Q1 2023 Motorsport Games Inc Earnings Call
Thank you for standing by and welcome to Motor Sport Games, Inc's first quarter 2023 earnings call.
All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing to stock. He followed by zero. After today's presentation, there will be an opportunity to ask questions to ask a question. You May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two.
As a reminder, today's conference is being recorded I would like to turn the conference over to Kim Kardashian from Motor Sport Games. Please go ahead.
Thank you and welcome to Motor Sport Games first quarter 2023 earnings conference call and webcast on.
On today's call is motor Sport games, Chief Executive Officer, Steven 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 at Www Dot Motorsport game 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, and the company's filings with the SEC, including its most recent quarterly report on Form 10-Q for the quarter ended March 31, 2023 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 Steven Hood, Chief Executive Officer of Motorsport games.
Steven.
Thank you everyone for joining the call today.
I'd first like to tackle head on a question some of them do I like to have around the business.
Some 14 months after my departure.
Have you put a lot of energy into the formation of much smaller games I've always the need and the opportunity.
When I was approached about potentially 10 my availability.
Yep.
Came to the realization that things could be improved and success.
With a heavy focus on delivery of quality products service and entertainment features I believe we can put the company in the right direction.
And only a few weeks since my return.
It's been apparent in time seen across the months bookings business.
What we can deliver yes. We are you know like you didn't sign.
And my feelings about what can be achieved.
Catholics and change of Fortune's most booking business.
My background is in game development.
I understand the requirements infrastructure and innovation necessary to compete.
Yes.
But I also understand that.
First need to deliver products to market.
It's one of rapidly deal.
Reorganization and tactical progress.
My review of the business increased markedly on April 19th when I choose the role of Chief Executive Officer.
This position provides me with the authority necessary.
Sometimes when we factor in the business.
Medium and long term effects.
As a result.
The support of my leadership team, we have made the decision to close to my Great Studios in Orlando, Florida and didn't see Georgia.
This results in a minor head count reduction, but more importantly, it allows us to own and manage.
In a more effective manner.
He worked at Kochi games at least while we factor them initially.
Now the distractions apparent junior rapid multi site quite period, which was somewhat forced to point out during the Covid pandemic.
Now that we're out of this period.
<unk> doubled down on known talent vacation and cruise business development and generate a great sense of team across the organization.
Okay extends across all our activities and as such and instilling a culture of togetherness optimism from the top down.
I've seen some fall how our team has been so that's why we left Fukushima reactions to products like NASCAR ignition I.
I tried to but there's no guarantee.
We've got some as Jen Indeed, I believe you are going to turn a corner and light products were not obviously understandably question for Nicolas.
We can be deploying resources towards well regarded legacy platform such as NASCAR heat franchise.
Aggressive me pretty closer to seat in currency in the coming days, we will update the product the 20th twisted tea season.
With Nexgen Comscore fans to enjoy.
We work on a review of plans to maintain further support franchise titles, whilst progressing development that round feature NASCAR games.
I've seen enough since my return to understand that our primary opportunities around our plans long term franchise games like footage touring coach him to chip in the car innovative opportunities within the mom, which includes the world Endurance championship and surface amplify its not fairly voguing competition system, which means.
And to eventually become an important piece of that strategy in the future.
I want to set the stage of development, but I have yet to be showcased by the company.
Claims easy Casas allows us single CTO racing and area I know you very well.
By Australia cause some of them.
This team together after completion of Cockcroft in 2021.
It's especially rewarding to see how that's Newtown place, we can come to fruition around the topics of the highest personally hope to receive a lot of things since I got into playing video games way back then.
With the right design support and marketing we believe.
Let's see where she gave me.
I believe our partners at <unk> Com.
We'll come away impressed at Amex, probably next weekend.
Great games.
And there is still much to do on the very strong upcoming releases, but we are taking cryolife using til counts the good about future product strategy.
Equally important is the longer term opportunity around the development of our games platform designed to improve upon the capability and stability of our current rates and focused efforts.
We believe this will provide us with technology.
Can you push them.
We must be involved with some of the technology and its delivery of entertainment.
I'm Glenn Lamont title allows us to utilize the very best components of our top tier off actually simulation thought so.
Your line, which went opportunity we believe it gets in the racing genre.
Think of any popular game. These days when you won't find it seems as cranes are working together to achieve our objectives.
The racing genre has a decade's promoted defensive ultra competitiveness that I felt prevents rapid growth in the segment.
Lamont and indeed, the World Endurance championship revolves around teamwork is therefore, even a long time to move them seamlessly.
With the release of our compensation system into the off it seems even mentioned okay.
You see a useful theory.
He thinks that causes a community platform support as well as a formal quarterly content release strategy.
From there we will gather valuable consumer feedback to head up a wider released alongside the upcoming among gay which in turn should provide us with valuable insight into the homestead eat like within the racing genre.
Beyond that projects with NASCAR and that's about it.
Nothing to call my mom and Al mentioned competition system will provide a valuable set forth.
We must think differently.
The racing game Tomorrow, you can expect to enjoy that hobby.
Our customer cohort is.
We intend to win them back and in cracks.
We will do that by providing wonderful experiences.
Requirements following the SNP stream.
But instead would you see.
Interest payments ecosystem that will benefit never been to access and enjoy more of what we know it makes them. So.
So special.
So somebody who is I can say that we are further ahead than I might have imagined kratz amongst them.
I'm, bringing about greater operational focus and decisiveness and ensure that these projects I'll give him the oxygen maybe quite successful.
The next 12 to 18 months will be a defining period for the company.
Won the team across multiple games and I will let Mitch in order to deliver on these opportunities tomorrow, we will need to make difficult decisions for that.
At this time I'd like to hand, it over to Jason Awesome, Mexico Games, Chief Financial Officer.
Q1, 2023 financial results.
Thank you Steven 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 part.
Actual results and highlights from first quarter 2012.
They feel otherwise all results discussed relates to Q1 'twenty three the compare.
That's it period of Q1 'twenty two.
Our Q1 'twenty three revenues were $1 7 million a reduction of one 6 million or 48% when compared to the same period in the prior year.
This segment accounted for $1 5 million a decrease primarily due to the stay the whole question and Paul Your digital sales in our existing protocols.
Only one major new console when you say 'twenty to 'twenty two.
It's a two and 2021, which has negatively impacted our income and physical retail sales.
Asphalt segment revenues were consistent year over year, posting 3 million in Q1, 'twenty compared to <unk> 4 million in Q1 'twenty two.
Net loss Q1, 'twenty trade was $5 3 million compared to 16 in Q1, 'twenty two an improvement of $10 7 million.
It takes some time impairment losses in the current quarter, whereas we recorded $9 3 million in Q1 'twenty two.
The remaining reduction in net loss of $1 4 million was primarily driven by reduced external marketing expense and lower payroll costs as a result, with the actions taken under our previously announced 2022 restructuring program.
Under the 2022 restructuring program may have lowered our embedded cost by approximately $3 9 million.
Those basis I wouldn't be in Q1, 'twenty 'twenty sorry did.
These savings were driven by changes in people head count on the Juicy stuff.
In other words, all are modest and not spending some pretty large subtle price actions.
Hello, Chris that we have previously disclosed material weaknesses in our internal control over financial quantity not SEC filings, including our most recently filed Form 10-K for the year ended December 31, 2022.
We have taken a number of actions to remediate these deficiencies northeast to complain to the street previously identified material weaknesses have been remediated as of March 31 2023.
Continuing to take the necessary steps to remediate the remaining material weakness, which will consider immediately.
Controls are in place all price effectively for a sufficient prototype and we conclude through testing. These can call a soft question doesn't tenant.
Turning to our fiscal results for Q1 'twenty three we are reporting an adjusted EBITDA loss of $4 3 million.
That's an adjusted EBITDA loss of $5 six.
Period in the prior year.
Improvements in adjusted EBITDA loss of let's say that's discussed in respect to the change in net loss for the period and some parts of course.
Consequently, EPS in Q1 traffic was negative $2 33.
But the negative $12 like yourself, a tricky 122.
The credit as he continues to be a key focus.
As of March 31, 'twenty to 'twenty, three we had a cash and cash equivalents of $5 8 million.
An increase of $4 8 million when compared to December 31, 2022, which was primarily driven by three registered direct offerings completed incorporate twice right.
Net cash used in operations during Q1 'twenty three that's approximately $5 7 million, representing a net cash burn of $1 9 million a month, an increase of 3 million when compared to the average monthly cash burn up 1.6.
To sum up to 122.
As of April 32023, our cash and cash equivalent position was reduced by $1 9 billion to $4 nine which we believe is insufficient to fund our operations for the remainder of 2023.
Need to supplement our available liquidity with additional debt or equity financing as well as ongoing cost control initiatives.
Thank you for your time.
On the call back to Steven for closing remarks.
In closing I would like to thank how shareholders for their support and encouragement and sorry, I assume leadership the company.
There are challenges, but given time and resolution to our liquidity situation I believe that we can address all of them.
We can deliver on the promise I believe between the battery formation.
Thank you for joining us today and now let's go to questions.
Operator.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad and if you are using a speakerphone. Please pick up the handset before pressing the case to withdraw your question. Please press Star then two.
At this time, we'll pause momentarily to assemble our roster.
Our first question comes from Jason Tilton at Canaccord Genuity.
Please go ahead.
Great. Thanks for taking my question and congrats Stephen I'm, taking over as CEO .
I think one thing I'm curious about maybe you could just spend a minute talking about some of the ways that you have either already or that you can improved monetization of the existing game portfolio, while the new other new titles that you referenced in the prepared remarks are still in progress and then I can follow up thanks.
Sure.
Hi, Jason.
So very interesting question monetization for knees are what are the key points of review of the business. So one of the things I'm very keen to do is ensure the component pumps that we have across the organization certainly the parts that are touch the cool audience the player.
Appropriately stitched together and by that I mean, we have properties and attraction G. G, which is a great kind of immediate help right now which reports on gaming news and becomes the go to site for another breaking news right now actually we have this upcoming competition system.
It will be rebranded at some point when it comes to its formal release, we have the gaming licensee, we had with NASCAR, but destroying called mom, which includes loading journeys championship in Gita, what I'm actually looking at is instead of just individually monetizing components. So.
Those offerings are traditionally games would have D. C that you could purchase in order to add Cosmo tracks all the unique elements in terms of content and how do we actually stitch. These things together so that.
Together, they are able to monetize the overall entertainment experience.
And Ah is a particular area of focus for me and it's a question that I have been injected back into the company since returning I think.
As I've come back somewhat fresh and they have a different perspective on how we move forward.
Been very encouraged by the reception of the teams to understand that we need to work together across different departments and offerings in order to.
One is how is the overall effectiveness of that entertainment offering instead of just the traditional.
Game approach of pumping DLC and Dakota, So I think that's a better way of working on this and.
I think over the next few weeks I suspect we'll have some very interesting not just connect the component pieces of that and what I'm doing is energizing the team in order to make it a reality.
Great. That's really helpful. In terms of the way the cash for them was described the sort of run rate of maybe 1.9 billion per month.
In the first quarter, and then sort of the implied a cash burn in April was a was it was about half of that so I'm. Just curious was there anything one time in terms of what happened in April or has the cash burn decline and sort of following up on that is there any anything you can share in terms of any updates on when you expect to raise.
Additional capital Thank you.
Hey, Jason it's Jason here.
Thanks for the question I think what we saw in Q1 as we did see a bit of catch up in terms of you know, bringing down some of the a P position that read accumulated some recruiting positions I mean accumulated that's where you kind of manage our working capital position very closely towards the backend of careful.
Following the <unk> and in February we were able to kind of catch up on some of those some of those payments. So everything we've been managing them. So that's why we see a bit of a higher bar in the first three months of the year and let me see that drop off in April where we have kind of caught up without position and we start to see some of the benefits of the <unk>.
2022 restructuring programs come into play when countries perhaps.
At this point around $3 9 million on an annualized basis.
Kind of kicking in so I think we'll continue to see some of that benefit on a on a go forward. Obviously, we will continue to see some lumpiness and you know when we have royalty commitments nice like type things kicking in we should should hopefully start to see a little bit of a reduction in vehicle crush Bob.
In future periods in terms of financing that plants like we continue to explore both equity and debt financing right. Now we don't have anything kind of incremental to announce beyond the ATM facility that we put in place.
The end of Q1 and that the existing clients that we got in place and the people, but otherwise we do continue to explore other options.
It's all about kind of longer term liquidity issue.
Great. That's very helpful and just one last one for me anything that you can share about any plan changes to sort of the timeline for.
For game launches are scheduled for mid next year in terms of any car maybe being first are any changes to that timeline and anything you can share on that front. Thank you.
I'll take this one.
No planned changes at present I think the important thing based on the.
Company publicly stated released windows for the quota is.
My task right now is to shore up those projects and ensure that they are given the opportunity to succeed and.
There's probably a shift in focus with my arrival simply because of my background I know very well, it's it's what I've done for 25 years now I'm very passionate about product development by also appreciate the challenges associated with that.
And.
It's clear that multiple games, we've never tried to go toe to toe with some of the Giants in the space in terms of development head count, but I think we are not much more nimble as a result, and as long as we are bold and decisive go now decision, making and I think we can become more efficient.
Necessarily mean in terms of a cash saving in operational efficiency I mean, the decision, making and the progress that we can make in comparison to some of the giants out in the industry.
I think it's about.
Utilizing the time that we have available to meet our deadlines and deliver the best possible product.
And that requires sometimes myself and others within the leadership team getting into the weeds of development in order to ensure that all of the component pieces.
Project the infrastructure around them.
Working in harmony, ensuring the testing department is working hand in hand with development, ensuring but the tiara and the marketing machine is well versed in how to showcase to the best hope their ability the upcoming products I don't think that's always been in the ideal position and there are efficiencies that we can make them.
Yeah.
And this is where I'm spending a lot of my time, so in answer to your question.
Not intending to change the release windows of the projects.
I am spending a lot of time, ensuring that we use the available time wisely. The clock is always ticking development and.
<unk> adds to the excitement.
But we've got great comes to deliver these things.
Great. That's very helpful. Thanks, a lot.
Thank you. Your next question comes from Michal Krupinski at Noble capital markets. Please.
Please go ahead.
Thank you and good evening I most of my questions have been answered but just.
Just a couple of what's the drop off in the cash burn in the second quarter that you alluded to it was that already reflective of the closing of the some of those micro office as you mentioned and how material were those savings from that and then if you could just for me you may have said this but I was wondering if you could just clarify.
Where have you consolidated the development of the games for the company. What can you just kind of run through the offices for me and what they are responsible for.
Yeah. Thank you Michael this is Jason I'll pick up the top portion of it and then the other thing.
To to Steven in regards to the consolidation of the development efforts.
In terms of the closing of the Microsoft says they really were very small operation for us.
So it's not we're not expecting it to have a very significant impact on the cash burn and slightly and then it sounds like.
Severance costs and things like that associated with.
Closing those offices that will be a slight pick up from that but I wouldn't expect to their roles have a material I'm about to go on the pulse on this all.
Gotcha.
Hi, Michael it's Steven here.
Just quickly on the studios and the locations I think.
They're trying to send to them around I'll call it known haven't locations.
There's an incredibly strong talent pool.
Europe are that we're able to tap into things too.
Our kiosks in the U K being based in suicide and by the by the Racetrack suddenly a lot of time out in the U K would have experienced developers kit.
And with our acquisition of <unk> seven that we made some time ago that isn't giving us a fantastic network to recruit across Europe and.
Those European time zones are at least that conducive to working in harmony.
In a particular region to take the time on a particular project.
Running out without U K operation is a lot of European talent and second to that.
Centered around the Indy car types and in particular is out Australia operation, which centered in Melbourne, Australia.
But post that has a lot of talent there.
Particularly because we acquired the.
The remnants of the Black Delta team the operation that produced Cockcroft, and it's been wonderful to see that operation growth and certainly since my return I've been impressed with the rate of growth and talent. That's available there and we have this concept of just trying to send to development and operations. So that it's much easier to monitor.
So to put them and ensure that we get the right caliber of individuals attached to those known locations that has passed a rather large departure from how we stopped being of.
Multiple games journey, and one that I think will pay dividends in the long run so released across Europe , right now and Australia.
Completely makes sense.
You know since you're there were a lot of moving parts in the quarter was wondering does the company still have a line of credit with motor sports networks that it could tap into our.
I know that there was a debt for equity swap there, but is that line still open.
Hi, Michael Yeah, I mean, the largest deal that hasnt been terminated but as we disclosed in our Form 10-Q, we have substantial doubt about whether we will actually receive funds under that facility. So we're not considering that in our current liquidity position and that's why out when I when I talk about crushing passion.
Equivalents in their credits and I'm focusing purely on the cashless.
Gotcha, Okay. That's all I have thank you.
Thank you that does conclude our question and answer session I would like to turn the call back for closing remarks. Thank you.
Thank you I would just like to thank everybody on the call today I.
I am, particularly pleased and proud to be back at my school games I feel incredibly energized.
We're up to the challenge and I think we're able to do great things together and Underquote two more of these conversations and indeed, a one to one conversations with you.
Stages over the coming months I'm pleased thank you very much. Thank you.
Thank you that concludes our conference for today. Thank you for participating you might have disconnect.
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