Thank you for standing by, and welcome to Motorsport Games Inc.’s First Quarter 2023 Earnings Call. All participants will be in listen-only mode. After today’s presentation, there will be an opportunity to ask questions. As a reminder, today’s conference is being recorded. I’d like to turn the conference over to Ken Godskind from Motorsport Games. Please go ahead.

Thank you, and welcome to Motorsport Games' first quarter 2023 earnings conference call and webcast. On today’s call is Motorsport Games’ Chief Executive Officer, Stephen Hood, and Chief Financial Officer, Jason Potter. By now, everyone should have access to the company’s first quarter 2023 earnings press release filed today after market close. 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 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 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 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 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 the call over to Stephen Hood, Chief Executive Officer of Motorsport Games. Stephen?

Thank you, everyone, for joining the call today. I'd first like to address a question some of you may have regarding my return to the business months after my departure. Having put a lot of energy into the formation of Motorsport Games, I've always believed in the opportunity. When I was approached about a potential return, I reviewed the opportunity and realized that we could improve and attain success with a heavy focus on delivering quality products, services, and entertainment features. I believe we can point the company in the right direction. In only a few weeks since my return, it has been apparent that the entire team across Motorsport Games is energized about what we can deliver if we are united and decisive. I am firm in my belief about what can be achieved and hope to be a catalyst for change and improvement in the company. My background is in game development, and I understand the requirements and innovation necessary to compete in this space, but we first need to deliver products to market. This opening period is one of rapid evaluation and tactical progress. My review of the business began in earnest on April 19th, when I assumed the role of Chief Executive Officer. This position provides me with the authority necessary to leave no stone unturned when refactoring the business for short, medium, and long-term effectiveness. With the full support of my leadership team, we've made the decision to close two micro studios in Orlando, Florida, and Vinings, Georgia. This results in a minor headcount reduction, but more importantly, it allows us to manage our development resources more effectively. The establishment of new physical studios, at least while we refactor and deliver the initial release, will help eliminate distractions we faced during our rapid multi-site growth, which was somewhat forced upon us during the COVID pandemic. Now that we're out of that period, we should double down on known talent locations, improve visibility of development, and foster a greater sense of team unity across the organization. Focus extends across all our activities, and I am instilling a culture of togetherness and optimism from the top down. I've seen from afar how our team has been hurt by the inevitable consumer reaction to products like Master Ignition, a title that doesn't reflect the capabilities of those involved in this journey. However, I sincerely believe we are going to turn that corner. With the right products, we can win back those who have understandably questioned our delivery. We have been deploying resources towards well-regarded legacy platforms, such as the NASCAR Heat franchise, which we are progressively bringing closer to the current season. In the coming days, we will update the product for the 2022 season, which supports next-gen cars for our fans to enjoy. We are also reviewing plans for ongoing support of existing franchise titles while advancing development of future NASCAR games. I’ve seen enough since my return to understand that our primary opportunities revolve around plans for long-tail franchise games like the British Touring Car Championship, INDYCAR, and innovative opportunities with Le Mans, which includes the World Endurance Championship. This is further emphasized by our evolving competition system, which we intend to evolve into an important piece of our strategy. Future development has yet to be showcased, but our planned INDYCAR game allows us to move into a single-seater racing space, which I know well and is being developed by our Australian development studio. This team came together after the acquisition of KartKraft in 2021, and it is rewarding to see this long-term vision coming to fruition. I hope to see the title light up since I've been a fan of video games since childhood. With the right design, support, and marketing, we believe INDYCAR could become the leading single-seater gaming experience. I trust that our partners at INDYCAR will be impressed at our next progress review. Great games don’t just materialize overnight, and there is still much work to be done on the road to our upcoming releases, but we are actively considering past learnings for the betterment of our future product strategy. Equally important is the long-term opportunity around developing our game platform, which aims to improve the capability and stability of our current branding efforts. We believe this will provide us with the technology to push on and develop additional titles. We must shift our focus from mere technology delivery to actual entertainment delivery. Our planned Le Mans titles will leverage the best components of our top-tier rFactor 2 simulation title, aligning with opportunities we believe exist in the ratings. An essential aspect of popular games today is teamwork, which has often impeded the rapid growth of our genre. The Le Mans race and the World Endurance Championship emphasize teamwork. It is therefore timely that our long-planned move towards team racing starts with introducing our competition system into the rFactor 2 simulation, benefiting from community support as well as our formal quarterly content release strategy. From this point, we will gather valuable consumer feedback ahead of a broader release, alongside the forthcoming Le Mans game, which should offer insights into team dynamics in the racing genre. Beyond our projects with NASCAR, the development of INDYCAR, Le Mans, and our respective competition system will facilitate meaningful advancement for our company. We must think innovatively about how racing games can enhance the experience for our audience. Our core customers are essential, and we aim to win them back and impress them. We will achieve this by offering extraordinary experiences that do not compel us to merely follow in the slipstream of competitors, but instead, create a comprehensive entertainment ecosystem that enriches their ability to access and enjoy the unique aspects of our genre. In some domains, we are further advanced than I had anticipated upon my return. I am driving operational focus and decisiveness to ensure these projects receive the attention needed to succeed. The next 12 to 18 months will be pivotal for the company, and one that the team across Motorsport Games and I will fully embrace. To deliver on our opportunities tomorrow, we must make difficult choices today. At this time, I'd like to turn the call over to Jason Potter, Chief Financial Officer of Motorsport Games, to review our Q1 2023 financial results.

Thank you, Stephen, and good evening, everyone. As in previous earnings calls, I won'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 2023. Unless stated otherwise, all results discussed relate to Q1 2023 and the comparative period of Q1 2022. Our Q1 2023 revenues were $1.7 million, a reduction of $1.6 million or 48% compared to the same period last year. Our gaming segment accounted for $1.5 million of the decrease, primarily due to stable pricing and volume of digital sales in our current product portfolio and only one major console release in 2022 compared to two in 2021, negatively impacting our ongoing physical retail sales. Our esports segment revenues remained consistent year-over-year, reporting $0.3 million in Q1 2023 compared to $0.4 million in Q1 2022. The net loss for Q1 2023 was $5.3 million compared to $16 million for Q1 2022, reflecting an improvement of $10.7 million. We benefited from no impairment losses in the current quarter, whereas we recorded $9.3 million in impairment losses in Q1 2022. The remaining reduction in net loss of $1.4 million was primarily driven by decreased external marketing spending and lower payroll costs due to actions taken under our previously announced 2022 Restructuring Program. Under this program, we reduced our overhead costs by approximately $3.9 million on an annualized basis as of the end of Q1 2023. These savings were driven by changes in variable headcount and reductions in overhead expenses, resulting from improved discipline in our spending and enhancements to our internal processes. Speaking of internal processes, we previously disclosed material weaknesses in our internal controls over financial reporting, including in our most recent Form 10-K. We have taken several actions to remediate these deficiencies and are pleased to announce that two of the three identified material weaknesses have been remediated as of March 31, 2023. We will continue to take the necessary steps to address the remaining material weakness, which will only be considered remediated once the applicable controls are in place, operate effectively for a sufficient time, and demonstrate through testing that these controls functioned as intended. Returning to our fiscal results for Q1 2023, we reported an adjusted EBITDA loss of $4.3 million compared to an adjusted EBITDA loss of $5.6 million for the same period last year. This improvement in adjusted EBITDA loss corresponds with the net loss improvements mentioned earlier. Consequently, EPS for Q1 2023 was negative $2.33 compared with a negative $12.97 for Q1 2022. Liquidity remains a critical focus. As of March 31, 2023, we had cash and cash equivalents of $5.8 million, an increase of $4.8 million compared to December 31, 2022, driven primarily by three registered direct offerings completed in February 2023. Our net cash used in operations during Q1 2023 was approximately $5.7 million, reflecting a monthly net cash burn of $1.9 million, which is an increase of $0.3 million compared to the average monthly cash flow of $1.6 million for the year ended December 31, 2022. As of April 30, 2023, our cash and cash equivalents position decreased by $0.9 million to $4.9 million, which we believe is insufficient to fund operations for the remainder of 2023. We will need to supplement our available liquidity with additional debt and/or equity financing and maintain ongoing cost control initiatives. Thank you all for your time. Now I'll turn the call back to Stephen for closing remarks.

In closing, I would like to thank our shareholders for their support and encouragement as I take on the leadership role. There are challenges ahead. However, given time and determination to resolve our liquidity situation, I believe we can address them all. We can deliver on the promise I have believed in since the very formation of the company. Thank you for joining us today, and now let's proceed to questions.

Thank you. We will now begin the question-and-answer session. Our first question comes from Jason Tilchen at Canaccord Genuity. Please go ahead.

Great. Thanks for taking the question, and congratulations, Stephen, on becoming CEO. One thing I’m curious about is if you could discuss some of the ways you have already improved monetization of the existing game portfolio while the other new titles you referenced in the prepared remarks are still in development? I also have a follow-up. Thanks.

Sure, hi, Jason. That's an interesting question. Monetization is one of the key areas of focus for me. One of the things I aim to do is ensure that the various components we have across the organization, especially those relating to our core audience, are effectively integrated. We have properties like Traxion.GG, a great media hub that reports on gaming news and serves as a go-to site for breaking news. Additionally, we have our upcoming competition system, which will be rebranded post its formal launch. We have the gaming licenses for NASCAR, British Touring Car, Le Mans, and INDYCAR. Instead of monetizing these components individually, I’m interested in stitching them together to monetize the overall entertainment experience. This has become a focus area for me, and since my return, I've been encouraged by the team's willingness to explore cross-departmental collaboration to maximize the overall entertainment monetization, rather than solely relying on the traditional DLC model. I believe there’s a better approach here, and I suspect that over the coming weeks, we will discover some very interesting solutions. The necessary components are already in place, and I'm energizing the team to make this vision a reality.

Great, that's really helpful. In terms of cash burn, you described a $1.9 million per month rate for Q1, and it seemed like the cash burn in April was about half of that. Is there anything one-time that occurred in April, or has the cash burn decreased? Additionally, could you share any updates on when you expect to raise additional capital? Thank you.

Hi, Jason, this is Jason. Thanks for your question. In Q1, we did see some catch-up in managing our accounts payable and some accrued positions accumulated while closely managing our working capital as we entered Q4. Following the direct offerings in February, we were able to catch up on those payments. That’s why we noticed a higher burn rate in the first quarter and then a drop-off in April as we aligned our cash flow with improved cost management outcomes from our 2022 restructuring efforts. As for financing, we continue to explore both equity and debt options. Currently, we don't have anything new to announce beyond the ATM facility established at the end of Q1 and the existing equity line from late Q4. We are actively investigating additional solutions to resolve our long-term liquidity challenges.

Great, that’s very helpful. One last question from me: Can you provide any insights regarding changes to the game launch timeline that was originally scheduled for mid-next year, particularly regarding INDYCAR’s launch? Any updates on that front?

I'll take this one, Jason. At present, there are no planned changes. The important thing, based on the publicly stated release timelines, is that my current task is to solidify those projects and ensure they have the chance to succeed. Following my arrival, there may be a shift in focus due to my extensive game development experience over the past 25 years. I have a deep passion for product development and recognize the complexities involved. We have never aimed to compete directly with giants in terms of development resources, but I believe our nimbleness can work in our favor. It’s crucial for us to utilize the available time wisely to meet our deadlines and deliver an excellent product. Achieving this may require me and others in the leadership team to immerse ourselves in development details, ensuring that all project components and the infrastructure around them work in synergy, while also aligning the PR and marketing teams to showcase our upcoming products effectively. While we do not intend to revise the planned release windows, I am committed to ensuring we optimize our time and efficiency in the development process to deliver these titles successfully.

Great, that's very helpful. Thank you.

Thank you. Your next question comes from Michael Kupinski at Noble Capital Markets. Please go ahead.

Thank you, and good evening. Most of my questions have already been answered, but I would like clarification: was the drop-off in cash burn in the second quarter a reflection of closing some of those micro offices you mentioned? How significant are those savings? Also, could you clarify which locations have consolidated game development for the company?

Thank you, Michael. This is Jason. Regarding the closing of the micro offices, they were minimal operations for us. Therefore, we don’t expect their closure to have substantial impact on cash burn. In the near term, we still face severance costs associated with these closures. There may be a slight reduction, but overall, I wouldn’t expect a material change in cash burn.

Hi, Michael, it's Stephen. To answer your question regarding studio locations, we're focusing our operations on known talent hubs. For example, our UK office in Silverstone is strategically positioned by the racetrack, allowing us to leverage the strong developer talent pool in the area. Additionally, since our acquisition of Studio 397, we've developed a fantastic network across Europe. We're centering our efforts to ensure work across regions on specific projects is efficient. Our Australian operation based in Melbourne also has a strong talent pool, especially following the acquisition of the Black Delta team behind KartKraft. By concentrating development operations around these known talent locations, we will monitor progress and ensure we have high-caliber individuals engaged on our projects. This is a significant shift from our initial approach when Motorsport Games was established and one that I believe will yield benefits moving forward.

That makes complete sense. I was also curious whether the company still has a line of credit with Motorsport Networks? Can it still be tapped? I know there has been a debt-for-equity swap, but is that line still available?

Hi, Michael. Yes, the line of credit is still available; it hasn't been terminated. However, as we disclosed in our Form 10-Q, we have substantial doubt regarding whether we’ll actually secure funds through that facility. Therefore, it's not included in our liquidity calculations. When discussing cash and liquidity, I am concentrating solely on the cash flow we currently have.

Understood. Thank you.

Thank you. That concludes our question-and-answer session. I would now like to turn the call back for closing remarks.

Thank you. I would like to express my gratitude to everyone on the call today. I am thrilled to be back at Motorsport Games and feel incredibly motivated. We are ready for the challenges ahead, and I believe we can accomplish great things together. I look forward to continuing these discussions, as well as having one-on-one conversations with you over the coming months and hopefully years. Thank you very much.

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