Q2 2022 Motorsport Games Inc Earnings Call

Thank you for standing by and welcome to Motor Sport Games incorporated second quarter 2022 earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.

If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. As a reminder, today's conference is being recorded I would like to turn the conference over to Ken Godkin from Motor Sport Games. Please go ahead.

Thank you and welcome to Motor Sport Games second quarter, 2022 earnings conference call and webcast.

On today's call is Dmitri Kosko Motorsport games, executive Chairman and CEO and John New its Chief Financial Officer.

Bye now.

Everyone should have access to the company's second quarter 2022 earnings press release.

Today after market close.

This is available on the Investor Relations section of Motor Sport games website at Www Dot Motorsport games Dot com.

During the course of this call management may make forward looking statements within the meaning of the 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.

The company's filings with the SEC, including its most recent quarterly report on Form 10-Q for the quarter ended June 32022 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 second quarter 2022 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 Dmitry, Kosko, Chief Executive Officer of Motor Sport games.

Dmitry.

Thank you everyone for joining us on our Q2 2022 earnings call.

I'd like to start today with a quick reminder, that we are a product driven business.

Products include creating official racing games and esports experiences.

There's some of the world's most valuable motorsport brands like NASCAR Indy car 20 flowered at them off B T. C. C N. Others. Therefore, our efforts and resources are prioritized to go towards providing racing fans with good experiences.

We believe we made good progress with product releases in Q2 and development of our future product releases and upcoming quarters.

In Q2, we released our anticipated next gen console upgrade to all NASCAR twenty-one ignition holders, even allowing users with new and previous generation count consoles like P. S. Four and P. S. Five to play together via cross Gen capability.

All while continuing to bring quality of life improvements to our 2021 NASCAR game, while we continue to work on our 2022 and 'twenty 'twenty three versions.

Our our factor two platform continues to deliver predictable and exciting quarterly content drops and allows us to use our expanding our factor to platform to conduct our own esport events like Formula Pro series.

The steady content releases bring official licensed content, such as cars and tracks to our fan base, while allowing us to create on track Activations at Indy car, and recently announced B T C events throughout the year.

These on track Activations, not only allow our fans to try our factor too and its license Indy car be TCT content, but also provide us valuable hands on fan feedback that helps us progress on the development of both the official India car N V T C seeking.

We plan to be at five to 10 more races. This year between NASCAR Indy car N V T C events.

As a reminder, our official Indy car game is slated to launch on all major platforms on time in 2023, and our official BTC see games on all major platforms in 2024.

Back to our NASCAR franchise for a minute.

We have a pretty packed content and game release scheduled for the upcoming months.

We're bringing a 2022 season update to our NASCAR 'twenty one console game.

As well as addition of 2022 teams and drivers to our car NASCAR mobile game and maybe even one of our older heat titles.

Also we are launching a brand new NASCAR twenty-two game for Nintendo switch in Q4.

That we're pretty excited about.

Our previous switch game was highly rated and we're thrilled to continue to bring them NASCAR to the Nintendo switch platform.

On a similar annual release schedule as we do for other mass market console like Xbox Playstation and of course P. C Vice Dean.

Look out for more details about the NASCAR 2022 for Nintendo switch and just the upcoming days.

Our product roadmap remains largely on schedule there.

The only potential change at this point is the timing of our next car crafts release on one of the major consoles.

It was originally planned for 2022 release date. However, this will likely move into 2020 three due to potential opportunities. We're exploring with the first party platforms and their potential interest and exclusive title release next year.

We continue to recruit and hire development talent across our worldwide studios wildly.

While exploring cost saving opportunities in the other areas.

Liquidity remains a concern and area of focus for the management team.

And we continue to explore all are available finance options.

For now let me pass it onto John to go over our financial results.

Thank you Dmitry.

I'd like to share a summary of financial highlights for the second quarter of 2022.

Revenue for Q2, 2022 were $2 million compared to $2 2 million for Q2 2021.

The 200000 or 10% quarter over quarter decrease reflects 300000, lower gaining scale and 100000 increase in esports revenues, primarily from the 24 hours of local bonds in Florida.

Held in January 2022.

Q2, 2022, net loss was $7 5 million compared to Q2 2021 net loss of $6 million.

The $1 5 million increase in net loss was primarily due to 900000 increase in Q2 2022 development expenditures 800000 increase in sales and marketing spend.

600000, and foreign currency losses.

200000 decrease in gross profit.

100000 increase in interest 100000 increase in impairment.

Tangibles and 100000 in depreciation and amortization.

The increases in Q2, 2022 expenses were partially offset by $1 4 million reduction in general and administrative expenses that was driven primarily by $1 1 million payment made in Q2 2021 for the settlement of certain stock appreciation rights that did not repeat.

Pete in Q2 2022.

Q2, 2022, adjusted EBIT loss was $4 9 million compared to Q2 2021, adjusted EBIT loss of $3 7 billion.

The $1 2 million increase in Q2 2022, adjusted EBITDA loss was primarily driven by the same factors as the increased Q2 2022 net loss.

Revenues were $5 3 million and $4 7 million for the six months.

At June 30th 2022, and 2021, respectively, that's an increase of 600000 or 13% period over period.

For the six months ended June 30th 2022 revenues from our gaming segment increased 200000, or 5% to $4 9 million compared to $4 7 million for the six months ended June 30 of 2021.

Revenues from our E Sports segment increased by 400000 for the six months ended June 30th 2022, when compared to revenues for the six months ended June 32021.

The increase in our gaming segment revenues compared to the 2021 period was primarily due to a 700000 and higher games sales.

And an increase of 600000 in additional revenues earned due to the development of simulation platforms.

Using our factor to platform for third parties.

These increases were primarily offset by $1 1 billion in retail pricing concessions.

The increase in our esports segment revenues was primarily driven by the 24 hour, Vermont to sport event held in January 2022.

We see continued revenue from our back catalog and we also see there's a revenue tail stretching out several years from launch with our back catalog product offerings.

The net loss for the six months ended June 30th 2022 was $23 5 million compared to the six months ended June 30th 2021, net loss of $20 million.

Three and a half million increase in net loss was primarily due to $9 4 million increase in goodwill and intangible asset impairments noncash 2 million increase in development expenditures of $1 $5 million increase in sales and marketing spend a 1.4 million decrease in equity method investment.

Hum and 900000 increase in foreign currency losses.

600000, lower gross profit and 200000 and higher interest expense. This was offset by $12 7 million of lower general and administrative expenses and $1 4 million of lower equity method income.

For the six months ended June 30th 2022, adjusted EBITDA loss was $10 5 million compared to $6 5 million adjusted EBITDA loss for the six months ended June 32021.

The $4 million increase in adjusted EBITDA loss was primarily driven by the same factors as the increase in net loss for the six months ended June 30 of 2022 compared to the six months ended June 30 of 2021.

Yeah.

We expect to experience operating losses for the foreseeable future as we continue to incur expenses to develop new game franchises, the company's existing cash on hand and.

In sufficient to fund its current operations for the next 12 months.

We are currently seeking debt and or equity financing. We also have the ability to modify our product roadmap.

To decrease the short and long term need for working capital.

As Dmitry said, our priority is to continue rolling out fun, well performing revenue generating games for racing fans worldwide, while managing our liquidity.

Thank you for joining us today and now let's go to questions operator.

Thank you and at this time, we will be conducting a question and answer session.

If you would like to ask a question. Please press star one on your telephone keypad.

A confirmation tone will indicate your line is in the question queue.

You May press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.

One moment, please while we poll for questions.

Our first question comes from the line of Jason <unk> with Canaccord Genuity. Please proceed with your question.

Yeah. Thanks for taking the question I have two the first one is I'm just wondering on the the expansion pack that's coming in September I'm, just any details you can share about some additional features that maybe could be coming with that and then on the NASCAR ignition title for next year is there any.

Better sense of the tightening of that timing of that and any update on the development progress there.

Hi, Jason Thanks for the question. So we are planning to announce some of the details about our 2022 season expansion pack relatively shortly here.

We're still slating September Slash October time for that release, we hope that that with that release, we will be able to bring people back into our NASCAR twenty-one ignition game and kind of rejuvenated interest since the game has been essentially fixed.

Or some of the really irritating issues that some folks experienced during the launch period. So we're really looking forward to it and more details will be announced a really soon here and as far as the timing of our 2023 release.

We are currently slated to release that during summer time are continuing to bring our efforts to bring that title closer to the beginning of the NASCAR season.

That one will be a rebuilt I it is something where it had been currently working on.

It is a shared platform are sure motorsport games combination that we've been working on diligently here, which will be shared amongst our other racing franchises like Andy Carr Lamont N V T E.

And as I mentioned it has played it has right now to be released around the summer next year.

Great. That's really helpful. And then just one other one you mentioned that the you know we're still exploring the the funding options, both the debt and equity and potentially on the table is there any sense of a maybe a timeline for when that decision could be made or maybe has to be made and then you know in the press.

Really to talk about potential cost control initiatives or changes to the product roadmap.

I'm just wondering if there's any sense you know if theres anything at the top of that priority list should should either of those scenarios.

What may be on the table.

Sure.

This is a priority for our management team in the company right now in terms of making sure that we solve our liquidity concerns.

There is continuous to be a multiple options, we have not made any decisions and.

And as soon as we do of course that won't be in an ounce bullet band for us. So we look forward to.

Bringing that to the market.

Now as far as different cost cutting initiatives are mainly we looked at all the different type of G&A expenses.

Different.

Groups of vendors that we could currently do without just to make sure that we continue to invest in the product development.

Continues to be our utmost priority for us. So you would think of anything that has to do with the product are releasing in the quality of that product being released will be where our resources will be focused and anything else that is not that we will explore any and all type stuff.

Our cost cutting opportunity to continue to be as lean as we possibly can.

Great very helpful. Thanks, a lot.

Yeah.

Our next question comes from the line of Michael Kaplinsky with Noble capital markets. Please proceed with your question.

And good afternoon, everyone.

Dmitry, you've mentioned that you've taken some cost out of the business, particularly in our G&A and I was just wondering can you give us an idea of what the current burn rate per month might be for the company.

I'm going to let Johnny on mute Hey, Mike How are you Hi, Scott Yeah, you can look at our our cash flow and you can see that the operating cash flow 12 million for the six months, so that's pretty consistent.

So you deal with $2 million a month.

Burn there.

And coming down slightly through reductions.

So call it 2 million for the six months Gotcha.

Gotcha, Okay, and then Dmitry. If you can just talk a little bit about just following up on the previous caller's question. You you have a promissory note with Motorsport network based on available liquidity do you know what their available liquidity might be at this point.

Do they have this 112 million yeah, okay, great. Thanks, Mike for the question. So while the 12 million line of credit from Motorsport network remains in existence.

Given the current state of the global financial markets.

We assessed our risk of exposure to nonperformance of the sponsor.

And at this time.

Really not relying on this line as a potential source of liquidity.

We believe that there might be a substantial likelihood that any funding request by us will not be necessarily fulfilled for this foreseeable future.

Gotcha and then in terms of the available options then what do you see then as the best available option at this point what might be it sounds like you're you're continuing to keep your title Rollouts pretty consistent with what you had before do you feel comfortable then that there are other.

Available funding options or do you think that it's more likely that maybe some of the timing of the titles might slip a little bit as you kind of look at the product roadmap and the and in the and the liquidity issues.

We continue to prioritize our product release schedule and anything and all types of investments that are related to us delivering the products and quality products on time. Therefore, I. So far you don't see any of these material changes to our product release.

Cycle I, our financing options are continue to be explored we haven't made a decision as to which one I and I would like to do this relatively quickly.

Just to make sure that we're continuing to invest in additional opportunities are definitely want to explore and right now those let's call it additional exhilarate opportunities.

Are not something we could explore until we improve our liquidity position. So therefore, I'd like to really come to a resolution here relatively quickly.

And then the other options would be that you could seek partners right in terms of looking at some of the products then the rollouts and things like that are there what are the options in terms of seeking partners for specific products and product rollouts.

Correct that is our apparel options that we're exploring.

We have had conversations.

With some name brand.

Partners, who could potentially be a in the publisher type of role for some of our selected titles.

We have not come to any sort of decisions, we're continuing to explore that as an additional option as see if us partnering with somebody not only helps us with the distribution out of reach for some of our titles, which would be kind of a qualification number one would look from a pub.

<unk> partner, but also could potentially improve our liquidity position if there some upfronts or other types of normal customary. Thanks, so that could become available but nothing has been.

I don't yet are those discussions are active and we continue to explore.

Any and all of those type of opportunities.

And Dmitry I guess the biggest concern for some investors would be that that another company would come in and just by the by the company at current levels I mean it would.

Now with the valuation there is trading it would just it would look pretty compelling.

What are the I mean at this point, you're not interested in selling the company and.

And you think that there's obviously a significant upside with these products that as they roll out that it would create a lot of shareholder value just wanted to hear your thoughts in terms of the potential and seeing interest from others about just buying the whole company at this point.

You know a priority for us is to deliver great products to our fan base right. We have not created enough products for each one of our franchises.

So really sure sort of showcase what we're capable of right. Some of that abilities will be showcased next year. One we have at least three more franchises and market. So it's not just NASCAR, but will have NASCAR Indy car and Lamont.

Only at a point in time, where we have multiple franchises and market.

Cable to showcase our efficiencies and economies of scale on what our motor sport games engine is able to deliver and that of course to potentially translate into financial results only that I think we could.

Have meaningful conversations with strategics, but to give us something that could be considered a fair market value.

We're looking at our current market cap I'm not sure that that are potentially reflects that right now but that is just a personal opinion.

Okay, Great. That's all I have thanks for all the color I appreciate that.

Thank you Mike.

Yeah.

And just as a reminder, if anyone has any questions you May press star one to join the question and answer queue.

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Yeah.

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