Motorsport Games Inc. (MSGM) Q4 2025 Earnings Call Transcript

Thank you for standing by, and welcome to Motorsport Games, Inc.'s fourth quarter and full year 2025 earnings call. As a reminder, today's conference is being recorded. I would now like to turn the conference over to Ben Rossiter-Turner from Motorsport Games. Please go ahead.

Thank you, and welcome to Motorsport Games' fourth quarter and full year 2025 earnings conference call and webcast. On today's call is Motorsport Games' Chief Executive Officer Stephen Hood and Chief Financial Officer Stanley Beckley. By now, everyone should have access to the company's fourth quarter and full year 2025 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 will make certain forward-looking statements, which are any statements that are not historical facts within the meaning of U.S. federal securities 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 the company's filings of the SEC, including its most recent annual report on Form 10-K for the year ended December 31, 2025, for 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 discussed the fourth quarter and full year 2025 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, which will also be available on the Investor Relations section of Motorsport Games' website at www.motorsportgames.com. And now I'd like to turn over the call to Stephen Hood, Chief Executive Officer of Motorsport Games. Stephen?

Thank you, Ben. Good afternoon, everyone. Thanks for joining the Motorsport Games fourth quarter and full year 2025 earnings call. I'm delighted to report that we've achieved record profitability with 30% year-over-year revenue growth, generated consistent positive quarterly cash flow, and have substantially improved our cash position, which will enable us to accelerate our progress. Despite the challenges experienced across the wider gaming market, we have delivered a significant turnaround and stand before you today in a tremendously healthy state. The last quarter of 2025 saw us generate 95% higher revenues than the same period in the prior year. At the end of 2025, we had cash and cash equivalents of $5 million, which increased to $6 million as of the end of February 2026. The company generated an average monthly positive cash flow from operations, driven primarily by an increase in profitability. We also secured a revolving line of credit in February, 2026. This line of credit is primarily in place on very good terms to ensure we are able to deliver on our multi-platform plans for Le Mans Ultimate without tempering our plan to initiate the build of a new gaming title. 12 months ago, I spoke on this call acknowledging the very real challenges our business faced. Limited cash availability and the company in transition following the strategic sale of our NASCAR license. Today we are in a fundamentally different position. Le Mans Ultimate has captured the attention of the simulation racing community and validated the strategic decision we made to focus the company around a smaller more disciplined development team and clear long-term platform strategy. For motorsport games 2025 was the year we proved this model works. During the year we delivered five major updates to Le Mans Ultimate in February, June, July, September and December. This cadence of meaningful improvements is unusual in our racing segment and reflects both the commitment of our development team and the advantages of operating a live service product at pace. In July the game successfully exited early access since then we have continued to invest aggressively in improving the player experience expanding content and strengthening the underlying technology that powers our simulation experience in september we introduced the first content from the european le mans series responding directly to player demand for additional circuits and categories in december we released version 1.2 which represented one of the most comprehensive updates to the platform to date. While new content such as Circuit Paul Ricard and the Ginetta G61 LMP3 race car were important additions, the larger story was the investment we continue to make in our proprietary simulation technology. Deep technical improvements are the foundation of our approach to building long-term trust and retention in the core of our immediate ARKit. We also made substantial progress in strengthening the competitive integrity of online racing. Version 1.2 introduced easy anti-cheat integration, the launch of our driver badge reputation system, and the first phase of Live Steward, an automated incident detection system designed to identify unsafe or unsporting driving behavior. These systems are critical to building a healthy and sustainable online competitive environment and further demonstrates motorsport games intention to improve the experience for not only our core market today but those players we believe we will reach over time alongside this we introduced team online championships enabling organized multi-race seasons and engineer mode which allows teammates to manage pit strategy remotely during endurance races these types of features are intended to deepen engagement and reinforce Le Mans Ultimate's position as a premier endurance racing simulation. It's also important to recognize that over the past year, competitor racing titles have launched into the market. Some were highly anticipated. We welcome that competition. It pushes the genre forward and we've seen renewed energy within this market segment. What is particularly encouraging is that despite those launches, LeMond Ultimate has continued to grow its player base and engagement at an accelerated pace. In other words, we have competed in a very active market environment and the response from players has demonstrated that our focus on authenticity, technology, and community is winning meaningful support. Players are recognizing our passion and celebrate the utility of our chosen content. Average concurrent players in Steam increased from approximately 796 in January 2025 to nearly 3,000 by December that same year, almost a fourfold increase. I'm pleased to report that momentum has continued into 2026. In January, we recorded an all-time peak of over 8,700 concurrent players with an average player count exceeding 4,200. For a PC-only title, which right now is where Le Mans Ultimate sits, and one that operates within a specialized simulation category, these numbers are strong and compare favorably with many long-established competitors. Importantly, this growth has been entirely organic. We have not invested significantly in marketing during this period. In areas where we do not have dedicated talent and experience, we limit spend. There will come a time where we push our message to a wider audience, and as such we're actively recruiting for exceptional marketing talent to join our team and raise awareness of our strong product offering not least in the run-up to Le Mans Ultimate arriving on gaming consoles in the meantime product quality word of mouth advocacy and a highly engaged community are helping us reach new heights this brings me to race control which is rapidly becoming a central pillar of our financial model race control is our proprietary matchmaking and competitive racing platform that powers the online experience for those products we choose to integrate both our factor 2 and leman ultimate benefit from this platform beyond enabling online play it provides an optional subscription layer that allows us to deliver additional services and features to our most dedicated players this platform has allowed us to transition from a traditional video game business model where revenue is largely front-loaded around launch toward a hybrid model combining game sales dlc content and recurring subscription revenues by the end of 2025 race control had over 400 000 registered accounts more than 26 000 active paying subscribers and was generating approximately 0.2 million dollars in monthly recurring revenue importantly the first two months of 2026 have been among the strongest monthly recurring revenue growth periods we have seen to date many of the features we have introduced such as team championships driver badges life steward and engineer mode are designed to specifically increase the value of this platform and strengthen subscriber retention this combination of recurring revenue active player engagement and ongoing content expansion creates a much more stable and scalable financial model for the company beyond direct player revenue race control is also becoming a platform that global brands and rights holders want to utilize through race control we can provide a turnkey competitive infrastructure for online racing events including matchmaking scheduling anti-cheat broadcasting tools and official classification. This creates opportunities for automotive manufacturers, motorsport series and consumer brands to activate directly with highly engaged gaming audiences through our platform. The conversations we are having in this area are encouraging and we'll share more on these developments in the future. Speaking of the future, we continue to make progress on bringing Le Mans Ultimate to PlayStation and Xbox gaming consoles. Our Our external development partners are working alongside our internal teams to deliver the first console versions, while simultaneously improving the underlying game engine for our existing and very supportive PC player base. Console represents a significant expansion of the addressable market for Le Mans Ultimate, and we are taking a careful, quality-first approach as we execute on this opportunity. Finally, with the financial stability we have now achieved, we are beginning to explore the next phase of growth and multiple games. Le Mans Ultimate has demonstrated that our technology, our development approach and our community engagement strategy can deliver a profitable and sustainable business. We are now evaluating opportunity to extend that model to additional titles in the future. Whilst it is still early, our goal is clear to build a portfolio of racing experiences supported by the same technology platform by service infrastructure and competitive ecosystem that powers Le Mans Ultimate today. To support that next phase of growth, we have begun strengthening the team with targeted hires across engineering, platform development, and strategic leadership. These additions will help accelerate our ability to expand on the race control platform and support the development of future products. I'm also pleased to welcome Peter Hansen Chambers to work alongside our management team in a consultancy role as we shape the company's next steps. Peter was previously co-CEO and CFO of Hutch Games and brings deep experience in building and scaling successful game businesses, having operated with top-tier IP, such as Formula One and other recognizable licenses in the motorsport space for many years. He has already made a positive contribution towards our forward plans, and we're excited about the perspective and expertise he brings to motorsport games and hope to speak more on this in the future. With the foundation now firmly in place and operating as we have planned, we are confident in our ability to continue building momentum through 2026 and beyond. The turnaround phase is behind us. Now our focus is on scaling the platform we have built. I will now turn the call over to Stanley Beckley, our Chief Financial Officer, to discuss the financial results for the fourth quarter full year 2025.

Thank you, Stephen, and good evening, everyone. As with previous earnings calls, I wouldn't be offering any forward-looking guidance today. Instead, I will focus on providing an update on our financial results and highlights from the fourth quarter and full year 2025. Revenues for the quarter were $3.8 million, up $1.8 million on 95% when compared to the same period in the prior year. Higher digital game sales from the release of Le Mans Ultimate, a core gaming title, along with high downloadable content sales were primary drivers for the increase. Net income for the quarter of 2025 was $0.8 million compared to net loss of $2.9 million for the same period in the prior year, an increase of $3.7 million. Higher revenues, lower cost of goods sold and operating expenses were key contributors to the increase in net income for the full year 2025 when compared to the prior year period. Consequently, net income attributable to Class 8 common stock was 0.15 for the fourth quarter of 2025, compared to loss per share of 0.89 for the same period in the prior year. We are reporting an adjusted EBITDA of $1.9 million for the fourth quarter of 2025, compared to an adjusted EBITDA loss of $2.5 million for the same period in the prior year. The reasons for the increase in adjusted EBITDA are the same as those discussed in respect of the change in net income for the period and comparative quarter. For full year 2025, revenues were $11.3 million, up $2.6 million, or 30%, when compared to the prior year period, primarily due to a $5.8 million increase in 2025 from sales of our were more on ultimate racing title released in February 2024, particularly DLC sales, which were higher compared to 2024, and $1.2 million from race control, offset by a $4.4 million decrease in an area in 2025 related to NASCAR, a gaming title the company decided to sell so that we might concentrate our efforts elsewhere. As a result, we were not selling the NASCAR titles from the start of 2025. Net income was $6.8 million for 2025, compared to net loss of $3.1 million for 2024. Higher revenues, lower cost of goods sold, and uplanding expenses were key contributors to the increase in net income for the full year 2025, when compared to the prior year period. Adjusted EBITDA was $7.3 million for the full year 2025, compared to an adjusted EBITDA loss of $3.9 million for the same period in the prior year and improvement of $11.2 million. The increase in adjusted EBITDA was primarily due to the same factors driving the previously discussed change in net income for the full year 2025 when compared to the prior year period, as well as the reduction in the non-recurring gains being excluded from adjusted EBITDA. Net income attributable to Class A common stock was 1.43 in 2025, compared to a net loss of 0.94 in the prior year. As it relates to liquidity, as of December 31, 2025, we had cash and cash equivalents of $5.0 million, which increased to $6.0 million as of February 28, 2026. For the year ended December 31st, 2025, we generated an average positive cash flow from operations of approximately $0.3 million per month that was primarily due to increased profitability, $0.8 million from the WESCO Insurers Company Settlement in June 2025, and $0.5 million from a settlement agreement with HC2 Holdings 2, Inc. in March 2025. We currently have now outstanding debt of purchase commitment liabilities. Furthermore, our working capital as of December 31, 2025 was $4.2 million versus negative working capital of $2.2 million as of December 31, 2024, underscoring a much improved balance sheet and liquidity position. We also secured a $3 million revolving line of credit from Citibank in February 2026. There is currently no balance due to Citibank under the revolving line of credit. Thank you all for your time, and now I will turn the call back to Stephen for closing remarks.

Thank you again, everyone, for joining this call today. If I can summarize all the progress we've delivered over the last 12 months, it would be through the lens of our turnaround. We've had multiple profitable quarters delivering a strong cash position. we have a scalable model in our race control platform which is building an audience and paying subscribers at a steady rate we have architected strong organic demand without significant marketing spend we are hard at work on bringing our most recent game to the console market and are close to incubating the next product from the company that brought you the evergreen on Ultimate. We have moved beyond stabilizing the business. We have demonstrated that our model works, and now our focus is on scaling it. Thank you for joining us today. I will now turn it back

to the operator. Thank you. If you'd like to ask a question, press star 1 on your keypad. To leave the queue at any time, press star 2. Once again, that is star 1 to ask a question. And we'll take our first question from Anya Soderstrom with Sudodi. Your line is open.

Hi, and thank you for taking my questions, and congratulations on the nice performance. I'm just curious, with the development costs declining year over year, what's the main driver for that?

Yes, hi, Anya. Thanks for the question.

So as we disclosed in our Form 10K, we capitalized about $1.1 million of development costs. These were costs related to significant upgrades and enhancements to the game. We've released a lot of content to LMU since the game's launch in February of 2024. To date, we've released about seven individual downloadable content packs, including the European Le Mans series, Pack 1, that was released in September, and Pack 2 that was released in December. Pack 3 is scheduled for release later this month. So that's the main reason for the decrease in development costs. We also have, in the past couple of years, we've gone through some restructurings. So payroll costs are also down for developers and contractors.

And is AI any sort of driver to the development costs coming down? Or how are you implementing AI?

Hi, Anja. Very good question. AI is everywhere at the moment. It certainly features in the motorsport games business. I think a lot of companies are kind of driving forward, trying to figure things out. we're a high-tech software engineering business by nature and ai has always featured in our development pipelines and in our products but the way that we utilize it at the moment is in a lot of rapid iteration like one of the benefits of laman ultimate at the moment as a live service is the rate at which we're putting out these updates it's a live service that is very much in front of the community who are welcoming the regular updates the regular pack updates the new content coming out and ai is already forming a part of that development experience obviously not going to give away our secrets at the moment but um we're leveraging it i think um you know to a an ever-growing extent i think it does bring down development costs but actually the biggest advantage for us is that we can more readily put out updates that resonate with our players So it's beneficial to us because it enables us to really drive home the creative advantage that we have.

Okay, thank you. And also you mentioned the elements, Ultimates for PlayStation and Xbox, it's progressing. Are you still expecting to launch that in late 2026 or early 2027? And how meaningful do you think that's going to be to revenue? And what sort of impact is it going to have on margins?

hi um i'll take that again anya uh i think uh the product is very much on track um we are going to drill down as we get closer to release with an exact release date i think the the key thing that i would like to uh project at the moment is it's less of a technical challenge for us now because we've been in this business for some time it's actually about picking the right window for release what's the most beneficial window for release um do we pair it with a major motorsport event um what our competitor title is doing but it's very much on track for um either early to mid 27. i think it's going to have a big impact and i would say that because i've been in this industry for some time i've worked on many a console product and the addressable market is huge there's actually a real lack of high-end racing simulations available on console and that's been a traditional problem for many many years there are lots of different racing games out there they're more arcade titles and in order for the average consumer to engage in the kind of simulation experience the depth of simulation racing experience that we provide people are having to spend upwards of two three four thousand dollars in a high-end pc a wheel and a pedals that's a major investment that not a lot of people um are willing to do for the first time experience in racing simulation but as soon as you go to console where you can pick up a console for a few hundred dollars if you can engage through that medium which is more readily accessible to most people and you can experience our titles it stands to reason that we can hit a much larger audience because the price of entry is dramatically reduced it may mean that people come into our ecosystem it may mean that they come into contact with race control in great numbers and they may wish to step up to the pc product but we're going to put out a high quality product on console on playstation and xbox that will be available worldwide and we're very excited about that we're not putting out any guidance in terms of you know the addressable audience that we expect

to reach but um thank you i can you hear me i feel like it dropped off yes uh it looks like

steven got cut off there but i think he was just finishing up um his thoughts okay okay so then

i'm just also curious about uh the customer acquisition cost and also maybe how you anticipate ai to maybe uh be be sort of a positive for you there how you can work with ai to become more

efficient there? Sure. So as far as the customer acquisition costs, we have invested very little in marketing over the past two years, and our growth has been primarily organic during this time. However, as we seek to get our message out to a wider audience, we're actively looking for suitable marketing talent to join our team. So with very little to no marketing spend, there's there's not much in terms of customer acquisition costs there. The second question about the use of AI, I believe Steven may have addressed that earlier but you know AI, the use of AI is used to some extent in by the development team and with regards to you know answering customer queries but Steven is back and I think you can get into more details on that. Steven are

there oh yes i managed to reconnect um are you talking about ai yes yeah i mean leveraging it across the business i mean um not to replace the creative um direction that we have in the expertise but actually to just bring uh elements to market faster is the primary use right now um short cutting things uh enables us to to really punch above our weight and that's the important utilization of ai for us we are a a relatively small team by choice right now we're getting the wheels turning but ai enables us to deliver at far more rapid rate and bring more content and choices to players which is um clearly working for us okay thank you and then um um you

You've been driving quite nice revenue growth driven by the Le Mans release. And how do we think about continued growth there and the sustained profitability? And then also, you improved a balance sheet and sort of your priorities for cash and capital allocation. And are you expected to remain cash flow positive?

So I'll address the latter half of that question first. So our cash flow and our liquidity position is, you know, much stronger, right, over the past year than it has been since our inception. As we disclosed in our Form K that was released, filed after market close today, we generated an average monthly positive cash flow of $0.3 million per month in 2025 of $4.1 million cash generated from operations for the entire year, compared to an average monthly cash burn of $2.8 million used in 2024. We had a robust cash balance as well of $6 million at the end of February. And we recently secured a $3 million revolving line of credit facility from Citibank. And this line of credit facility will be more than sufficient for us to fully port the development of LMU to console. As it relates to the revenue mix, you know, our LMU franchise has more than made up for the loss of revenues from the sale of our NASCAR license. In 2025, for example, revenues from our Le Mans franchise consisted of about 78% of our annual revenues versus 34% of the previous year. So the mix of our LMU revenues, in addition to growing risk control subscriptions, which made up 11% of our total revenues in 2025 versus less than 1% in 2024, our risk control subscription, that platform was launched in December of 2024, has led to a bit more balancing and diversification of our revenue stream, and we expect that to continue to grow into the future.

Okay, thank you. That was all for me.

Thank you. This does conclude the Q&A portion of today's call and also the meeting today. Thank you. We appreciate your time and participation. You may now disconnect.