Thank you and welcome to Motorsport Games First Quarter 2024 Earnings Conference Call and Webcast. On today's call is Motorsport Games Chief Executive Officer, Stephen Hood; and Interim Chief Financial Officer, Stanley Beckley. By now, everyone should have access to the company's first quarter 2024 earnings press release filed today after market close. This is available on the Investor Relations section of the 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 statement 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 company filings with the SEC, including its most recent quarterly report on Form 10-Q for the quarter ended March 31, 2024, for a detailed discussion on certain risks that could cause actual results to differ materially from those expressed or implied in any forward-looking statement 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 2024 financial results. You will find a reconciliation of these non-GAAP measures to the 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 over the call to Stephen Hood, Chief Executive Officer of Motorsport Games. Stephen?

Thank you, everyone, for joining this conference call today. I'm very pleased to be here and to talk to you about our achievements in Q1 2024. During the last call, I spoke about the release of Le Mans Ultimate in February. But we can now share greater insight into the financial and business impact of this important product release. Thanks to the tireless work of the team at Studio 397 and with the help of our partners at the ACO, the organization behind the 24 Hours of Le Mans, I'm pleased to announce that the public reception and sales of the game exceeded our business forecast. Given the turnaround time from project start to release was less than 12 months, we can be very happy with the initial positive results of our first internally developed game launch. Since the successful release of our NASCAR Ignition title over two years ago, a great deal has changed throughout the company since my return in April of last year and I'm incredibly proud of the energy and determination of everyone within the business, pulling together to deliver and expand this great game. We have proven we have what it takes to bring a quality product to market, garnering a great reception. Much of this is down to a deep understanding of the technology employed to deliver Le Mans Ultimate, technology we own, as well as the vibrancy and determination across the organization to deliver innovative entertainment. This was an important milestone for our business and sets us up for the future. Le Mans Ultimate is based on our licensed series, featuring desirable racing pedigree sports cars, a series undergoing a timely renaissance with incredible manufacturer entries into the real-world sport. Automotive giants such as Ferrari, Porsche, and Cadillac, all competing at the top of the sport, have been incredibly supportive during the creation of this game. We believe this game now offers a potential springboard from which to launch future downloadable content or DLC, as well as develop a console port with the right partner to address what we know to be a much larger gaming audience for the title. With the right focus and ongoing development, we believe we could have a valuable gaming franchise ahead of us, one that leverages the technology, services, and know-how we have within our business. Development of Le Mans Ultimate continues at pace. We're crafting a game into a unique and exciting proposition for a wide range of players. In June this year, coinciding with the fabled 24 Hours of Le Mans race, we anticipate a unique marketing window further amplified by the visibility we expect from the ACO. With racing fans around the world watching the greatest endurance event, we expect our game will be prominently featured throughout the week-long festival of racing. At the same time, we plan to update the game with a free update that blurs the distinction between solo and online play. In a world of near-infinite choice and countless apps, games, and entertainment services vying for consumer attention, we intend to update Le Mans Ultimate with a cooperative feature not typically found within racing games. Our co-op feature is designed to enable up to three friends, mirroring the number of drivers per team in the real-life Le Mans, to play through chapters of a race, taking turns driving the car in an ever-evolving story against AI teams. We believe this feature will allow a wider section of racing gamers to enjoy the unique entertainment of endurance racing without the burden of being online at the same time as their friends. We all have busy lives and Le Mans Ultimate will accommodate that, enabling players to engage when they want and still be part of the conversation with friends. Additionally, we are investigating and developing several concepts to enhance our ecosystem through the use of artificial intelligence. While the technology sector is awash with stories of cost-saving opportunities through AI, we already run an efficient operation. We have been exploring how AI might enhance both storytelling and representation of the people within the sport we recreate. Today, the games industry uses basic AI parameters and decision-making to drive cars around the track and avoid obstacles, but we are working on bringing the virtual drivers up to a whole new level of realism. AI drivers will compete with skills and dynamic decision-making abilities that bring players closer to real life than ever before. Players will find themselves more immersed in the story that runs deep through motorsport and subject to virtual media attention curated and reported on by AI reporters and commentators. All of this will be enhanced by our ecosystem, which emphasizes pre and post-race experiences as much as the race itself. Much of our future development of complementary services in entertainment is built around our vision for accessible yet highly realistic racing experiences—experiences that can be enjoyed with friends, where players share a part of the racing story. We also plan to introduce new content to the game. Currently, the game contains tracks and cars from the previous season, celebrating last year's centenary of Le Mans. We know from our player base that they want to see the game updated to include changes for this season. We plan on releasing a steady flow of content in the latter half of this year. The initial piece of this new content will be free, as will other select items, as a thank you to the community that has supported us through purchases of our game during early access. We expect premium paid content will become available shortly thereafter, which we believe will offset the cost of ongoing development and broaden the appeal and uniqueness of our officially licensed title. Furthermore, we are bringing a subscription service to both rFactor 2 and Le Mans Ultimate products, leveraging our race control platform, which has over 100,000 registered users, all active within our ecosystem. A gradual ramp-up of subscriptions is expected as we build the value proposition for players looking to get even more entertainment from this exciting experience. Although we believe the free components of the online race control offering will persist, it is up to us to demonstrate the value of a subscription service. With the games, technologies, online services, and our plans for Le Mans Virtual—one of the largest racing esports events in the world—we believe we finally have the necessary components to see and derive greater revenues from complementary services built around our core games. Aside from the success of our recent game release, we continue to make progress towards business efficiency and an improvement of our balance sheet. We recently announced the settlement of a previous license dispute with BARC, including a new licensing deal that we expect will lead to further releases of official BTCC downloadable content for rFactor 2. This deal is mutually beneficial and we are grateful to our partners at the British Touring Car Championship. Additionally, last week, we sold the assets relating to Traxion, our previous motorsport and racing games community content platform, for $250,000 in total consideration. The sale of this asset brings additional focus to creating high-quality racing games along with added working capital. We retain rights to utilize the channels for future Le Mans Virtual esports events to ensure they reach the audience they deserve. In the past, I've referenced what we believe to be a fragmented team racing landscape, where established developers bring products to market, which are then kept updated by smaller teams providing additional content and services. We are now gearing up to provide access to our ecosystem and games through official partnerships, integrating suppliers of services and content that we do not plan to build internally. This should create a cleaner, more accessible environment for customers, generating additional revenue streams. Recently, we signed Coach Dave Academy as a preferred supplier of alternative setups for Le Mans Ultimate, offered directly within the game. We anticipate that other service providers will join us as this partnership rolls out this summer. These collaborations could provide another revenue source for the business, while elevating our ecosystem. In the year since I returned to a business that struggled with identity and purpose, we have made tremendous progress. We strategically repositioned the company, enhanced focus, eliminated unnecessary spending, and implemented cost control measures, all while resolving outstanding liabilities from prior licenses. We launched a successful game, partnered with F1 Arcade and Kindred Concepts resulting in recurring license revenue for our technology, and identified several potential revenue opportunities that are additive to our core focus, which we anticipate to come online throughout 2024. It has not been easy, but it has been rewarding, and we feel there is more to come. Our goal is to be a developer and publisher of innovative experiences, all connected and enhanced by our ecosystem, centered around the rapidly growing RaceControl service. Now I would like to invite Stanley Beckley, our Interim Chief Financial Officer, to talk about the financial results for the first quarter of 2024.

Thank you, Stephen and good evening, everyone. As with the 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 2024. Revenues for the quarter were $3 million, up by $1.3 million or 75.2% compared to the same period last year. Higher digital game sales were the primary drivers for this increase, primarily due to the release of the Le Mans Ultimate game on PC in February 2024. This was further propelled by an increase in revenues earned through the development of simulation platforms for third parties. Net loss for the quarter was $1.7 million, an improvement of $3.6 million compared to the same period last year. The decrease in net loss was primarily driven by higher gross profit and lower operating expenses required to develop and release additional new games. Consequently, earnings per share (EPS) for the quarter was negative $0.60 compared to negative $2.33 for the same period last year. We reported an adjusted EBITDA loss of $0.4 million for the first quarter of 2024 compared to an adjusted EBITDA loss of $4.3 million for the same period last year. The improvement in adjusted EBITDA loss reflects the same factors impacting net income for the period and comparative quarter, as well as a decrease in stock-based compensation compared to the prior year period. As it relates to liquidity, this continues to be a key area of focus for the company. Net cash used in operations for the three months ended March 31, 2024, was approximately $0.8 million, representing an average monthly net cash burn of $0.3 million, down $1.6 million compared to the average monthly cash burn of $1.9 million for the three months ended March 31, 2023. As of March 31, 2024, the company had cash and cash equivalents of $1.3 million, which we believe is insufficient to fund our operations over the next year, indicating that additional funding will be required to continue operations. To address this liquidity shortfall, we are actively exploring several options, including additional funding in the form of potential equity and/or debt financing arrangements, strategic alternatives for our business, such as the sale or licensing of our assets, and further cost reduction and restructuring initiatives.

Thank you, Stanley and thank you to everyone joining us today. We've worked hard over the last 12 months, and the result is an upturn in our Q1 results. We still have some way to go, but I hope you agree we've turned the page and have positive momentum. We're excited about the remainder of this year, particularly the upcoming Le Mans event in June. Thank you.

Congrats on the stronger launch for Le Mans Ultimate. I have a question regarding the console opportunity. What does that sort of look like? Where is it on the priority list? Do you currently have the capabilities in-house to develop the console version of this game, and what timeline do you anticipate for getting that launched?

Very good question, Jason. One of the key points from my earlier remarks is the focus and the development team we have internally at Studio 397, who have done a wonderful job developing Le Mans Ultimate in what I believe has been record time at a high-quality level. The near-term opportunity around console development is something that does not need to be wholly internal. One of the strategies we've discussed with potential external partners is to leverage our internal resources and technical know-how while ensuring the heavy lifting is managed externally. There are many partners available in our space who have the capability to bring these products to console. Hence, we aim to handle this cost-effectively and professionally by collaborating with industry partners, which addresses your query.

Absolutely, that makes sense. Another thing you mentioned in the prepared remarks was the opportunity around subscriptions. Can you elaborate on the differences between what's offered for free in RaceControl currently and what the subscription would entail, including how you envision it serving both Le Mans Ultimate and the broader context?

Yes, sure. One of the commitments we've made to the community playing Le Mans Ultimate is to be price-conscious. We've launched a product at a very attractive price point, which has generated positive community sentiment. We're dedicated to maintaining a free entry point into the title, as we believe players who experience Le Mans Ultimate will want to return for more. Our goal is to create an appealing value proposition for players seeking even greater entertainment from the title. We're encouraging groups of players to compete and participate together, which is crucial in racing where only one person can win. We aim to foster team play and the sense of camaraderie typical in gaming today but not commonly found in racing. One of the upsells is for groups deciding to take a subscription tier; the features and enhancements will be available to them, creating an essential element of team play. By doing so, we're focusing less on individual subscribers and more on the group dynamic, making the subscription valuable for those wanting to elevate their experience without making it a prerequisite for participation.

That's very insightful. Lastly, regarding overall cost savings, we've seen a notable year-over-year improvement in the net EBITDA loss. With the 2022 restructuring and moves made last year, how much of those savings were reflected in Q1, and is there potential for further improvements?

Yes, I'll take this one. By the end of 2023, we've fully realized the benefits of the 2022 restructuring program you mentioned. As stated in our Form 10-K, we had restructurings that impacted our Australian development team and some U.K. employees in Q4 of 2023. For Q1, we've reduced our monthly operating cash burn to $300,000, significantly lower than in Q1 of last year. At this point, we believe we've fully captured the restructuring benefits, though we continue to seek ways to reduce operating expenses where feasible without harming the business.

Congratulations on your quarter and the release. Stephen, could you review the roadmap for the release of games, DLCs, and the subscription service, specifically which quarters they might be available?

Sure. The key is the release of our first piece of content, aiming to coincide with the Le Mans event in June. Next month is approaching quickly. This will be a significant stepping stone in the progression and roadmap of the Le Mans Ultimate experience. We've noted that our audience desires real-time updates reflecting this season, particularly with new cars and drivers, so the first piece of content will be available in June, and we expect to launch additional content in packs within two or three months. We plan to introduce new circuits and update our current offerings to align with the 2024 season calendar, which gives us approximately six months to roll this out. There's no immediate urgency, as the content already in place is robust, ready to cater to both established players and newcomers. The rollout is set to begin in June.

When do you anticipate the subscription service to launch?

The subscription service is targeted for a post-Le Mans launch. While we are discussing it now, it tends to be a sensitive topic in the racing space. We're not looking to unduly pressure our audience to spend. We aim to invest in the ecosystem we've built, which includes RaceControl. These features will entail costs. Assuming all goes well, we anticipate the subscription service to start around July or August this year.

I know there tends to be a sales bell curve. How has the tail been for Le Mans sales into the second quarter?

We knew from the outset that Le Mans Ultimate being an early access title would face challenges initially. Surprisingly, it has been a hit product for us, exceeding expectations. However, we are aware that sales typically decline in the lead-up to Le Mans. We anticipate a dropoff over time without injecting new content. Nevertheless, we are focusing on improvements and fixes, with significant updates combined with marketing visibility set for next month, which we expect will positively influence player engagement and product uptake.

Do racing games allow for modifications by user content creators? Is that an opportunity for you?

Yes, that’s a good question. However, in the racing genre, user modifications typically aren't as common as in some titles. For many developers who move on to new projects, user-generated content fills the void left behind. But given we're newly launched, Le Mans Ultimate hasn’t developed a modding community yet. Moreover, we have rFactor 2, known for user-generated content, where we encourage some community submissions. Le Mans Ultimate is designed to provide a premium experience, where we maintain a high standard for content. Thus, we curate what enters the game and ensure its quality remains exceptional. Thank you once again for attending this call. We appreciate your time and positive feedback on our Q1 performance. We see it as a stepping stone for future growth.

This does conclude today's program. Thank you for your participation. You may disconnect at any time and have a wonderful day.