Motorsport Games (NASDAQ: MSGM) CEO Dmitry Kozko: “Launching Games and eSport experiences – Spreading Joy of Racing to The Masses.”

Motorsport Games (NASDAQ: MSGM) Q3 2022 Earnings Call

Thank you everyone for joining us on our Q3 2022 Earnings call. Times Around the World are definitely unprecedented. And to start the call, I’d like to say that I’m proud of the team that we have gathered here at Motorsport Games, which has demonstrated to be resilient and passionate in spreading the joy of racing to the masses.

We continue to stay focused and to invest in our product. The company’s priorities are launching games and eSport experiences that fans enjoy and want to bring their friends into. This past quarter, we were busy finalizing products that have been, we’ve been working on for months prior to it. For example, in Q3, we announced that we would launch a NASCAR rivals a new NASCAR game for Nintendo Switch platform on October 14th, and I’m happy to report that we were able to release this exciting game on time and on.

Adding to the momentum from previous year’s NASCAR Game On Switch, we were able to add over 450 target stores to our distribution channels when compared to the previous year’s title. Additionally, throughout q3, we continue to work diligently on improving our NASCAR 21 Ignition game to patch bugs, increased content availability, and enhance the gaming experience for our.

In an effort to increase our fans’ engagement with NASCAR 21 Ignition Game for Xbox, PlayStation, and pc, we released a 2022 season update, D L C free of charge to the existing owners of the game. We believe this was a necessary investment for the long run as our NASCAR license is not due to renew until 2030.

Additionally, we shifted gears and started to work on our NASCAR 2023. While at the same time, we have been hard at work for developing of our Indy car and 24-hour Lamont gaming experiences. Motorsport Games is committed to being a good stewards of these iconic racing brands, and our commitment extends to our fans that have been patient with us to deliver them the gaming experience they deserve.

Thank you for those that support us and believe in us. It means a lot to the team. eSport front, we’ve been making big strides. In q3, we launched our 2022 into 2023 Lamont virtual series, which is another star pack grid, and increased viewership from the year before. We thank our sponsors who came along for the ride and who allowed us to continue to increase the production and entertainment value of this exciting racing.

And we thank all participants and supporters of those participants for making this an exhilarating experience. In q3, we also ramped up our activities where the fans are at the tracks. We made sure to bring the latest BTCC content on our Factor two for the fans to try at the four recent BTCC events.

Now, btcc content is available for all on our factor. Motor sport games. Also showcase interactive IndyCar game content at two recent IndyCar events in Indianapolis and in St. Louis, and eager to showcase our 2022 NASCAR content to our NASCAR fans who recently attended five NASCAR races running a nail biting competition on our NASCAR rivals game.

We’re also pleased to announce that we have just completed our one for 10 reverse stock split on November 10th. With a goal to regain compliance with NASDAQ’s minimum closing price requirement for continuing listing In September, 2022, we announced a 2022 restructuring program to reduce our operating cost, which is expected to generate annualized cost reduction of approximately 4 million by the end of 2020.

To date, we made good progress by achieving annualized savings of approximately 2.5 million and our continuing efforts to achieve further cost reductions. I’d like to now take the opportunity to discuss our financial results for Q3 2022 and our current liquidity position. Revenue for Q3 2022 World, 1.2 million compared to 2.1 million for Q3 2021.

The 0.9 million or 43% decrease in revenue is primarily due to 0.6 million of lower digital game sales, driven by lower sales volume and lower pricing, and an out of the period adjustment of 0.3 million. Correcting an immaterial over statement of revenues in the three months end of June 30th, 2022, Q3 2022.

Net loss was 8.5. Compared to Q3 2021, net loss of 6.7 million. The 1.8 million increase in net loss was primarily due to 0.1 million, increase in sales and marketing spend. 0.8 million increase in foreign currency losses, a 0.6 million decrease in gross profit, a 0.1 million, increase in interest expense, and 1 million increase in lost contingency.

The increases in Q3 2022 expenses were partially offset by 0.4 million. Decrease in development expenses, 0.2 million, decrease in other expenses and 0.1 million, decrease in general administrative expenses. Q3 2022 adjusted EBIDA loss was 6.5 million of 1 million increase in loss when compared to Q3 2021.

Adjusted EBITDA loss of 5.5. The increase in adjusted EBITDA loss was primarily driven by the same factors causing the increase in Q3 2022. Net loss revenues were 6.6 million and 6.9 million for the nine months ended September 30th, 2022 and 2021 respectively, the decrease of 0.3 million or 4% when compared to the prior.

Gaming segment. Revenues decreased by 0.8 million or 12% to 5.9 million for the nine months. Ended September, 2022 compared to 6.7 million for the nine months. Ended September 30th, 2021. The decrease in our gaming segment. Revenue is primary due to the lower retail revenues of 0.6 million, driven by higher retail pricing concessions, as well as a decrease in digital and mobile game sales of 0.8 million that was caused by lower volumes and pricing.

These decreases were partially offset by 0.6 million in additional revenue earned through the development of simulation platforms for third. Our eSport segment revenues increased by 0.5 million, but the nine months ended September 30th, 2022 as compared to the nine months ended September 30th, 2021. The increase in our eSport segment revenue is due to 0.5 million of higher sponsorship revenues from our Lamont Virtual Racing Series events, which concluded it’s 2021 into 2022 season in January, 2020.

And commenced its 2022 into 2023 season in September, 2022. Net loss for the nine months ended September 30th, 2022 was 32 million compared to 26.7 million for the nine months end of September 30th, 2021. The increase in net loss was driven by a 9.4 million increase in goodwill and intangible impairment.

A 1.6 million increase in development Expi. A 1.6 million increase in sales and marketing. Spend a 1.4 million decrease in gains from equity method investment, a 1.7 million increase in foreign currency losses, a 1.1 million decrease in gross profit, and a 0.3 million increase in interest expense and 1 million increase in loss contingency.

These increases were offset by 12.8 million of lower general and administrative expense for Q3 year. Today 2022. Adjusted EBITDA loss was 18 million. A 6 million increase when compared to the 12 million adjusted EBITDA loss for q3. Year to date, 2021. The increase in adjusted EBITDA loss was primarily driven by the same factors as the increase in net loss for q3 year to date, 2022 When compared to q3 year to date 2021, we’ll expect to continue to incur significant operating losses.

As a result, we will need to grow our revenues to reach profitability and positive cash. We expect to continue to incur losses for the foreseeable future as we continue to develop our product portfolio and invest in development of new game titles. As of October 31st, 2022, company had approximately 1.8 million of cash and cash equivalence, which we believe is insufficient to fund our current operations for the remainder of 2020.

We’ll need to supplement our available liquidity with additional debt and or equity financing, cash generated by cost control initiatives and or additional changes to our product roadmap to reduce the working capital requirement. Thank you for joining us today. And now let’s go to questions Operator.

Thank you, sir. At this time we’ll be conducting a question and answer session. If you would like to ask a question, please press one on your telephone keypad. A confirmation tone will indicate that your line is in the queue. You may press two if you would like to remove your question from the queue and for participants using speaker equipment and may be necessary to pick up your handset before pressing to star keys.

One moment, please. Will we pull for any question?

Our first question comes from the line of Jason Tilk with Canaccord. Please proceed with your question. Thanks, uh, thanks for taking the question, Dimitri. Um, I have a few, um, just to start, maybe you could spend a minute talking about the reception and feedback we’ve gotten, um, from, uh, from consumers related to both the expansion pack, um, in the first week of October, and then the switch title that you released, um, in the week following that.

Uh, how has the engagement trended so far? Um, how scales and the switch titles trended so far, uh, relative to your expect.

Thanks Jason. Thanks for the question. Uh, we are tracking as per our expectation. Uh, we’re monitoring a positive feedback from the community, uh, mostly geared towards our switch title. I had the pleasure firsthand to experience a very interesting competition at multiple, uh, events that we ran at the NASCAR track where multiple of our products were showcase.

To the users and I got a chance to experience their actual live feedback, not the feedback behind Twitter walls or anything else, but realistically seeing, you know, their eyes light up or other type of emotions that they experience when they enjoy the products. So I could confidently say rivals, uh, is, uh, being received very well, uh, from the community seems to be an enjoyment.

We do see an uptick in. Users playing the game, uh, and as well as the expansion pack. I think we’re tracking that some users are actually appreciating that, uh, what we’ve done, uh, with releasing 2022 content, uh, for the NASCAR ignition game and not charging them for it. Uh, we, we do see that there is some appreciation.

Great. That’s very helpful. Um, and the second one is just on the, the current financing situation. Um, you know, you mentioned, uh, in the press release, the cash balance at the end of October sort of implies, um, given the burn rate that, that you’ll need to come up with a, a solution to the financing, um, pretty soon here.

So if maybe you just give us an update on where that stands, the options you’re currently evaluating, um, and, and how that’s, uh, expected to play out. Uh, you’re absolutely right With that, uh, we continue to explore all options available. Uh, those options still include, uh, different types of form of, uh, debt financing.

Uh, there’s a couple of options in equity type of financing. There is options, uh, from the main shareholder, uh, with the existing credit line. Uh, however, of course we’re not sure whether there’s gonna be ability or not to fund. That is something that’s up to them. But all those options are still on the table.

They are being explored and you’re absolutely right with the assumption we have to, uh, come up and, uh, announce something fairly quickly here, uh, to continue to support the growth of this. And, and you mentioned just in your prepared remarks about potential changes to the product roadmap. Can you maybe comment on how that fits in with the decision making process here and whether that would include, um, a change to the 2023 NASCAR title, or is it more in relation to some of the other franchises you’re planning on launching next year?

Thanks. Uh, it’s another good question. Wait, actually, uh, haven’t made any changes to the, uh, anticipated delivery dates of those product? What we have done is optimize the amount of tools that we invest in. Uh, so basically, uh, focusing on making our development processes more efficient. So they do not require as much time, uh, to develop the product as we previously anticipated, there’s more automation in a testing processes that we have also implemented certain type of tools on file.

Vegetations and other elements that are necessary inside our racing games are being created, uh, and populated as content within the game. So those are the type of efficiencies that we’re also focused on, which basically allow us to get to the end result, uh, quicker. However, that speed, uh, is still, we invest on making sure that the products are well polished, uh, before we bring ’em to.

But we currently do not anticipate, uh, delays from what we have previously said will be our 2023 releases. Great. Thank you very much.

Thank you. And the next question comes from the line of Michael Ksky with Noble Capital Markets. Please proceed with your question. Thank you. Um, most of my questions were already addressed, but I have a couple. Um, in terms of, um, the fact that you have such iconic titles, are you seeing any interest from other larger gaining companies in terms of the business?

Are they pinging you at this point? Um, just wondering if there are other options outside of the ones that you just identified in terms of debt changes in the product roadmap are coming, uh, you know, in terms of, uh, equity offerings and other, if that, if that’s an option as well. Uh, thanks Michael for the question.

Uh, one thing that I could say is that, uh, all the, let’s call it usual suspects or the larger players in the industry are aware of us. Uh, we have had some form of communications, uh, with quite a few of them. Uh, and we are exploring different types of options. I cannot particularly say which options they are with them.

I wouldn’t say there’s anything definit. . Uh, but if there’s some sort of proposals that would come from their side, we would definitely explore. And would those also include partnership agreements? Sure. We have explored, uh, not just with, uh, gaming companies, uh, potential partnership agreements that could help us provide additional liquidity.

Uh, but we also explored such conversations with, uh, distributors and other partners who would value. Having us as a partner because of the iconic brands like you mentioned, that we carry and the stewards. And Deri, when would you determine to delay product releases to time the prospect of, you know, kind of minimizing some of the cash burn?

And also would, at this point, I would assume that, um, that you’re, you’re, you’re eliminated in terms of that potential strategy, kind of alleviate the issues that you have for this year. I would assume you’re really talking more so about 20, 23 and beyond. Am I, am I wrong about, You’re right, we’re focused on 2023 and the delivery of products.

So all resources are geared towards whichever would help us release quality gaming experiences on our projected time. Uh, anything else right now could take a back seat. Uh, it’s not a priority of the business. Uh, hence, uh, part of it participated in our restructuring plan. Uh, which everything that we wanted to take in effect this year, we already did.

Uh, and the future effects would come from efficiencies that we’re currently working on. So we’ll continue to explore those things, but I do not foresee the moment, uh, certain things that would, uh, go towards the delay of the products. Have you, um, have taken, have you taken any further aggressive action to reduce cost in, let’s say the last month?

Or, um, you know, you mentioned about um, trying to reduce the cash burn, of course, and, um, but has there been any other actions that are taken, um, more recently regarding that? Uh, no, not in particular. Everything that we anticipated with our 2022 restructuring, Has been, uh, already executed. Of course, we’ll continue to explore additional areas of savings, uh, to reduce our cash burn potentially further.

Uh, however, uh, the company is currently in its lean position and focused on the development resources and in those particular departments we are expanding and investing in. So anything towards, uh, the better good of our product and the future of product roadmap, uh, is where the focus and resources are all.

So we would not look for, uh, making any reduction in those areas because that’s quite honestly our livelihood, right? We are a product-based company and we have to bring those good products to market. And until we do so, uh, we’ll continue to invest. So we’re incentivized to bring them as soon as possible, but at the same time not sacrifice, uh, quality or the gaming experience that our fans would.

Ri can you, uh, remind me, do you have in your product roadmap any additional products for this year? Or are most of that being concentrated in 2023 at this point? So we have one more, um, product release. Uh, we actually have seen, um, our NASCAR franchise fans are still playing our 2020 title, the NASCAR Heat five title.

Quite a few, uh, players are still in there enjoying themselves. So we thought, uh, why not give them a 2022 content update? Uh, so we’re still working on couple of final polishes, uh, to deliver that content pack to them. So they’ll be an interesting one because I don’t think our company in its history has provided this type of update to a product that’s essentially two years.

So we’re recognized that’s what our players are enjoying. So we’d like to give them some additional content that would further, uh, increase their enjoyment. And is there a marketing spend around that particular product, or is it, is this just something that you’re, uh, planning to, just to offer to the existing fan base and hope that, I don’t know how much you would, how much marking muscle you would put out behind a, an update like, We continue to spend our, uh, budgeted marketing, uh, cost until the end of the year.

Uh, we have made, uh, some optimizations to such, uh, taking some of those spends more towards the track experiences. Uh, so we get a chance to not only promote our products, but also gather, uh, on field feedback from the actual users. Uh, just like I mentioned before, those are things that I enjoy. Also participating in and seeing those things firsthand together with a great team.

Uh, that’s how we optimized it. But we are getting into holiday sales very soon, so we do not want to reduce any of our, uh, marketing abilities or sort of muscle that we already planned for, uh, to. Uh, decrease kind of the opportunity size that we could seize from the holiday season. So as far as I’m concerned, uh, we’re focused as an entire company on product development, but we’re not ignoring the upcoming holiday season and our budgeted marketing span towards the holiday season or staying.

Demetri, I, you may not be able to answer this question, but I thought I’d ask it anyway. Um, in terms of the cash burn, then, can you give us your thoughts in terms of the cash burn for the upcoming quarter, um, and what the sharp fall might be? Uh, so as, as you know, Michael, we don’t, uh, give sort of guidance, uh, numbers at this.

But I think it’s fair to assume, um, as we go into this, as we are in this q4 and we just, uh, published our rival scheme, uh, which does have, uh, cost attached to it when it comes to, uh, physical game cards that we had to manufacture, produce, and distribute, et cetera. So our normal, uh, monthly burn rate is still around that 1.5 million or so, uh, range like we previously stated.

So I think it’s fair to assume that plus, uh, what we would potentially lay out or actually have for creation of those game cards could move that needle somewhere between one and a half to 2 million, um, on the monthly burn rate. Gotcha. Thanks for the color dimmit. Good luck. Thank you, Michael. And as a reminder, if you would like to ask a question, please press star one.

Our next question comes from the line of Mike Hippy with Benchmark. Please proceed with your question. Hey, Dimitri, Ken. Good afternoon guys. Um, thanks for taking my questions. Uh, Dimitri, you had some. You had some turnover on, on your executive team and, and your board. Uh, can you just give us some context, uh, in terms of, uh, why that occurred and.

How you’re thinking about, uh, re refilling some of those, uh, positions. Obviously you can only wear so many hats here. You know, funding’s probably your number one priority, but as you sort of think about getting that funding and, and moving into 23 and, and building your next game, h how do you rebuild your, your team here?

Uh, thanks Mike for the question. So, uh, fair question. Part about the independent board members, right, as were stated in the AK and other disclosures, right? The main shareholder pretty much asked the independent board members to resign as a result of a disagreement on a proposal of such, uh, directors to raise additional capital.

Uh, and that’s obviously for the company, uh, in transactions that would require shareholder approval as a. But it would also, uh, be potentially very diluted to all, uh, stockholders, uh, based on where the stock has been. So, uh, those members have accepted that, and that’s what you have seen in the recent news.

Uh, however, uh, we do plan to, of course, uh, invite other, uh, independent board members. , uh, part of that, our interim cfo, uh, who was just recently with us, uh, was able to, uh, step in and serve as our new member of the audit committee, uh, and one independent board member. Uh, we obviously have, uh, according to the NASDAQ letter, uh, 45 days, uh, to provide a plan to the nasdaq.

Uh, How will we fill other, at least two other seats, uh, to be in compliance with the audit committee composition of three of such members. Uh, so we’re actively having conversations with those type of candidates and because John Delta had to step down from the interim c o capacity and go to be our independent board member, uh, and previously when John Yu was our cfo, Uh, that put, uh, me in a position to actively search for a more permanent, uh, CFO role.

So currently you’re absolutely right. The focus continues to remain on from my side of the office is to solve a liquidity. Um, and I am exploring all those available options. Uh, therefore, Finding and filling a CFO role, uh, is something that I will switch gears to more actively as soon as we’re able to, uh, address our liquidity concerns.

Nice. Thank you.

Thank you. At this time, there are no further questions and that concludes the question and answer session. This also concludes today’s teleconference. You may disconnect your lines at this time and thank you for your participation and have a great day.

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