Yahoo Finance Motorsport Games Inc. (NASDAQ:MSGM) Q4 2023 Earnings Call Transcript
Motorsport Games Inc. (NASDAQ:MSGM) Q4 2023 Earnings Call Transcript April 1, 2024
Motorsport Games Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Thank you for standing by, and welcome to the Motorsport Games Inc.’s Fourth Quarter and Full Year 2023 Earnings Call. At this time, all lines in a listen-only mode. [Operator Instructions] 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.
Ben Rossiter-Turner: Thank you, and welcome to Motorsport Games' fourth quarter and full year 2023 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 fourth quarter and full year 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 annual report on Form 10-K for the year ended December 31, 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 fourth quarter and full year 2023 financial results.
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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 over the call over to Stephen Hood, Chief Executive Officer of Motorsport Games. Stephen?
Stephen Hood: Thank you everyone for joining this conference call today. Throughout Q4 2023, we continue to reduce spend and improve efficiencies across the business, carefully monitoring expenses and working diligently towards our Q1 2024 game release, Le Mans Ultimate. This would be only our second internally developed title and something we intended to correct as a matter of urgency. The folding of other projects and efforts was designed to focus our effort around the kind of game experience we believe will set us on the right path, releasing innovative games designed to foster a large player base of engaged users we can call the community. As we focused on the development of Le Mans Ultimate, we came to the understanding that this form of racing suited our vision for the future racing and driving landscape.
Motorsport games is all about player participation and not simply the dog eat dog world of traditional racing games, where only one player can be crowned the winner and where friends become enemies. We believe in building an accessible highly polished ecosystem, which puts community and most importantly teams at the heart of the experience. Look at many of the wildly popular games in the market today, you will see they center their experience around team play. This is starkly absent in almost all racing experiences. In Le Mans Ultimate, teams comprised 3 drivers taking turns to drive their part in endurance race. This title is our springboard for a vision we have been working towards for the last several months, which we believe signifies a turning point in the recent history of our company.
We are finally seeing the results of decisions set in motion many months prior, and they are delivering better than expected results, not least with the recent release of our new game, Le Mans Ultimate. This has been especially pleasing given the challenges encountered by the business and the tough decisions we've made to try and turn the ship around. The first real signs of positivity have been encouraging, but we recognize that we have some way to go to deliver on what we believe the business to be capable of. The positive reception to our recent release has given us a real sense of satisfaction and provides us with a valuable stepping stone. And it seems to be resonating with our customers. Within the first 36 hours of release on February 20th, it's the early access I might add.
Le Mans Ultimate sold as many units as we have projected for the opening 10 days. It has gone on to continually set above expectations and we have revised internal forecasted sales numbers to account for this higher than expected update. We had anticipated with a strong tailwind selling 18,000 copies in the opening 10 days. In reality, the reception was so strong that we sold more than 55,000 copies. Our development team continues to push out fixes and updates to continually improve the product, has resonated well with our audience. These green shoots are the result of an enormous effort throughout and prior to Q4 2023. We're now pushing ahead on continued development of the title throughout the remainder of this year. We plan to bring exciting new content and features to the Le Mans Ultimate experience as well as complementary services, which we anticipate will in due course provide additional revenue streams.
RaceControl, our online service providing multiplayer functionality to our rFactor 2 and now Le Mans Ultimate game launched 5 months ago. It continues to play an important role in the UK system we are building around our product and has now broken through more than 100,000 account registration up to 60,000 last time I reported this group. RaceControl drives regular activity within our games and is vital to our future strategy around community and complementary services. Enabling compensation around our game experiences, even when a user is not playing the game is important and to this end RaceControl is expected to soon have a more-friendly interface, making it accessible from any web browser. With RaceControl, users will be able to learn more about the games, tips and tricks to get most from the experiences, become a better virtual driver and more.
In time, our plan is to have users to be able to manage their account and experience from this site using any mainstream connected device, phone, desktop, laptop, tablet and so on. Bringing those parts that made rFactor 2 so successful across and into the Le Mans project has proven instrumental in landing the core gameplay experience. The update to this technology now forms the basis for an engine we own and expect to leverage for existing and opportunities as well as entire new titles. Our licensing agreement with Kindred Concepts to power their F1 Arcade experience using our game technology is one such area of further opportunity. We are proactively exploring new ideas that may be a benefit to multiple games. F1 Arcade rolls out to the U.S. site in Boston later this month of April, and we have been supporting this expansion to ensure our technology is experienced in the most positive way.
The focus for the year ahead is to continue building the positive momentum around our recent game release with new updates, additional services through RaceControl, downloadable content and to tap into the highly valuable marketing opportunities. For example, the actual 24 hours of Le Mans race takes place in June. We believe this will be another opportunity for increased visibility and sales for our Le Mans Ultimate game, as well as the perfect launch pad for our anticipated reveal around the future of Le Mans virtual series, one of the world's most watched racing esports events of the last few years. Now, I would like to invite Stanley Beckley, our interim Chief Financial Officer to talk about the financial results for the fourth quarter and full year 2023.
Stanley Beckley : 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 2023. Revenues for the quarter were $1.7 million down by $2.1 million or 53.7% when compared to the same period in the prior year. Lower digital and retail game sales were primary drivers for the decrease as a result of no NASCAR games being released in fiscal year 2023. This decrease was partially offset by decreases to sales allowance as a result of lower game sales and increases to downloadable content or DLCs, specifically related to the NASCAR Heat 5, Next Gen Car Update DLC that was released in June 2023.
Net income for the quarter was $2.7 million, an increase of $7.5 million when compared to the same period in the prior year. The increase in net income was primarily driven by lower cost of revenues and operating expenses required to develop and release additional new games as well as a $3 million gain from the sale of the NASCAR license to iRacing in October 2023. Consequently, EPS for this quarter was $1.35 compared to negative $4.17 for 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 December 31, 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 improvement in our internal processes. In addition to the 2022 restructuring program, on October 29, 2023, the company announced a further restructuring of its business due to its ongoing liquidity constraints. The announcement confirmed the closure of the company's Australian development studio and resulted in a reduction of the company's workforce by approximately 40 employees, the majority of whom were based in Australia and the United Kingdom, representing approximately 40% of the company's global workforce. The company recorded a restructuring expense of approximately $0.5 million related to the workforce reduction, primarily consisting of severance and redundancy costs in the fourth quarter of fiscal year 2023.
We are reporting an adjusted EBITDA gain of $0.5 million for the fourth quarter of 2023, compared to an adjusted EBITDA loss of $3.2 million for the same period in the prior year. The improvements in adjusted EBITDA gain are the same as those discussed in respect of the change in net income for the period and comparative quarter. Full year 2023 revenues were $6.9 million down $3.4 million when compared to the prior year period, primarily due to lower digital, mobile and retail game sales, driven by lower volumes of sales as a result of known NASCAR games being released in fiscal year 2023. Net loss was $14.3 million for 2023 compared to $36.8 million for 2022. Adjusted EBITDA loss was $8.9 million for 2023, an improvement from the $21.2 million loss for 2022.
Non-cash asset impairment losses of $4 million and $9.6 million for 2023 and 2022 respectively, accounted for a significant portion of the difference between net loss and adjusted EBITDA for the expected periods as well as the $3 million gain on sale of the NASCAR license in October 2023. EPS loss for 2023 was $5.06 compared to an EPS loss of $30.73 for 2022. As it relates to liquidity, this continues to be a key area of focus for the company. Net cash used in operations for the 12 months ended December 31, 2023 was approximately $12.9 million, representing an average monthly net cash burn from operations of $1.1 million down $0.5 million compared to the average monthly cash burn of $1.6 million for the year ended December 31, 2023. As of December 31, 2023, The company had cash and cash equivalents of $1.7 million, which decreased to $1.3 million as of March 29, 2024, which we believe is insufficient to fund operations over the next year 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, 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 our assets in addition to the recent sale of our NASCAR license and further cost reductions and restructuring initiatives. Thank you all for your time. And now, I will turn the call back to Stephen for closing remarks.
Stephen Hood: Thank you, Stanley, and thank you to those joining us today. If there is anything to take away from what I've said today, I'd like you to know that, we feel like a games company again. With the recent release of Le Mans Ultimate to a very receptive market, we're doing what we know best. And I look forward to speaking further about this on our next quarter to discuss Q1, 2024 results.
Operator: [Operator Instructions] Your first question comes from the line of Jason Tilchen from Canaccord Genuity.
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