Greetings, and welcome to Motorsport Games Incorporated First Quarter 2022 Earnings Call. As a reminder, today's conference is being recorded. I would like to turn the conference over to Jake Pisano from ICR. Please go ahead.

Thank you. Welcome to Motorsport Games first quarter 2022 earnings conference call and webcast. I am Jake Pisano, Vice President at ICR. 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 first quarter 2022 earnings press release filed today after market closed. This is available on the Investor Relations section of Motorsport Games website. 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 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 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 first quarter 2022 financial results. You will find a reconciliation of these non-GAAP financial 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 Dmitry Kozko, Chief Executive Officer of Motorsport Games. Dmitry?

Thank you, and hello everyone. I'd like to start today with an update on our product roadmap as we continue to be stewards of great long-term licenses that allow us to make exciting games and facilitate esports for some of the world's most captive fan bases using the Motorsport Games engine and studio. With regards to our NASCAR franchise, a few weeks ago, we published a community update that included our revised NASCAR product roadmap. This update included information about our continued improvements to NASCAR 21: Ignition that we're planning as well as the road ahead for the remainder of 2022 and beyond. In a community update, we're now targeting the release of patch 1.5.0.0, which will introduce NASCAR 21: Ignition on Xbox Series XNS and PlayStation 5 next month. We're working closely with Microsoft and Sony who are fully supportive of our timeline for this release. We continue to listen to our fans and value their constructive feedback about our products. We understand that there are still improvements that need to be made to our NASCAR franchise title to deliver on the excitement of the sport. We're working with our partners at NASCAR and will bring the NASCAR 2022 season expansion as DLC for Xbox, PlayStation, and PC due out in September 2022. The season expansion will include a full 2022 Cup Series team roster, the 2022 Cup Series regular season schedule, updated UI and in-race HUD, Fanatec support, and more. The reason we're delivering a NASCAR season expansion as opposed to a new game title is that delivering a great gamer-first experience is paramount to us. If we're going to reset the expectation of what the NASCAR title should be, we will need more time to work on that title. There will not be enough time to accomplish that in 2022, and we already have the main team working on a 2023 title. Nonetheless, fans will still want to enjoy the 2022 Next Gen cars and we will bring that content to users as DLC with some additional features around September of this year. Because we do not plan to charge full game price for the 2022 season expansion, we expect the NASCAR console revenues to suffer in 2022 as a result. However, we strongly believe that our investment in further developing a great gaming experience is critical for the long run. Our strategy to diversify our revenue sources is starting to show in our results. Additionally, in the fall, we plan to introduce a brand-new NASCAR '22 title for the Nintendo Switch platform. The new and improved NASCAR Switch title will include updated visuals and new features. We'll be releasing additional details as we approach the game launch in the fall of 2022. We saw great product reviews for our 2021 NASCAR Switch title and look forward to continuing to expand our fan demographics on the widely popular Nintendo Switch platform. As we look beyond 2022 and into 2023, we're committed to improving the quality of all our games and experiences for all of our current and future fans. We value our continued relationship with NASCAR, INDYCAR, BTCC, and Le Mans and appreciate their support. We currently expect 2023 will bring a fully revamped NASCAR title. The 2023 NASCAR game will utilize the work done by the amazing teams that develop KartKraft and rFactor 2, while still utilizing the Unreal Engine. By moving to a season expansion update for 2022, more time is allocated to the development team to work on the NASCAR 2023 to include the improvements and new features, with the goal of releasing earlier in the year than previous titles. We're currently targeting the release date of mid-2023 for the updated console title. Additionally, in 2023, we're expecting to bring an official INDYCAR game to the market. Moreover, besides the new official NASCAR and INDYCAR games in 2023, we also anticipate the launch of our Le Mans video game, helping fans celebrate the 100-year anniversary of the iconic 24-hour Le Mans with a virtual interactive experience that the games provide. Later this month, we plan to provide additional news on when our BTCC game will be expected to launch. During Q1 of this year, we launched the full release of our KartKraft game for PC, which continues to receive positive user feedback. We're currently working on bringing this exciting and realistic karting experience to one of the main consoles this year. So stay tuned for our update on which console we will choose. rFactor 2 is finally starting to get the spotlight it deserves. During Q1, we released a highly requested UI/UX update and switched to a predictable content release schedule, which users seem to enjoy based on the feedback we're monitoring on social media. We look forward to bringing more quality of life improvements to rFactor 2 with the help of real-world drivers and our fans. I'd like to provide a quick update on our studio development resources as we continue to work on these scheduled games. We're currently firing on all cylinders and continue to hire more talent into the studios worldwide as we grow our internal development capabilities and expand our external development partner relationships. Our mobile game pipeline continues to be an opportunity zone for us, but our current focus is on applying our resources to our main console products, as they are the core games that generate the most revenue for us now. We currently plan on building on top of these console releases in the future by potentially leveraging the console content in future mobile game titles. As we continue to invest in the growth of our development teams, we expect to allocate more resources to mobile to increase our mobile game production. But for now, our focus remains on console and PC for these exclusive licenses. Let's touch on our esports. As we mentioned in our previous earnings call, we're extremely proud of our 2021 into 2022 running for our Le Mans virtual series that finished off in Q1 of this year. YouGov Sport helped us track that over 81 million fans were exposed to this past season's five races. It was a great feeling when our team accepted the 2021 sports technology award for best use of esports by a sports brand, and we're looking forward to announcing the details of our 2022 into 2023 Le Mans virtual series soon and continuing to build on this momentum with our other franchises. Lastly, I want to provide an update on our liquidity. As we continue to explore multiple funding options to resolve our going concern qualification, we've been looking at various ways to continue core product development while pausing certain endeavors to extend our runway. As indicated in our recent filings, there is doubt about our ability to continue as a going concern. As of today, we have approximately $9 million available in cash. This amount reflects the recent payment of $1 million that we made to Luminis as part of our agreed deferred payment schedule for the remaining 3.2% that we have an obligation to pay in connection to our acquisition of Studio 397. We're still debt-free and actively exploring options to ensure that we have the capital we need to execute on the product roadmap I just laid out. Our main priority is to continue producing revenue-generating products and reach profitability, effectively resolving our liquidity issue. We have three solutions and will likely end up with some combination of these three. Our options include raising debt or equity. However, given the current market conditions and recent massive sell-offs in the tech sector, this might only be feasible once we begin to see some stability in the market. We're also pursuing additional opportunities to reduce near-term spending. Currently, our revised roadmap reflects current cost structure initiatives. Additionally, barring any unforeseeable events, there are additional levers we could pull, including potentially delaying some product releases to follow our cash-generating catalyst events like launching major franchise console games. Sequencing releases based on cash-generating opportunities could be an additional option towards self-sustained profitability. This is the least favorite option, as it means launching some of the franchises later, leaving us less time under our still long-term licenses to monetize and be good stewards of such licenses and our partner relations. Additionally, we're also exploring various new business development opportunities. Since we are the only studio that holds these types of world-class IP racing game licenses, it's possible to leverage these licenses and bring in additional studio partners that would build alternative games and profit share with us. As you can see, we're exploring all options and laying them out on the table. I'm fortunate to have industry veterans surrounding me as we leverage each other's experience and knowledge to make the best decisions based on current circumstances. We're hoping to solidify this plan in the coming months. With that, let me hand it over to Jon to review our financials.

Thank you, Dmitry. I would like to share summary financial highlights for the first quarter of 2022. Revenues for Q1 2022 were $3.3 million as compared to $2.5 million for Q1 2021. The $0.8 million or 34% year-over-year increase reflects additional gaming sales of $0.5 million in Q1 2022, primarily from our rFactor 2, which contributed 16% of our total Q1 2022 revenue. Additionally, Q1 2022 esports revenue increased $0.3 million, primarily from the 24-hour Le Mans event held in January. Esports revenues accounted for 11% of our total Q1 2022 revenues. Our business plan to increase and diversify our revenue streams is beginning to drive improved top-line financial performance. Q1 2022 net loss was $16 million as compared to Q1 2021 net loss of $14.1 million. The $1.9 million decrease in net loss was primarily due to an $11.3 million decrease in general and administrative expenses, offset by $9.3 million of write-downs for goodwill and intangible assets. The downward revisions of goodwill and intangible assets consider our current market capitalization and revisions to our product roadmap made during the first quarter of 2022, resulting in changes to the scope and timing of product releases and related development expenses as Dmitry talked about. Q1 2022 adjusted EBITDA loss was $5.6 million compared to Q1 2021 adjusted EBITDA loss of $2.8 million. The $2.7 million increase in adjusted EBITDA loss was primarily due to a $1.4 million reduction in EBITDA and a $1.3 million reduction in add-backs compared to Q1 2021, where we had an IPO with our IPO stock compensation add-backs. We expect to continue to incur operating losses for the foreseeable future as we continue to incur expenses to develop new game franchises. Our liquidity plan remains the same as at year-end, and the company's existing cash on hand will be insufficient to fund its current operations for the next 12 months. Dmitry has outlined the steps we are taking to provide for our liquidity requirements going forward. From an operating perspective, as Dmitry noted, our priority is rolling out fun, well-performing revenue-generating games as we continue to address our projected liquidity requirements. Thank you for joining us today. And now let's go to questions.

The first question is from Michael Graham with Canaccord.

Thank you for the detailed information in the call and for the recent update. I have a couple of questions. First, do you have an update on when we can expect to see Ignition 23 or NASCAR 23 during the year? Additionally, how are you planning the longer-term schedule for NASCAR releases throughout the calendar year? I have another question as well.

We mentioned briefly on the call that we are looking to potentially release NASCAR 2023 title in mid-2023. As we talked about in some of our previous calls, our goal is to try to align the title releases as closely as we can to the actual race season of that franchise. NASCAR historically starts around February time. So it's fair to assume that, with the years to come during this long-term license relationship that we have, we will continue to keep moving that release schedule closer and closer to the actual NASCAR season start. For 2023, we're targeting mid-year, so sometime around summer, and we'll look forward to actually posting what that release date would be sometime in the near future.

And then the other thing I just wanted to ask is, you outlined some of your liquidity options. Just wondering when you say like raise debt or equity, if you can maybe go one layer deeper and just mention what some of your options might be. And also, you mentioned the ability to reduce expenses. And I just wanted to maybe ask if you could go a layer deeper on that as well in terms of what's the magnitude of things that you think you could do along those lines.

So, as we continue to work on four franchises simultaneously, plus our KartKraft product and our rFactor product, we have projected internally to continue to increase development resources to make sure that we keep our foot on the gas for developing and potentially launching all of those products as fast as we can. The goal is to release them as soon as we can; that way, we have the longest possible runway during the existing licenses to monetize them. So when we talk about potentially reducing the expense side, we could just slow down the expansion of the development, but of course, that would mean that some of our future title releases could be delayed as a result of that. It's not something we want to do; we want to continue to push forward and hire as needed, continuing to expand our internal and external resources, so we can launch these franchises as soon as possible. But if need be, we will start to not extend the internal resources as quickly, and that will come with potential delays in the product roadmap.

The next question is from Michael Kupinski with Noble Capital Markets.

So Dmitry, you mentioned adding resources for development. I was curious if this means an increase in the number of employees or in development efforts, or if you are simply shifting personnel at this point. Given the disruptions you've faced, particularly in Russia, how stable is the current employee situation? Can you share your thoughts on whether you are actually hiring more staff or reallocating existing personnel?

We are expanding our internal resources, which includes all our studios worldwide. As you might recall from our previous earnings call, we talked about how we revamped our quality control department and what we're doing in terms of just increasing the quality of the type of games that we publish. Therefore, that does require us to staff up more, and that goes across all departments. We need more artists, we need more senior programmers, and we especially need QA personnel. Our total headcount from Q4 to the Q1 we just reported on has increased in terms of headcount. It's not necessarily shifting from one to another; it's just staffing up wherever there's great talent. And to the other part of your question, our development talent in Russia continues to operate as usual. We don't experience any material interruptions right now. Of course, the geopolitical situation could change in a year or in the future, and we'll continue to be agile. But right now, everyone is focused on the four product releases we are all working on.

And in particular, can you give us some thoughts about the burn rate as you go into this quarter? Given the fact that you are adding some staff, I'm just curious where you think that the burn rate goes from here?

So our burn rate has been fairly consistent, and we're looking to keep it that way or take it down as we move forward.

Can you provide your thoughts on how the gaming industry might be impacted by a potential economic downturn, considering the current inflation and discussions about a possible recession? In previous downturns, the gaming industry has performed relatively well. Do you still believe that the gaming industry will maintain that resilience if we face an economic decline?

Michael, this would be possibly a personal opinion of mine. But I do believe that when there are unfavorable events happening around us, folks turn to alternative types of entertainment. They might not go out as much; they might stay home and still need that interactive experience that keeps them entertained. So I could assume that they would spend more time in front of a television and in front of their gaming experiences. Therefore, we foresee that should something like this happen, affordable options like our racing games could provide an excellent entertainment source for folks around the world. Hopefully, we don't reach that point, but if we do, we believe it could potentially be good for our business.

I'll now turn the conference back to Dmitry for closing remarks.

Thank you very much, and thank you all for joining us and continue to follow our story. Q1 of this year has been a special period for us where you could see reflected in our earnings release the notable milestones that we achieved. Probably the most important point to highlight is that we are finally starting to see diversity in our revenue streams. We're starting to see that our other products, besides the ones attached to our NASCAR franchise, are beginning to also be visible on our map. This momentum is important for us. It is something that we continue to focus on and execute on our vision to really bring the thrill of motorsport to the masses. Thank you very much again for joining us.

That does conclude today's conference call. We thank you for your participation and ask that you please disconnect your line.