Thank you for standing by and welcome to Motorsport Games Inc. First Quarter 2024 Earnings Call. 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 First Quarter 2024 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 first quarter 2024 earnings press release filed today after market close. This is available on the Investor Relations section of the 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 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 company filings with the SEC, including its most recent quarterly report on Form 10-Q for the quarter ended March 31, 2024, for a detailed discussion on certain risks that could cause actual results to differ materially from those expressed or implied in any forward-looking statement 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 2024 financial results. You will find a reconciliation of these non-GAAP measures to the 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 to Stephen Hood, Chief Executive Officer of Motorsport Games. Stephen?

Thank you, everyone, for joining this conference call today. I'm very pleased to be here and to talk to you about our achievements in Q1 2024. During the last call, I spoke about the release of Le Mans Ultimate in February. But we can now share greater insight into the financial and business impact of this important product release. Thanks to the tireless work of the team at Studio 397 and with the help of our partners at the ACO, the organization behind the 24 Hours of Le Mans, I'm pleased to announce the public reception to and that the sales of the game exceeded our business forecast. Given the turnaround time from project start to release was less than 12 months, we can be very happy with the initial positive results to our first internally developed game launch. Since the [indiscernible] release of our NASCAR Ignition title over 2 years ago, a great deal has changed throughout the company since my return in April of last year and I'm incredibly proud of the energy and determination of everyone within the business, pulling together to deliver and continue expansion of this great game. We have proven we have what it takes to bring a quality product to market and to great reception. Much of this is down to a deep understanding of the technology employed to deliver Le Mans Ultimate, technology we own as well as the vibrancy and determination across the organization to do what we are laser focused on, delivering innovative entertainment. This was an important milestone for our business and sets us up for the future. Le Mans Ultimate is based on our licensed series, featuring desirable racing pedigree sports cars, a series undergoing a timely renaissance with incredible manufacturer entries into the real-world sport. Automotive giants…

Thank you, Stephen and good evening, everyone. As with the 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 first quarter of 2024. Revenues for the quarter were $3 million, up by $1.3 million or 75.2% when compared to the same period in the prior year. Higher digital game sales were primary drivers for this increase, primarily as a result of the release of Le Mans Ultimate game on PC in February 2024. This was further driven by an increase in revenues earned through the development of simulation platforms for third parties. Net loss for the quarter was $1.7 million, an improvement of $3.6 million when compared to the same period in the prior year. The decrease in net loss was primarily driven by higher gross profit and lower operating expenses required to develop and release additional new games. Consequently, EPS for the quarter was negative $0.60 compared to negative $2.33 for the same period in the prior year. We reported an adjusted EBITDA loss of $0.4 million for the first quarter of 2024 compared to an adjusted EBITDA loss of $4.3 million for the same period in the prior year. The improvement in adjusted EBITDA loss are the same as those discussed in respect of the change in net income for the period and comparative quarter, as well as a decrease in stock-based compensation compared to the prior year period. As it relates to liquidity, this continues to be a key area of focus for the company. Net cash used in operations for the 3 months ended March 31, 2024, was approximately $0.8 million, representing an average monthly net cash burn from operations of $0.3 million, down $1.6 million when compared to the average monthly cash burn of $1.9 million for the 3 months ended March 31, 2023. As of March 31, 2024, the company had cash and cash equivalents of $1.3 million, which we believe is insufficient to fund our 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 of similar transactions. Strategic alternatives for our business, including but not limited to the sale or licensing of our assets in addition to the recent sales of our NASCAR license and Traxion and further cost reduction 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 those joining us today. We've worked hard over the last 12 months and the result is an upturn in our Q1 results. We still have some way to go but I would hope you'd agree we've turned the page and have positive momentum. We're excited about the remainder of this year and in particular, the upcoming Le Mans event in June. Thank you.

[Operator Instructions] We will take our first question from Jason Tilchen with Canaccord.

Congrats on the stronger launch for Le Mans Ultimate. I think 1 question I had on the remarks you gave there. In terms of the console opportunity, I'm curious what does that sort of look like? Where is that on the priority list? Do you currently have the capabilities in-house to sort of develop the console version of this game and what the time line may look like for eventually getting that launched?

Jason, it's Stephen. Very good question. So I think one of the things that should be clear in my remarks from earlier are, the intent to focus and the development team that we have internally right now in Studio 397 have been the wonderful team that have managed to develop Le Mans Ultimate in what I think was a record time at really kind a of high quality level. And that -- as much of that has come down to the focus that we have [ slavishly ] demanded of everybody in the business. And I think the near-term opportunity around console development is something that I -- I don't think we have to bring internal in its entirety. What I would intend to do and certainly one of the things that we've been discussing with external potential partners, is leveraging some of the resource and the technical know-how that we have internally but ensuring the heavy lifting is done externally. There are many, many partners that we can go to in our space right now where they have the ability to bring these products across to console. So I don't want the expense of managing the entire thing internally. I think we do it cost effectively and professionally by relying on and utilizing other partners in the industry space, if that gives you some color, to answer to your question.

Yes. Absolutely. That makes sense. And another thing you touched on in the prepared remarks was the opportunity around subscriptions. Just hoping you could maybe dive a little bit more into sort of the differences between what sort of is offered in the free, RaceControl currently? And what sort of a subscription would look like, how you sort of see that opportunity both within Le Mans Ultimate and then sort of, obviously, from a broader perspective as well?

Yes, sure. I mean one of the commitments we've made to the community that are playing Le Mans Ultimate now is [indiscernible] being very price conscious. I think we've come out of the gates with a very attractive product at a very attractive price point and that's done wonders for us and certainly built positive community sentiment. One of the things that we're intent on doing is still providing a free gateway into the title. We are very confident in the experience and the entertainment value of Le Mans Ultimate. It doesn't make any sense for us to put a brick, kind of paywall in front of users. We know that if they start experiencing Le Mans Ultimate, they want to come back for some more. What we're trying to do is ensure that, that value proposition is really attractive to users that want to get even more entertainment value from the product. And one of the things that we're trying to do is encourage groups of players to compete and participate together. That is really important in the racing stakes where most of the time, only one person can win and friends become enemies. We're encouraging groups of friends to play online, which is very common in young [indiscernible] probably the console and PC games today but not really in the racing space, we're trying to correct that. So one of the upsells is, if you decided to take one of these subscription tiers and you're willing to participate in this kind of recurring opportunity, we are going to amplify the sense of being part of a team. You will have heard me referencing some of the AI systems that we're looking to employ that tell us a story around your participation in the race. These things will become available to you if one of the people in the group decides to subscribe. So we're looking at the bigger resource and bigger pocket of a group rather than necessarily individuals. So we're looking at very innovative ways of trying to make the subscription a must-have for people that really want to get more from this experience but we are not making it a requirement to participate and contribute online, if that makes sense.

Yes, absolutely. That's very helpful. And then one last question I had is in terms of the overall cost savings. Obviously, we saw a significant year-over-year improvement on the net EBITDA loss. I'm just curious, sort of in terms of, obviously, the 2022 restructuring and then some of the moves you made in the second half of last year, just sort of in terms of the full impact of those savings relative to what we saw in Q1, is there sort of more further improvement in terms of cost savings from here? Or have we sort of reached a point where the moves that have already been made are now sort of fully reflected in the financial performance?

Yes, I'll take this one. This is Stanley. So the 2022 restructuring program that you mentioned, I think by the end of 2023, we had fully realized the benefit effect. As we disclosed in our Form 10-K, we had restructurings that impacted our Australian development [ figures] and even some U.K. employees as well in Q4 of 2023. I think at this point, for Q1 we're down to a monthly operating cash burn of about $300,000, significantly lower than Q1 of last year. I think at this point, we sort of fully realized the benefits of the restructuring program but we still continue to look at other ways where we can reduce operating expenses where it makes sense to do so and it's feasible without the -- harming business.

We'll take our next question from Michael Kupinski with Noble Capital Markets.

Congratulations on your quarter and the release. Stephen, I was wondering if you can review for me the road map again for the release of games, DLCs and the subscription service in particular? Like what would be -- what quarters would you be able to kind of identify when those will be available?

Sure. Well, the real key is when the first piece of content arrives and we're looking to coincide that with the Le Mans event in June. So next month is not far away at all. But that for us is the next stepping stone in the progress and the road map of Le Mans Ultimate experience, where you've heard me reference it has the 2023 season content in there. Understandably, our audience are saying, well, we're watching the '24 season now, we want the product to be as current as possible, especially as there are new cars and manufacturers coming to the sport, driver changes and whatnot, the people are looking to see reflected the calendar and the circuits and whatnot. So the first piece of content comes online in June and that's for us pretty much -- within 2 or 3 months, we're looking to launch additional content ideally in packs. So there may be a new car arriving in June, after that, we were looking at new circuits and then we start to update the content and we get more current to the '24 season with the different categories of cars that are online. So for us, is really about trying to conclude this year and ensure that by the end of '24, we have the entirety of the 2024 calendar, the circuits and the cars incorporated in the product. So that really gives us 6 months to be rolling this out. And we think there's no great urgency in that because we have the entirety of the '23 season. It's not as if we came out with very, very thin game, with very limited content. There's an enormous amount of content in there in terms of the tracks, in the cars and the variety on offer for established players and new people coming in over time. But June is when it really starts. So we're about 5 weeks away from the start there.

Got you. And when do you anticipate the subscription service to be launched?

Subscription service, I think, is a case of post-Le Mans. We're starting to talk about it now. It tends to be a very sensitive subject in the racing space for some odd reason. For us, this is not really kind of pushing the audience to spend unnecessarily. We know that as we own the ecosystem and we poured enormous resources into building this ecosystem so that we have to gain. We have the online funnel in RaceControl and we have the services and the features being plugged into that ecosystem experience so that you and your friends can really feel as though you're a part of a story, you feel like you're the superstars in this. Those features do come in at a expense. And we're looking for players to invest in this journey with us. So the subscription is probably, all being well, coming online around July or August this year.

Got you. And then I know there generally is a bell curve to sales. I was just wondering, can you give us a sense of how long the tail has been for the sale of Le Mans into the second quarter?

Well, look, Le Mans, we knew that out of the gate, it's an early access title. We'd have, originally, we thought it would be a hard sell, an early access title, not an existing franchise based on a sport that hasn't had a video game in place for many, many years. But actually out of the gates, it just stormed away. It was [ hit ] product for us. Now we're expecting and understand that those sales dip as we're heading to Le Mans. So we see that being over the next peak, out of this [indiscernible], it drops off over time because we haven't been injecting the product with new content. But what we have been doing is injecting fixes and improvements and occasionally new features, that really ramps up next month. So we expect the next spike and that's going to be critical for us in terms of marketing visibility, the player update, the numbers coming into the product and the general vibe around that experience at Le Mans is going to be enormously beneficial to us, we expect.

And then my final question, do racing games offer themselves to modifications by user content creators. I was just wondering if mods are an opportunity for you in this?

Yes. Yes. Good question. Not in the racing space. For some titles, you can consider it to be the lifeblood of titles. But typically, the titles that have been left dormant for a while by the original developers, i.e., they moved on to the next giant thing and [indiscernible] being alone, users tend to fill that gap. And there are a lot of talented people out there that make amazing content for legacy titles, because we're so new, there really isn't any mod content for the Le Mans Ultimate. And that's not a path that we're proactively trying to encourage, primarily because it's new but also you've got to understand we have rFactor 2 platform in our portfolio. That has a lot of user-generated content, much of which gets sold through the Steam store or free modifications available elsewhere. And that's the first [indiscernible]. It's got a long history of this. Le Mans Ultimate is built to be much cleaner. And I talked about the ecosystem but really it's about the experience being much cleaner and afresh for users because in rFactor 2, that's been around for a long, long time, the quality can vary massively, massively in terms of the user-generated content and some content there probably way past its sell by date to some users. But Le Mans Ultimate is a shiny new thing that has a far higher kind of standard and we're really selling that as a premium product and that experience has to be first rate. And that means we curate that content and all of that content right now comes from within the Motorsport Games team.

We have no further questions in the queue at this time. I will turn the program back over to Mr. Hood for any additional remarks.

Thank you. I'd just like to close by offering my thanks to everybody attending this call. It's much appreciated. We are feeling very positive about this Q1. We do see it as a stepping stone and I'd like to thank you again for your time.

This does conclude today's program. Thank you for your participation. You may disconnect at any time and have a wonderful day.