Thank you for standing by, and welcome to the Motorsport Games Inc.’s Fourth Quarter and Full Year 2023 Earnings Call. At this time, all lines in a listen-only mode. [Operator Instructions] 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.

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 full 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 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 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 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 earlier today. And now, I'd like to turn over the call over to Stephen Hood, Chief Executive Officer of Motorsport Games. Stephen?

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, Le Mans 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 the 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 in the market today, you will see they center their experience around team play. This is starkly absent in almost all racing experiences. In Le Mans Ultimate, teams comprised 3 drivers taking turns to drive their part in 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…

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 cost 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 headcount, reducing certain overhead expenditures and improvement in our internal processes. In addition to the 2022 restructuring program, on October 29, 2023,…

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 Mans 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 quarter to discuss Q1, 2024 results.

[Operator Instructions] Your first question comes from the line of Jason Tilchen from Canaccord Genuity.

Great. 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 help to sort of demand outpace 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.

Hi, Jason. It's Stephen here. Thank you for the question. Good question. We were very interested as to what the reception would be like for a 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. We are going to be treading new ground. 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 Mans Ultimate, without us, pretty much spending a dime on marketing. 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 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 you're 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 served that way without really spending any money. We've taken a more, what's the word, 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 a Discord, X, and Facebook. And this direct communication with the community and now consumers of Le Mans 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 guerilla marketing tactics and we managed to pull that one-off.

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 that at all has changed the strategy around your cash position going forward?

Yes. Hi, Jason. I can handle that. So in the grand scheme of things, it hasn't gotten us out of the need to get more funding. It helped a bit, but the game has been released for just under a month and a half now. And we have some relief there, but that's very short-term in nature. I don't think and we alluded to this in our 10-K, that still does not leave us as the need for the need to go out for more funding and to look at more financing options, like we mentioned, specifically in note 1 of our footnotes in the 10-K. So in the branch, some of things, some short-term relief, but I think we're still under liquidity crunch, we're still managing expenses in that cash as most as we can. For reference we had, as we disclosed in our 10-K, $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 relates to the initial reception we've received from the release of the game.

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. We expect to do particularly well in terms of visibility and additional sales during those periods. The key thing to take away is that, with Le Mans also we have a joint venture with the ACO, the group behind, Le Mans. There's a joint interest in trying to raise the awareness of the game, gain additional visibility. 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.

Great, very helpful. Thanks a lot.

Thank you. And your next question comes from the line of Michael Kupinski from Noble Capital Markets.

Thank you. Thanks for taking my questions. I was wondering if you can just give me an update on I know that you went through this, significant reduction of employee in headcount and closing some offices. What's left at this point? What do you have and where are those offices located?

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. One of the key takeaways for us was trying to pick a path and follow it. That meant trying to concentrate our efforts around the Le Mans 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. 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 multiple games and rallied around that operation, so that we should provide them with the infrastructure and expertise that they needed to deliver what we known what we were capable of which is delivering great racing experience as these are technology from our factor and the engine that we own. And that scaling back meant removing other operations that we're working on other projects such as the INDYCAR project, which was built almost entirely out of our Australian studio. Throughout 2023, we also closed our Russian office in Moscow, folded 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 gains 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 multiple games. And I think Le Mans Ultimate is a great showcase of that strategy.

Are all the employees now based in the UK or is that the main office now?

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 with 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 24x7 company still, but a lot of the development efforts and the marketing effort is UK and Europe.

And in terms of just thinking about Le Mans and bringing it to the next level, I know that tournaments and the esports element of that is kind of important. 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?

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 multiple games, it is really around building this community and activity around the racing games and driving experiences that we do launch. They have to go hand in hand. You will 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 the 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 community. And that's why I'm very, very excited about the RaceControl 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 rates 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 from 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 rFactor 2. 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 in 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.

That answer probably answered 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?

Well, there's many different parts 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 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, should I buy in now or should 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 idea for you.

Alright, Stephen. Thank you. That's all I have. Good luck.

Thank you. [Operator Instructions] There are no further question at this time. Please proceed.

I thought Steve was going to close this out, but thank you all for joining. We appreciate your time. Operator, I think we can close this out now.

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