Good day, and welcome to the Motorsport Games Inc. Third Quarter 2023 Earnings Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Ben Rossiter-Turner, Vice President. Please go ahead.

Thank you, and welcome to Motorsport Games third 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 third quarter 2023 earnings press release filed today after market close. This is available on the Investor Relations 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 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 quarterly report on Form 10-Q for the quarter ended September 30, 2023, 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 third 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 to all the participants joining this conference call today. This past quarter has been a continuation of the incredible efforts to steer our business to future success. This work undertaken by the Board and senior leadership team has started to deliver recognizable tangible results, and I'm very happy to walk you through the positive achievements we have accomplished thus far. I would first like to announce Stanley Beckley as our interim Chief Financial Officer, effective November 8, 2023. Stanley will pick up the reins from Jason Potter, continuing the exemplary work to drive positive change to our business. Stanley is an incredibly detail-oriented individual with unflinching financial discipline that aligns perfectly with our need to leave no stone unturned in building this business into something we know it can become. Stanley is a fantastic addition to our team, and his energy and enthusiasm will maintain our momentum. My sincere thanks to Jason, who is alongside me today on this call, for his expertise, guidance and support through the restructuring period over the last several months. Jason has committed to assisting the leadership team as and when needed, accelerating the onboarding of Stanley and providing valuable knowledge over the next few weeks and months. I'm very excited about this next phase, and we owe Jason for the effort in providing this launch pad. Now, please allow me to bring you up to speed on the results of a proudly announced comprehensive assessment of the company's position and projects. The sale of the NASCAR license in early October generated net cash proceeds of $3.7 million to the company at closing, plus an additional $1 million in deferred consideration that will fall payable over the next 15 months, subject to the satisfaction of certain conditions. This sale significantly reduces our financial obligations associated with the NASCAR license and allows us to focus both financial and development resources on near-term projects that are anticipated to come to market. Additionally, the company executed a limited license, which affords the company the ability to continue selling our NASCAR game back catalog through to the end of 2024. This means we have another five quarters of revenue from this back catalog. We believe this will provide some stability to our operational cash cycles over the next 15 months, although we anticipate the amount of revenue to be generated by our existing NASCAR products to decline over time. A key principle of our assessment was the need to streamline our operations, reducing satellite studios while simplifying our structure. What was built during the COVID period is less efficient today. This streamlining initially began under the previously announced 2022 restructuring program. The 2022 restructuring program was originally estimated to deliver approximately $4 million of total annualized cost reductions by the end of 2023. But through further action, this is now estimated to be significantly higher at approximately $6.7 million as of September 30, 2023. Last week, we have taken further cost reduction and restructuring initiatives, closing our Australian studio, which was slated to produce our planned INDYCAR title. We retained all technology and assets for future utilization. And we are currently identifying opportunities to resume development of the title elsewhere within the business with greater oversight and tighter control. Additionally, our media website traxion.gg has been similarly closed due to underperforming revenues versus costs. We've retained the site audience and highly respected brand, and have a plan of action for its use alongside elements of the business already indicating growth prospects. Additionally, we recently announced that the licensor of our BTCC license has terminated our BTCC license effective as of November 3, 2023. As such, we will continue to evaluate our corporate structure for the ongoing and changing landscape as our business is in the process of being pivoted. In October, we released the first version of RaceControl into our publicly available open beta. This technology previously referred to under the codename competition system is powering an improved multiplayer service today for our recent game rFactor 2 and tomorrow in our planned Le Mans Ultimate Game. We had considered saving this service to launch alongside our Le Mans Ultimate title, but opted to soft launch now for rFactor 2 and benefit from the learnings ahead of a major push with the arrival of Le Mans. Feedback has been overwhelmingly positive, beating all expectations, and is expected to continue going from strength to strength as the beta program becomes available to all players later this week. Within a short period of a limited release, RaceControl quickly broke out early registration projections, reaching 10,000 registered users in the same month. Today, we have almost 15,000 users and expect closer to 25,000 by the end of 2023. We know this number compares favorably to somewhat similar services, beating them outright in growth. Account registrations mean little unless we can derive value. I'm happy to say that we are already witnessing additional content sales for our rFactor 2, reaching over 60% compared to the month prior. Although still early, we are optimistic in believing that our approach to providing accessible, high-quality interconnected services and entertainment within this segment will pay dividends. We are building for the players first, not the cameras. We are making something that can sustain itself and grow. On the subject of Le Mans Ultimate, our next planned product release. I am pleased today that we can confirm the updated release date of this highly anticipated racer from Studio 397, our veteran racing team. We anticipate releasing the game on February 20, 2024, with further details available in due course. We are pleased to see the positive attention at NASCAR for the 24 Hours of Le Mans World Endurance Championship game utilizing the state-of-the-art highly regarded physics engine behind the rFactor 2 simulation, with some of the most recognizable vehicles in sports car memory. With a plethora of fidelity upgrades, racing games are in for a real treat. The passion going into the project is second to none, and we look forward to releasing the product in an ideal window in the run-up to the new season. With the World Endurance Championship heading into a wonderful period, with many greats of the automotive world returning to compete from Ferrari to Porsche and Lamborghini, Cadillac and BMW, we are on the wave of an exciting season, and believe this will serve our move into the segment particularly well. We’re also making headway in our planning for how we take this collaborative team-based concept not usually found in racing games to a much wider mainstream audience. Players will be able to enjoy the story of endurance racing as and when convenient for them. Additionally, I am pleased to say our continued partnership with Kindred Concepts and their F1 Arcade project that utilizes the rFactor 2 technology is continuing to grow. They will shortly open a second venue in the United Kingdom, with Boston in the United States expected to come online in 2024. Being the chosen platform to demonstrate the high-tech entertainment to be found within Formula 1 is a testament to our ongoing investment in Studio 397, the home of rFactor 2 and the planned Le Mans Ultimate title. This period of reorganization since my return earlier in the year is starting to demonstrate positive results. Our focus is to deliver a sustainable, profitable high-growth business. As underperforming business units and projects have been closed, a new sense of optimism continues to emerge as we continue to foster a heightened sense of purpose throughout the organization. Since joining the company as CEO, we've been able to significantly reduce costs, executed the sale of the NASCAR license, offloading a significant portion of our NASCAR financial obligations, retaining our NASCAR back catalog to 2024, more than doubling our projections for users of our new online service RaceControl, and today announcing an updated release date for a planned Le Mans Ultimate product. We are pleased with the progress and continue to work diligently to drive the business forward.

Thank you, Stephen, and good evening, everyone. As with 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 third quarter 2023. Revenues were $1.7 million, up $0.5 million or 38.5% when compared to the same period in the prior year. Higher digital game and DLC sales are the primary drivers for the increase, driven in part by the release of NASCAR Heat 5 - Next Gen Car Update DLC in June 2023, which were partially offset by a reduction in Esports revenue due to the timing of the commenced '23, '24 Le Mans virtual series season compared to the '20 to '23 season, which commenced in September 2022. Net loss for the quarter was $3.5 million, a decrease of $5 million when compared to the same period in the prior year. The change in net loss was primarily driven by a $4.6 million reduction in marketing development and general and administrative expenses, as well as the $0.5 million increase in revenue previously discussed. Consequently, EPS for the quarter was negative $1.28 compared to negative $7.29 in the same period in the prior year. The reduction in overhead spend was in part driven by actions taken under the company's 2022 restructuring program, which has helped us lower our overhead cost by approximately $6.7 million on an annualized basis as of September 30, 2023, exceeding our target of $4 million in annualized savings by the end of 2023. These savings were achieved through changes in global headcount, reducing certain overhead expenditures and improvements in our internal processes. We are reporting an adjusted EBITDA loss of $2.4 million for the third quarter of 2023 compared to an adjusted EBITDA loss of $6.5 million for the same period in the prior year. The improvements in adjusted EBITDA loss are the same as those discussed in respect to the changes in net loss for the period and comparative quarter. On a year-to-date basis, revenues were $5.2 million, down $1.4 million when compared to the same period in the prior year, primarily due to lower digital, mobile and retail game sales driven by lower volumes of sales at less favorable pricing. Net loss was $17 million for the year-to-date period compared to $32 million for the same period in the prior year. Year-to-date adjusted EBITDA loss was $9.4 million, down from $18 million for the same period last year. Non-cash asset impairment losses of $4 million and $9.4 million for the nine months ended September 30, 2023 and 2022, respectively, account for a significant portion of the difference between net loss and adjusted EBITDA loss for the respective periods. EPS loss for the year-to-date period was $6.60 compared to $26.61 for the same period in the prior year. Moving on to liquidity. This continues to be a key area of focus for the company. As of September 30, 2023, we have cash and cash equivalents of $1.2 million, down from $2 million as of June 30, 2023. Net cash used in operations for the nine months ended September 30, 2023 was approximately $10.1 million, representing an average monthly net cash burn from operations of $1.1 million, down $0.5 million when compared to the average monthly cash burn of $1.6 million for the year ended December 31, 2022. As of October 31, 2023, our cash and cash equivalents position increased from $2 million to $3.2 million following the sale of the NASCAR license, which we believe is insufficient to fund operations through the end of Q1 2024, and that additional funding will be required in order to continue operations. In order to address this liquidity shortfall, we are actively exploring several options, including but not limited to, one, additional funding in the form of potential equity and/or debt financing arrangements or similar transactions, strategic alternatives for our business, including but not limited to, the sale or licensing of assets, in addition to the recent sale of the NASCAR license, and three, further reduction and restructuring initiatives. Thank you all for your time. And now I'll turn the call back to Stephen for closing remarks.

In closing, I thank our shareholders for their time and support. Thank you for joining us today. And now let's go to questions.

Thank you. We will now begin the question-and-answer session. Our first question comes from Michael Kupinski with Noble Capital Markets. Please go ahead.

Thank you for taking my question. I would like to know if the company is currently meeting all its obligations regarding its existing licenses. Additionally, could you provide some insight into the British Touring Car license and the reasons behind it? If you've already addressed this, I apologize for joining late. Can you please give us an update?

Hi, Michael. Good to hear from you. So I'll answer the first part. And then maybe Stephen will give you an update on BTCC. In respect to obligations and being current, as disclosed in the Form 10-Q, we have disclosed in there that we are behind with some of the payments in respect to the BTCC license. In essence, there were some ongoing payments that need to be made under that license agreement and that was one of the drivers behind the termination from BTCC this week.

I was wondering if you currently have enough cash to cover the payments for the other licenses, or will you need additional funding for that?

The amount that we have under the BTCC specifically is $0.4 million, subject to the termination, is a result of the termination this week and is disclosed in Form 10-Q. But we're obviously looking to engage in conversations with BTCC on that point specifically and we’ll get some clarity as to where they’re standing. I think from a financing perspective as a whole, we look at what our cash fund has been and it’s come down tremendously when we compare to the prior year and even prior quarters. So we're happy with where the cash fund is heading directionally. You should see us about $0.4 million average monthly to Q3 which we’ve just never been close to before. And so obviously factoring all that in, when we’re looking at our future fund and we think we will do one additional funding, we’ll need to cover any costs and any residual payments that are required and any purchase commitments.

Got you. I'm sorry if this is covered in the 10-Q, but what other licenses are you behind on? Is there a risk at this point? Can you give us an update on how negotiations are going with those licensees?

So the remaining two primary licensees are the Le Mans license and the INDYCAR license. We’re not presently behind on payments on either of those arrangements. But obviously they've come with minimum multi-guarantees and now our payment schedules associated with those, we will have to look to adhere to in the future, even coming months.

Got you. And I know that you went through a tremendous reorganization and consolidation. Are there further expenses that you can cut at this point, or are you now at the base level where you feel you need to be?

Yes. I think this week hasn't been easy for us. There have been some tough decisions around that we obviously have to make, some changes from a restructuring side of things and try and reduce some of the overhead to a more sustainable level. We've tried to do that as much as we can. But of course, we'll continue to review our cost base and we'll always look for opportunities to reduce overhead that matches the organization today. And so this is something we'll continuously review and always look to improve upon and make sure we’re efficient as possible.

All right. That's all I have. Good luck to you guys.

All right. Then this concludes our conference. Thank you for attending today's presentation.