Greetings. And welcome to Motorsport Games, Inc. Fourth Quarter and Full Year 2021 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ashley DeSimone from ICR. Please go ahead.

Thank you. And welcome to Motorsport Games Fourth Quarter and Full Year 2021 Earnings Conference Call and Webcast. 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 fourth-quarter and full-year 2021 earnings press release, filed today after the market close. This is available on the Investor Relations website 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 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, 2021, 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. 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 2021 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 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 by recognizing our development team, some of whom are in Moscow in the midst of this unacceptable and challenging situation. Our hearts are with the people in Ukraine and all of those impacted by the war. This is a personal issue for me as I'm half Ukrainian myself. I have been in constant communication with our Moscow team and they share a concern and profound desire for peace and security. While it is challenging working through the complexity of the work, here's what we have done over the past months. We assure you that we continue to build out our product roadmap with minimal disruption. First, we have always been able to switch to remote work if need be. During the pandemic, especially during the peak COVID outbreaks where we saw lockdowns and other hurdles, we managed to scale our development capabilities and temporarily transition to remote work. We do not foresee any issues with this transition, and some of our team members are able to work remotely again because we have the infrastructure and processes in place to remain flexible. Second, we have a great partnership with various outsourced developers and studios. Especially over the last year, we have built strong relationships with several outsourced studios assisting us with new product development. These development studios consist of professional and highly experienced teams that have worked with many different leading gaming companies. We are currently having conversations with additional development studios and will be ready to engage them if necessary to ensure our development pipeline does not experience significant delays. Third, we have offered our Moscow staff the possibility to relocate if they choose and are able to do so. As I mentioned earlier, we have the advantage of being flexible. Earlier this month, I had a conversation with that team and offered them the opportunity to relocate to one of our other global offices. We acknowledge and appreciate the complexity of such relocation and the corresponding immigration implications, but our offices in the Netherlands, U.K., Australia, and the U.S. would welcome those individuals with open arms. Now, let's move on to our product roadmap and development. Our goal remains to build a portfolio of top racing games across world-class IP and across all platforms. We have a strong list of IP, being the official video game license holder of NASCAR, Indycar, ETTC, WEC, and 24-hour Le Mans. This list of IP gives us an opportunity to build official racing games and enables us to provide these captivating experiences to our audiences all over the world. Here's an update on where we are today. On Ignition, since the launch of NASCAR 21: Ignition in October 2021, we have been working diligently to provide patches and updates for continuous improvements. So far, we have released 8 updates and continue to provide quality of life improvements to the game. We strive to make sure that the next NASCAR release, and all future products, bring excitement and satisfying gaming experiences to our customers. We also launched our NASCAR gaming franchise on the Nintendo Switch platform for the first time on November 19th, and we named it NASCAR Heat Ultimate Edition +. We are happy to report that this game has met our expectations and delivered smiles to our fans while currently being rated above 4.6 out of five stars on Amazon. On KartKraft, we are pleased to report that in January this year, we released a full version of KartKraft, our realistic karting simulation game. On Steam, we currently hold a rating of 'Very Positive' with over 1,700 reviews. KartKraft is a game that has the potential to generate meaningful revenue for us in the future. Let's touch on our rFactor 2 gaming platform. We have been working to implement one of the most requested features by fans, which is the new user interface update. We were able to release this ahead of our internal release schedule in January of this year. As we monitor user feedback on various social networks, it's been welcomed and very much appreciated by the community. We were also able to reorganize our content release schedule on rFactor 2, trying to offer our fans more content on a predictable quarterly release schedule. Our gaming and simulation platforms such as rFactor 2 continue to be recognized by the motorsport industry as one of the leading products of choice for drivers, leagues, and partners. One new partner of ours is Kindred Concepts. Formula One partnered with Kindred to create an immersive, state-of-the-art F1 racing simulation experience made accessible to the mass audience. Kindred has chosen our rFactor 2 as the simulation platform to help them power their F1 racing simulation experience. With this partnership, we will be virtually recreating some of the world-famous Formula One tracks, cars, and most recent deliveries, providing the authentic F1 experience to visitors. This week, we announced that rFactor 2 is now the official sim racing platform of Formula E. As we switch gears in 2022, our focus remains on improving and expanding our NASCAR gaming franchise, as we work to grow our portfolio of overall games. In 2022, we plan to update our NASCAR game for major consoles and PC, bringing the excitement of the next-generation cars from the 2022 NASCAR season to the masses, as well as launching the new 2022 version of our NASCAR games for the Nintendo Switch platform. Additionally, we still intend to soft launch our first hyper-casual mobile category game with our NASCAR match-3 title sometime in 2022. The NASCAR gaming franchise continues to be an important foundation for our gaming franchises under license, which includes BTCC, Indycar, and Le Mans. Our insights from the NASCAR 21: Ignition launch are already being integrated into the Motorsport Games engine, which we continue to evolve internally, to ensure that our next gaming franchises, including NASCAR, continue to improve as we build on previous releases. Just as we set out on our vision from the beginning, we continue to move toward the goal of having multiple franchises in the market, with multiple games on multiple platforms. We believe we are on track for 2023 to be that year for us. On to development. With the help of our experienced leadership team, I've taken full responsibility for overseeing our production studios and development teams. Additionally, standardized global processes and tools we have implemented will allow greater clarity for my decision-making role. We have also promoted technical experts to leadership positions. We believe that this new development management structure will greatly benefit our future games and product releases, as together with management, we continue to monitor the progress of all our studios while scaling our capabilities. We have also reorganized our QA processes and department to ensure further checkpoints and efficiencies in identifying future issues within our products, which we believe will improve our QA process for Q2 game releases. We strive toward improving our processes and technology building off the NASCAR 21: Ignition launch as we scale our company further to offer our customers multiple racing franchises across a variety of platforms. I would like to touch on our esports segment. We believe our investments in this area are starting to pay off, continuing to leverage our rFactor 2 platform and building on the momentum we achieved with esports in 2020, where we replaced certain motorsport events with their virtual counterparts due to the COVID-19 pandemic. In 2021, we turned our 24-hour Le Mans virtual race into an annual series with great partners such as Rolex, Goodyear, Total Energies, Lego Techniques, Algorand, and others that joined us for the ride. Our 2021 into 2022, 24-hour Le Mans Virtual Series has been enjoyed by more than 81 million fans across digital and linear channels. These are the types of official esports series we will look to replicate with all our partners, such as BTCC, IndyCar, NASCAR, and others. As we release our dedicated games for each one of these racing series, we believe our esports program will serve as a great marketing tool, showcasing the exciting competitions our games bring at the highest level. We have already started scaling our esports program with the inaugural INDYCAR esports pro-challenge featuring almost the entire INDYCAR grid. Allow me to add a reminder that our business is organized into three important pillars: games, esports, and community. We are making progress in each of these pillars and look forward to showcasing this progress in our upcoming quarterly materials. Lastly, I'd like to address our liquidity. Currently, we are debt-free, and our 2021 year-end balance sheet illustrates that we had approximately $17.8 million in available cash on hand. As of today, we have nearly $12 million of available cash. While our 2021 Form 10-K indicates a doubt about our ability to continue as a going concern, we are currently evaluating new sources of funding with different options on the table, so that we have the resources to reach our goals. A year ago, we made a conscious decision to acquire assets to help us launch more products quicker. We have successfully utilized these acquisitions to get us closer to a diversified portfolio that we believe is capable of achieving profitable revenues. I remain committed to seeing this through and getting us to 2023, when we plan to have multiple franchises, with multiple games, on multiple platforms in markets, each at different stages in their lifecycle, many with long-tail based on high-quality IP eras. We also believe that we have the flexibility to pause some of these development initiatives in order to materially cut cash burn if we decide that is in our best long-term interest. We expect these decisions will be made in the upcoming months, after we finalize our financing decisions, and I intend to keep you all updated as we move through this process. Before I pass it on to Jon, I would like to reinforce the fact that we have long-term licenses and partnerships to create great official racing games and esports over a long period for captive audiences and beyond, while we cultivate a community, and become synonymous with virtual racing. With that, let me hand it over to Jon for a review of our financials.

Thank you, Dmitry. I'd like to share summary financial highlights for the fourth quarter and year ended December 31, 2021. Revenues were $8.2 million for the fourth quarter ended December 31, 2021, compared to $2.9 million in the prior year period. The gap between quarterly comparisons is largely attributable to the launch of NASCAR 21: Ignition in the fourth quarter of 2021 versus the launch of NASCAR Heat 5, which occurred in the third quarter of 2020. Our net loss was $7 million and $3.1 million respectively for the three months ended December 31, 2021, and 2020. The quarterly comparisons are significantly affected by the upfront development and marketing costs associated with creating new products for our recently acquired game licenses. Our adjusted EBITDA loss was $5.4 million for the three months ended December 31, 2021, compared to an adjusted EBITDA loss of $2.4 million for the three months ended December 31, 2020. The $3 million increase in adjusted EBITDA loss was primarily due to a $5.7 million increase in Q4 2021 operating expenses that the company invested to build out our portfolio of games. This was partially offset by a $1.7 million increase in gross profit from higher game sales in Q4 2021, and operating expenses adjustments recorded in Q4 2021, including $0.3 million for 2021 impairment of intangible assets, $0.3 million in depreciation and amortization, $0.2 million in 2021 acquisition-related expenses, and $0.2 million in 2021 stock-based compensation. For the year ended December 31, 2021, revenues from our gaming segment decreased by $4.5 million or 24% to $14.3 million from $18.8 million for the year ended December 31, 2020. The decrease in revenues compared to the 2020 period was primarily due to a $4.4 million reduction in revenues from our NASCAR series game titles. This was primarily driven by lower initial sales of NASCAR 21: Ignition, compared to NASCAR Heat 5 in the prior year, and the timing of our new product release schedule, as there were fewer months to generate revenues from our NASCAR 21: Ignition game, due to its release in October '21, compared to our NASCAR Heat 5 video game that was released in July of 2020. The year ended December 31, 2021, revenues from our esports segment increased by $500 thousand, or 169%, to $800 thousand from $430 thousand for the year ended December 31, 2020. The increase was primarily due to sponsorship event revenues from the Le Mans esports series limited, which were consolidated into our results for the first time following our acquisition of a controlling interest in the company in early 2021. Whereas in the prior period, it had been reflected as earnings from equity method investments. Adjusted EBITDA loss was $17.4 million for the year ended December 31, 2021, compared to an adjusted EBITDA income of $0.9 million for the year ended December 31, 2020, reflecting lower year-over-year revenues, higher costs to develop and market new game franchises, and the timing of new game releases. We expect to incur losses for the foreseeable future as we continue to incur expenses to develop new game franchises. Accordingly, we do not believe that our existing cash on hand will be sufficient to fund our operations for the next 12 months. At this time, we're not providing forward guidance. I would now like to turn the call back to Dmitry for closing remarks.

Thanks, Jon. Overall, 2021 was a significant year for us. We built upon our groundwork for future game releases by attracting development talent and people that share our passion for racing games. We acquired necessary technology components which will help our games stand out at scale and allow us to further develop our platform and processes, as we look to build out multiple franchises with long-term licenses and partnerships. As you will note in our Form 10-K for 2021, the audited financial statements received the going concern qualification. However, rest assured that we are working diligently to analyze all aspects of our business to achieve cost reductions and free up funds to address our near-term liquidity concerns. Additionally, we are currently discussing funding options, including debt and equity financing. This way, we can continue our product roadmap with no significant changes or disruptions and ultimately generate returns for our shareholders. Thank you for joining us today and now let's go to questions.

Thank you. At this time, we'll be conducting a question-and-answer session. One moment, please, while we poll for questions. Our first question comes from Mike Hickey with The Benchmark, please proceed with your question.

Hi Dmitry and Jon. Good afternoon, guys. Thanks for taking my questions. Dmitry, just curious about your upcoming NASCAR 22. What are your thoughts in terms of the timing of the game? I know you've experimented with different release days, but where do you think you can hit? I’m guessing it will be a step up in quality with the backdrop that you've had some disruption on the development side?

Thanks, Mike. You're absolutely right. It will definitely be a step up. As you release one game and build upon that, it only gets better from there, right? You have more and more time to fine-tune things and improve upon. As for timing, we have now a significant amount of data of what it's like to launch a game, ranging from the beginning of July, which we've done with Heat 5, all the way to the end of October, which we did last year with Ignition. We would like to continue to schedule our NASCAR releases closer to the beginning of the season, which normally happens around February. But of course, we cannot make those drastic changes right away, as that takes significant time for an annual product to be available for sale before the new one comes out. You can expect us to continue moving closer to the beginning of the season, but not make major six-month jumps or similar. Based on last year’s end of October release, I think it would be fair to assume we would be somewhere around July, August, or September for the timing with NASCAR playoffs.

I guess NASCAR 23 would be our next release after 22. Should we think about what you did in calendar year '20 for the success of Heat 5? I think you're around $19 million then with positive EBITDA. Given your operating expense profile has changed, do you think that's an achievable goal on revenues with a step-up in quality?

It's a milestone, Mike. So it’s not a goal for us. One of our objectives for the NASCAR franchise is to get to the levels where EA was in the early 2000s when they held the NASCAR license we now possess. They were averaging in seven digits during the data available to us, with some years peaking around 2.5 million units. That's the goal for our NASCAR console products. And there's an additional consideration with more platforms available today, like the Nintendo Switch, which didn't exist back then. The Nintendo Switch install base is very competitive to those of Xbox and PlayStation. So we could actually see that the real goal for the NASCAR console game could surpass those previous numbers. But as I mentioned before, our milestone is simply to achieve higher levels of success than the previous year with every release as we continue on this journey with this license until its renewal in 2030.

Thanks, Dmitry. Last question. Obviously, Stephen Hood has departed as head of development. With your resources in Moscow, obviously, it has been extremely challenging for you. I can hear that in your voice. Overall, how do you think about your development teams? What are you doing to retain and grow the talent that you have? And if you're looking to bring in third parties for some help, can you elaborate on the development side, given everything that’s happening?

Sure. The challenging part is just the situation happening in Ukraine. As I mentioned, as someone who is half Ukrainian, this topic is understandably emotional for me. As far as our development is concerned, we do not see any interruptions at this point regarding our processes, connections to teams, or funding for the teams. We are not experiencing any disruptions. Should the geopolitical situation change, we do have other five studios worldwide, which are ramping up technical capabilities. When I mentioned outsourced partners, those are partners that we have been utilizing to enable multiple product developments simultaneously. We hold licenses for a long time. The sooner we can get the products out, and as many products as make commercial sense for each license, the longer our monetization window for those products will be. So right now, we’re looking to enable as many outsourced partners as we can while we continue to scale our teams organically across various global locations. Should the geopolitical situation worsen for those in affected regions, we will shift some of those outsourced partners more toward our core products rather than auxiliary developments like hyper-casual mobile products.

Thanks, Dmitry.

Our next question comes from Michael Graham with Canaccord. Please proceed with your question.

Yes, thanks. Hi, Dmitry and Jon. Regarding the next NASCAR game set to be released in the late summer or fall timeframe. In the first Ignition game, there was a roadmap of features around DLC and player versus player. Given the changes in development staff and learnings from the initial Ignition game, can you provide any insights on what we should expect to see in the next Ignition game that may improve upon the first edition?

Thanks, Michael. One focus right off the bat is on the quality of products and stability. That’ll be a key foundation of our approach. We're committed to raising our internal standards. We began by bolstering our key quality assurance and compliance teams to better identify, track, and fix bugs before products come out. As for features in '22 and beyond, we're closely observing community feedback to discern what they want to see. There are videos online, for example, showcasing fan suggestions for the 2022 feature set. So you can expect us to place significant emphasis on listening to that community, prioritizing their inputs, and integrating them into our products wherever possible.

Thank you. Regarding liquidity, you mentioned wanting to bring in new funding sources as well as the ability to reduce expenses if needed. Does that imply delaying franchise and game launches or are there other areas in your cost structure where you can reduce cash burn?

The biggest expense categories for us are development and marketing. Marketing is tied closely to the development of our products as they move toward market readiness with initial investments prior to their release. Therefore, rather than flipping switches on franchises, we focus more on the number of products or platforms available for each franchise, which can impact speed. As I previously mentioned, we could potentially pause some of the hyper-casual mobile developments until we achieve a better liquidity position. But for our main franchises, we are keen to ensure that the path to those products for core platforms like Xbox, PlayStation, DC, and Nintendo Switch remains on track. It's the mobile developments that we can slow down or reevaluate with our external partners while we continue to solidify our core franchises.

All right. Thanks very much.

Our next question comes from Michael Kupinski with Noble Capital Markets. Please proceed with your question.

Thank you for taking my question. Dmitry, you've done an incredible job in a very chaotic situation, and I want to commend you for your hard work. I understand that the employees in Russia were largely your engineers, and I was wondering if you could discuss the prospects of what they were working on concerning your planned product releases. Also, has the situation improved where you're able to utilize those workers in that market?

Thank you, Michael, for that comment. I believe the management team has done a commendable job being resilient through unprecedented situations. It seems that when we started our business, we faced COVID-19, which was an interesting challenge. Now, with the current situation, it seems we're adapting to work amid various challenges. I will communicate your compliments to our management team. Regarding our studios, we don't have dedicated products assigned to any single studio. We have a flat structure, with different departments like art, development, and engineering working collectively. So, for instance, bolstering our Netherlands studio doesn't mean automatically assigning more resources to a specific franchise. As for our Moscow team, they are involved in implementing Unreal Engine and contributing to NASCAR products, among other tasks. The NASCAR franchise is spearheaded from our Orlando studio, so the Moscow team enhances the Orlando studio's capabilities, sharing knowledge across studios. The capability of each studio isn't tied to a specific franchise but rather to overall collaboration.

That clarification is appreciated. I know some companies have experienced situations where stock prices have dropped, leading to opportunistic interest from others. Just to confirm, there is no interest in selling the company, correct? You want to navigate through these challenges and push for product launches?

We have a very clear growth trajectory, right? We possess an amazing portfolio of IP. At this point, it's hard to determine a price for the company when we haven’t had a chance to fully showcase our product lineup. Having a portfolio of official licenses and the capability to tie the games together in a unified player-first experience is of great value. What return would that bring? It's hard to quantify, but I would prefer to see our vision realized before discussing any potential sales or pricing points.

Great, thank you for the insights.

Our next question comes from Franco Granda with D.A. Davidson. Please proceed with your question.

Hi, good afternoon, everybody. Thank you for allowing me to ask a few questions. Earlier, Jon mentioned a $4.5 million decline in NASCAR games year-over-year. Can you provide details around the non-NASCAR franchises individually?

Great to hear from you, Franco. Other products currently in the market besides the NASCAR franchise include KartKraft, our simulation platform that we recently released in full. We also have our esports platform and games called rFactor 2, which is utilized for our esports products. We just made significant updates to rFactor 2's user interface and reorganized our content delivery to a more predictable quarterly release schedule. Both KartKraft and rFactor 2 are on an upward trajectory, and we have concrete plans outlined in our investment presentation for taking KartKraft into consoles as it’s currently only available for PC. While they may not feature official licenses like NASCAR, they are standalone products generating revenue as we work to expand them across multiple platforms.

Understood. With KartKraft being new, comparisons may not be fair. But can you provide year-over-year performance numbers for rFactor 2 since its acquisition? Have you seen a recent uptick given the new partnerships?

We haven’t broken out individual game numbers so far. Once they start generating meaningful results, we’ll likely consider it. Both KartKraft and rFactor 2 are indeed in a growth trajectory. Our daily active users have increased, and we've seen significant evolution in our offerings. rFactor 2 has been integral for real driver training, which benefits our product in the long term. As we announced earlier this week, we made rFactor 2 the official Steam platform of Formula E, introducing a Formula E pack that allows users to download the latest cars and tracks associated with that series. Even though rFactor 2 has been on the market for a while, it has greatly enhanced its value over time, creating opportunities for live operations.

Thank you for the insights, Dmitry. One last follow-up regarding employee morale. Given the external challenges, how do you assess the morale of your team within Motorsport Games?

The good aspect is our teams are genuinely passionate about delivering great racing games. When they feel their work has not met personal expectations, there's a real motivation among them to prove that they can do better. Individuals in engineering, marketing, and art are stepping up their commitment, wanting to create something they can be truly proud of. Although it's tough to have received feedback about our game's shortcomings, we've acknowledged our missteps. Our focus now is on ensuring such issues do not recur, and everyone is dedicated to delivering exceptional racing games to the market.

Thank you, Dmitry. Best of luck for the rest of the year.

Thank you.

Ladies and gentlemen, we have reached the end of the question-and-answer session, and I would like to turn the call back to Dmitry Kozko for closing remarks.

I would like to thank everyone again for your questions, comments, and your trust. We are still on our clear journey of what we set out to do from the very beginning. Yes, we have faced hurdles and challenges, including geopolitical issues and COVID-19, but when our mission is clear, our vision is clear, and our purpose is clear—to make the thrill of motorsport accessible to everyone—that becomes ingrained in our culture. It doesn’t matter what bumps we face on our path; we will continue advancing toward our vision, making sure we deliver on our initial aspirations. Thank you for participating in the call, for tracking our progress, and please continue to look out for updates every quarter as we showcase our advancements.

This concludes today's conference. You may disconnect your lines at this time. Thank you all for your participation.