first quarter 2023. Unless stated otherwise, all results discussed relate to Q1 2023 and the comparative period of Q1 2022. Our Q1 2023 revenues were $1.7 million, a reduction of $1.6 million or 48% when compared to the same period in the prior year. Our gaming segment accounted for $1.5 million of the decrease, primarily due to the stable pricing and volume of digital sales in our existing product portfolio and only one majorly console release in 2022 compared to two in 2021, which has negatively impacted our ongoing physical retail sales. Our esports segment revenues were consistent year-over-year reporting $0.3 million in Q1 2023 compared to $0.4 million in Q1 2022. Net loss for Q1 2023 was $5.3 million compared to $16 million for Q1 2022, an improvement of $10.7 million. We benefited from no impairment losses in the current quarter, whereas we recorded $9.3 million in impairment losses in Q1 2022. The remaining reduction in net loss of $1.4 million was primarily driven by reduced external marketing spend and lower payroll costs as a result of the actions taken under our previously announced 2022 Restructuring Program. Under the 2022 Restructuring Program, we have levered our overhead costs by approximately $3.9 million on an annualized basis as of the end of Q1 2023. These savings were driven by changes in variable headcount and reducing certain overhead expenditures and are the result of more discipline in our spending and efforts to improve our internal processes. Speaking of internal processes, we have previously disclosed material weaknesses in our internal control over financial reporting in our…

In closing, I would like to thank our shareholders for their support and encouragement as I assume leadership of the company. There are challenges. With given time and resolution to our liquidity situation, I believe that we can address all of them. We can deliver on the promise, I believe in from the very formation of the company. Thank you for joining us today, and now let's go to questions. Operator?

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Jason Tilchen at Canaccord Genuity. Please go ahead.

Great. Thanks for taking the question and congrats Stephen on taking over CEO. I think one thing I'm curious about, maybe you could just spend a minute talking about some of the ways that you have either already or that you can improve monetization of the existing game portfolio while the new -- other new titles that you referenced in the prepared remarks are still in progress? And then I have a follow-up. Thanks.

Sure. Hi, Jason. So, very interesting question. So monetization for me is one of the key points of review of the business. So one of the things I'm very keen to do is to ensure that the component parts that we have across the organization, certainly the parts that touch the core audience, the player is appropriately stitched together. And by that, I mean, we have properties like Traxion.GG, which is a great kind of media hub right now, which reports on gaming news and becomes the go-to site for a lot of breaking news right now, actually. We have this upcoming competition system that will be rebranded at some point, when it goes through its formal release. We have the gaming license, we have NASCAR, British Touring Car, Le Mans, which includes World Endurance Championship, INDYCAR. What I'm actually looking at is instead of just individually monetizing components of those offerings. Traditionally, games would have DLC that you could purchase in order to add cars or tracks or other unique elements in terms of content offering. How do we actually stitch these things together, so that together, they are able to monetize the overall entertainment experience? And is it particular area of focus for me? And it's a question that I've been injecting back into the company since returning. And I think, as I've come back somewhat fresh and have a different perspective on how we move forward, I've been very encouraged by the reception of the teams to understand that we need to work together across the departments and offerings in order to monetize the overall effectiveness of that entertainment offering, instead of just the traditional game approach of pumping DLC into products. So I think there's a better way of working on this. And I think over the next few weeks, I suspect we'll have some very interesting answers to that. The component pieces are there. And what I'm doing is energizing the team in order to make it a reality.

Great. That's really helpful. In terms of the way the cash firm was described, the sort of run rate of maybe $1.9 million per month in the first quarter and then sort of the implied cash burn in April was about half of that. So I'm just curious, was there anything one-time in terms of what happened in April, or has the cash burn declined and sort of following up on that. Is there anything you can share in terms of any updates on when you expect to raise additional capital? Thank you.

Hi, Jason, it's Jason. Thanks for the question. I think what we saw in Q1 is we did see a bit of catch-up in terms of bringing down some of the AP position that we had accumulated, some of the accrued positions that we accumulated, as we kind of managed our working capital position very closely towards the back end of Q4. And following the IDOs in February, we were able to kind of catch up on some of those payments that we've been managing. And so that's why we see a bit of a higher burn in the first three months of the year, and then we see that drop-off in April, where we've kind of caught up with that position and we start to see some of the benefits of the 2022 restructuring program come into play where we produced some value ahead at this point, around 3.9 million on an annualized basis kind of kicking in. So I think we'll continue to see some of that benefit on a go forward. Obviously, we'll continue to see some lumpiness, when we have royalty commitments quite the things kicking in, but we should hopefully start to see a little bit of a reduction in the overall cash burn in future periods. In terms of financing efforts, like we continue to explore both equity and debt financing. Right now, we don't have anything kind of incremental to announce beyond the ATM facility that we put in place at the end of Q1 and the existing equity line of credit that we got in place at the end of Q4. But otherwise, we do continue to explore other opportunities to try and solve that kind of longer-term liquidity issue.

Great. That's very helpful. And this one last one for me. Anything that you can share about any planned changes to sort of the time line for game launches that was sort of scheduled for mid next year in terms of India car maybe being first? Any changes to that time line and the things we can share on that front?

I'll take this one, Tristan. No plan changes at present. I think the important thing, based on the currently publicly stated release windows for the product is my task right now is to shore up those projects and ensure that they are given the opportunity to succeed. And there's probably a shift in focus with my arrival simply because of my background. I know games very well. It's what I've done for 25 years now. I'm very passionate about product development, but I also appreciate the challenges associated with that. And it's clear at multiple games. We've never tried to go toe to toe with some of the giants in the space in terms of development head count. But I think we are that much more nimble as a result. And as long as we are bold and decisive on our decision-making, and I think we can become far more efficient, I don't necessarily mean in terms of cash savings and operational efficiency. I mean the decision-making and the progress that we can make in comparison to some of the giants out in the industry. I think it's about utilizing the time that we have available to meet our deadlines and deliver the best possible product and that requires sometimes myself and others within the leadership team, getting into the weeds of development in order to ensure that all of the component pieces of development project, the infrastructure around them are working in harmony, ensuring the testing department is working hand-in-hand with development, ensuring that the PR and the marketing machine is well versed in how to showcase to the best of their ability, the upcoming products. I don't think that's always been in the idle position and there are efficiencies that we can make there. This is where I'm spending a lot of my time. So in answer to your question, not intending to change the release windows of the projects, but I am spending a lot of time ensuring that we use that available time wisely. The clock is always taking in development and that adds to the excitement but we're going great guns to deliver these seats.

Great. That's very helpful. Thanks a lot.

Thank you. Your next question comes from Michael Kupinski at Noble Capital Markets. Please go ahead.

Thank you and good evening. Most of my questions have been answered, but just a couple was the drop-off in the cash burn in the second quarter that you alluded to, was that already reflective of the closing of some of those micro offices you mentioned? And how material of where those savings from that. And then if you could just for me, you may have said this, but I was wondering if you could just clarify for me where have you consolidated the development of the games for the company? What -- can you just kind of run through the offices for me and what they are responsible for?

Yeah. Thank you, Michael. This is Jason. I'll pick up the cash bow portion of it, and then I think I'll hand over to Stephen in regards to the consolidation of the development efforts. But in terms of the closing of the micro offices, they really were very small operations for us. So it's not -- we're not expecting it to have a very significant impact on the cash burn and certainly in the near term where you have kind of severance costs and things like that associated with closing those offices. There will be a slight pickup from that, but I wouldn't expect it overall to have a material impact on the cash terms a hole.

Got you.

Hi, Michael, it's Stephen here. Just quickly on the studios and the locations, I think they're trying to center them around, I call it, known talent locations. There's an incredibly strong talent pool in Europe that we're able to tap into, thanks to our key office in the UK being based in Silverstone, by the racetrack. Certainly, a lot of talent in the UK, a lot of experienced developers here. And with our acquisition of Studio 397 that we made some time ago, that hasn't given us a fantastic network to recruit across Europe. And those European time zones, at least they're conducive to working in harmony in a particular region, in a particular time on a particular project. So, running out of our UK operation is a lot of European talent. And second to that, centered around the IndyCar title, in particular, is our Australia operation, which is centered in Melbourne in Australia. That also has a lot of talent there, particularly because we acquired the remnants of the Black Delta team, the operation that produced KartKraft, and it's been wonderful to see that operation grow. And certainly, since my return, I've been impressed with the rate of growth and the talent that's available there. And we have this concept of just trying to center development operations so that it's much easier to monitor progress of development, and ensure that we get the right caliber of individuals attached to those known locations. That is perhaps a rather large departure from how we started at the beginning of Motorsport Games' journey and one that I think will pay dividends in the long run. So, really, it's across Europe right now and Australia.

Completely makes sense. Since there were a lot of moving parts in the quarter. I was wondering, does the company still have a line of credit with Motorsport Networks that it could tap into -- or no? I know that there was a debt for equity swap there, but is that line still open?

Hi, Michael. Yes, I mean, the line is still there, so it hasn't been terminated. But as we disclosed in the Form 10-Q, we have substantial doubt about whether we'll actually receive funds under that facility. So, we're not considering that in our kind of liquidity position. And that's why our -- when I talk about cash and cash equivalents and liquidity, I'm focusing purely on the cash flow we have on hand.

Got you. Okay. That’s all I have. Thank you.

Thank you. That does conclude our question-and-answer session. I would like to turn the call back for closing remarks. Thank you.

Thank you. I would just like to thank everybody on the call today. I am particularly pleased and proud to be back at Motorsport Games. I feel incredibly energized. We're up for the challenge, and I think we're able to do great things together. And I look forward to more of these conversations and indeed, one-to-one conversations with you all at various stages over the coming months and hopefully years. Thank you very much. Thank you.

Thank you. That concludes our conference for today. Thank you for participating. You may now disconnect.