Motorsport Games Inc. (NASDAQ: MSGM) (“Motorsport Games” or the
“Company”) today reported financial results for its third fiscal
quarter ended September 30, 2023. The Company has also posted Q3
2023 earnings slides highlighting key milestones that occurred in
the period, which are accessible on the Company’s investor
relations website. All share data and share-based calculations set
forth in this press release have been adjusted to reflect the
Company’s 1-for-10 reverse stock split completed on November 10,
2022 on a retroactive basis for the periods presented.
“This quarter has continued to be one of
business transformation,” commented Stephen Hood, Chief Executive
Officer of Motorsport Games. “We have continued to reduce costs
under the previously announced 2022 Restructuring Program with the
first signs of forward momentum starting to become apparent. This
includes our recent announcement on the strategic sale of our
NASCAR®️ license, which we believe improves the business outlook by
reducing our financial commitments and allowing the company to
focus its limited resources on near-term projects that are
anticipated to come to market. We retain the ability to continue
selling the NASCAR game back catalog through to the end of 2024
ahead of an anticipated 2025 game by the new developer, which we
believe will offer some revenue stability as we aim to bring new
products to market, albeit with this revenue expected to decline
over time. Additional cost-saving measures have included the recent
closure of our Australian development studio, with corresponding
global headcount reductions, and the suspension of the development
of our previously planned INDYCAR®️ game, to decrease operating
expenses whilst also removing projects that are underperforming or
are unlikely to generate revenue.”
“Meanwhile, we are excited to confirm the
updated release date of our planned Le Mans Ultimate title, as we
anticipate releasing the game on February 20, 2024. This simulation
title, created by the team behind the renowned rFactor 2, Studio
397, will look to bring together incredible sportscar machinery
with unparalleled physics alongside innovative gameplay features,
such as the collaborative asynchronous co-op multiplayer mode.
Additionally, the game will feature the RaceControl multiplayer
service recently released as an open beta into rFactor 2 to great
success, exceeding initial player expectations and driving a
recognizable uplift in sales of rFactor 2 content.
In closing, Hood added, “We believe the
decisions needed to make this business create engaging, well-made
games that fans enjoy, and that are profitable, are well underway.
With renewed focus on products, production leadership and budgetary
controls, we believe we are already seeing positive momentum for
the company.”
Third Quarter 2023 Business
Update
- Showcased content for the planned
Le Mans Ultimate game, notably the Peugeot 9X8, building up the
audience and user wish lists ahead of a product launch.
- Sold the NASCAR gaming license to
raise cash, reduce financial obligations and focus development
resources on fewer titles. Additionally, the back-catalog of NASCAR
titles is retained under a limited license until the end of 2024,
allowing the business to retain revenue from this franchise until
that time.
Select Financial Highlights for the Three Months Ended
September 30, 2023
The Company reported a net loss for the third
quarter of 2023 (“2023”) of $3.5 million, or $1.28 per share,
compared to a net loss of $8.5 million, or $7.29 per share, for the
third quarter of 2022 (“2022”). The Company also reported an
Adjusted EBITDA(1) loss for 2023 of $2.4 million, compared to an
Adjusted EBITDA(1) loss of $6.5 million for the same period in the
prior year.
The $5 million reduction in net loss was
primarily the result of the Company reducing its marketing,
development, and general and administrative spend by $4.6 million,
driven in part by actions taken by the Company as part of its
previously announced 2022 Restructuring Program. In addition,
revenue for 2023 was $1.7 million compared to $1.2 million for
2022, a $0.5 million, or 38.5%, improvement that positively
impacted net loss. The increase in revenue was primarily driven by
the release of the NASCAR Heat 5 DLC, Next Gen Car Update, in June
2023.
Quarterly Financial Highlights
|
Three Months Ended September 30, |
|
|
2023 |
|
|
|
2022 |
|
Revenues |
$ |
1,693,871 |
|
|
$ |
1,223,142 |
|
Cost of revenues |
|
831,479 |
|
|
|
602,856 |
|
Gross profit |
|
862,392 |
|
|
|
620,286 |
|
Total operating expenses |
|
3,527,187 |
|
|
|
8,172,763 |
|
Loss from operations |
|
(2,664,795 |
) |
|
|
(7,552,477 |
) |
Interest expense |
|
(230,190 |
) |
|
|
(244,953 |
) |
Other expense, net |
|
(639,147 |
) |
|
|
(739,285 |
) |
Net loss |
|
(3,534,132 |
) |
|
|
(8,536,715 |
) |
Less: Net loss attributable to
non-controlling interest |
|
(44,093 |
) |
|
|
(21,431 |
) |
Net loss attributable to Motorsport Games
Inc. |
$ |
(3,490,039 |
) |
|
$ |
(8,515,284 |
) |
|
|
|
|
Net loss attributable to Class
A common stock per share: |
|
|
|
Basic and diluted |
$ |
(1.28 |
) |
|
$ |
(7.29 |
) |
|
|
|
|
Weighted-average shares of
Class A common stock outstanding: |
|
|
|
Basic and diluted |
|
2,720,328 |
|
|
|
1,167,359 |
|
|
|
|
|
The following table provides a reconciliation
from net loss to Adjusted EBITDA(1) loss for the three and nine
months ended September, 30, 2023:
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
Net Loss |
$ |
(3,534,132 |
) |
|
$ |
(8,536,715 |
) |
|
$ |
(16,994,206 |
) |
|
$ |
(31,991,431 |
) |
Interest expense, net |
|
230,190 |
|
|
|
244,953 |
|
|
|
674,060 |
|
|
|
638,211 |
|
Depreciation and
Amortization |
|
501,399 |
|
|
|
504,831 |
|
|
|
1,512,631 |
|
|
|
1,572,174 |
|
EBITDA |
$ |
(2,802,543 |
) |
|
$ |
(7,786,931 |
) |
|
$ |
(14,807,515 |
) |
|
$ |
(29,781,046 |
) |
Acquisition related
expenses |
|
35,951 |
|
|
|
93,286 |
|
|
|
321,308 |
|
|
|
557,601 |
|
Loss contingency expenses |
|
232,359 |
|
|
|
1,000,000 |
|
|
|
232,359 |
|
|
|
1,000,000 |
|
Impairment of goodwill and
intangible assets |
|
- |
|
|
|
- |
|
|
|
4,004,627 |
|
|
|
9,428,370 |
|
Stock-based compensation |
|
105,524 |
|
|
|
228,712 |
|
|
|
876,060 |
|
|
|
820,315 |
|
|
|
|
|
|
|
|
|
Adjusted
EBITDA |
$ |
(2,428,709 |
) |
|
$ |
(6,464,933 |
) |
|
$ |
(9,373,162 |
) |
|
$ |
(17,974,760 |
) |
Cash Flow and Liquidity
As of September 30, 2023, the Company had cash
and cash equivalents of approximately $1.2 million. During the nine
months ended September 30, 2023, the Company had negative cash
flows from operations of approximately $10.1 million, representing
an average monthly net cash burn from operations of approximately
$1.1 million. While it has taken measures to reduce its costs, the
Company expects to continue to have a net cash outflow from
operations for the foreseeable future as it continues to develop
its product portfolio and invest in developing new video game
titles.
As of October 31, 2023, the Company’s cash and
cash equivalents has increased to $3.2 million, primarily due to
the sale of its NASCAR license as previously announced on October
3, 2023. Based on this cash and cash equivalents position, and the
Company’s average cash burn, the Company does not believe it has
sufficient cash on hand to fund its operations over the next year
and that additional funding will be required in order to continue
operations. In order to address its liquidity short fall, the
Company is actively exploring several options, including, but not
limited to: i) additional funding in the form of potential equity
and/or debt financing arrangements or similar transactions; ii)
strategic alternatives for its business, including, but not limited
to, the sale or licensing of the Company’s assets in addition to
its recent sale of its NASCAR license; and iii) further cost
reduction and restructuring initiatives.
There can be no assurances that the Company will
be able to secure additional liquidity through the means referenced
above, nor can there be any assurances that the Company can
sufficiently reduce costs and restructure its business to
sufficiently lower its cash burn to sustainable levels and
therefore meet its ongoing cash requirements. Further, other
factors can impact the Company's liquidity position, including, but
not limited to, the Company’s level of sales and expenditures, as
well as accounts receivable, sales allowances, prepaid
manufacturing expenses and accrued expenses. For additional
information regarding the Company’s liquidity, see the Company’s
Quarterly Report on Form 10-Q for the quarter ended September 30,
2023 to be filed with the Securities and Exchange Commission (the
“SEC”).
(1)Use of Non-GAAP Financial
Measures
Adjusted EBITDA (the “Non-GAAP Measure”) is not
a financial measure defined by U.S. generally accepted accounting
principles (“U.S. GAAP”). Reconciliations of the Non-GAAP Measure
to net loss, its most directly comparable financial measure,
calculated and presented in accordance with U.S. GAAP, are
presented in the tables above.
Adjusted EBITDA, a measure used by management to
assess the Company’s operating performance, is defined as EBITDA,
which is net loss plus interest expense, depreciation and
amortization, less income tax benefit (if any), adjusted to
exclude: (i) acquisition related expenses; (ii) stock-based
compensation expenses; (iii) impairment of goodwill and intangible
assets; (iv) loss contingency expenses; and (v) charges or gains
resulting from non-recurring events, if any.
The Company uses the Non-GAAP Measure to manage
its business and evaluate its financial performance, as Adjusted
EBITDA eliminates items that affect comparability between periods
that the Company believes are not representative of its core
ongoing operating business. Additionally, management believes that
using the Non-GAAP Measure is useful to its investors because it
enhances investors’ understanding and assessment of the Company’s
normalized operating performance and facilitates comparisons to
prior periods and its competitors’ results (who may define Adjusted
EBITDA differently).
The Non-GAAP Measure is not a recognized term
under U.S. GAAP and does not purport to be an alternative to
revenue, income/loss from operations, net (loss) income, or cash
flows from operations or as a measure of liquidity or any other
performance measure derived in accordance with U.S. GAAP.
Additionally, the Non-GAAP Measure is not intended to be a measure
of free cash flows available for management’s discretionary use, as
it does not consider certain cash requirements, such as interest
payments, tax payments, working capital requirements and debt
service requirements. The Non-GAAP Measure has limitations as an
analytical tool, and investors should not consider it in isolation
or as a substitute for the Company’s results as reported under U.S.
GAAP. Management compensates for the limitations of using the
Non-GAAP Measure by using it to supplement U.S. GAAP results to
provide a more complete understanding of the factors and trends
affecting the business than would be presented by using only
measures in accordance with U.S. GAAP. Because not all companies
use identical calculations, the Non-GAAP Measure may not be
comparable to other similarly titled measures of other
companies.
Conference Call and Webcast
Details
The Company will host a conference call and
webcast at 5:00 p.m. ET today, November 7, 2023, to discuss its
financial results. The live conference call can be accessed by
dialing 1 (844) 826-3033 from the U.S., or by dialing 1 (412)
317-5185 internationally. Alternatively, participants may access
the live webcast on the Motorsport Games Investor Relations website
at https://ir.motorsportgames.com under “Events.”
About Motorsport Games
Motorsport Games, a Motorsport Network company,
is a racing game developer, publisher and esports ecosystem
provider of official motorsport racing series throughout the world.
Combining innovative and engaging video games with exciting esports
competitions and content for racing fans and gamers, Motorsport
Games strives to make racing games that are authentically close to
reality. The Company is the officially licensed video game
developer and publisher for iconic motorsport racing series
including the 24 Hours of Le Mans and INDYCAR. Motorsport Games
also owns the industry leading rFactor 2 and KartKraft simulation
platforms. rFactor 2 also serves as the official sim racing
platform of Formula E, while also powering F1 Arcade through a
partnership with Kindred Concepts. Motorsport Games is also an
award-winning esports partner of choice for the 24 Hours of Le Mans
and Formula E. Motorsport Games is building a virtual racing
ecosystem where each product drives excitement, every esports event
is an adventure and every race inspires.
Forward-Looking
Statements
Certain statements in this press release, the
related conference call and webcast which are not historical facts
are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, and are provided
pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Any statements or information in
this press release, the related conference call and webcast that
are not statements or information of historical fact may be deemed
forward-looking statements. Words such as “continue,” “will,”
“may,” “could,” “should,” “expect,” “expected,” “plans,” “intend,”
“anticipate,” “believe,” “estimate,” “predict,” “potential,” and
similar expressions are intended to identify such forward-looking
statements. These forward-looking statements include, but are not
limited to, statements concerning: (i) the Company’s future
business, future results of operations and/or financial condition;
(ii) new or planned products, features, events or other offerings
and the anticipated timing of launching such products, features,
events and offerings, including the anticipated release of the
Company’s Le Mans Ultimate game on February 20, 2024; (iii) the
Company’s belief that the sale of its NASCAR license will improve
the business outlook by reducing its financial commitments and
allowing the Company to focus its limited resources on near-term
projects that are anticipated to come to market; (iv) the Company’s
belief that its ability to continue selling the NASCAR game back
catalog through to the end of 2024 ahead of an anticipated 2025
game by the new developer – offering some revenue stability as it
aims to bring new products to market, as well as the Company’s
anticipation that the amount of revenue to be generated by its
existing NASCAR products will decline over time; (v) the Company’s
plans to pivot its Traxion media website to build a truly inclusive
ecosystem within the racing segment; (vi) the Company’s plans to
identify opportunities to resume development of its INDYCAR title
elsewhere within the business following the closing of its
Australian studio; (vii) the expected future impact of implementing
management strategies and the impact of other industry trends;
(viii) the Company’s expectation that it will continue to have a
net cash outflow from operations for the foreseeable future as it
continues to develop its product portfolio and invest in developing
new video game titles; (ix) the Company’s plans and expectations
regarding its technologies, such as RaceControl, and the
anticipated benefits from such technologies; and (x) the Company’s
liquidity and capital requirements, including, without limitation,
the Company’s ability to continue as a going concern, the Company’s
belief it will not have sufficient cash on hand to fund its
operations over the next year based on the cash and cash
equivalents available as of October 31, 2023 and the Company’s
average cash burn, the Company’s belief that additional funding
will be required in order to continue operations, and the Company’s
plans to address its liquidity short fall, including its
exploration of 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 its business, including, but not limited to, the
sale or licensing of the Company’s assets in addition to its recent
sale of its NASCAR license; and further cost reduction and
restructuring initiatives. All forward-looking statements involve
significant risks and uncertainties that could cause actual results
to differ materially from those expressed or implied in the
forward-looking statements, many of which are generally outside of
the Company’s control and are difficult to predict. Examples of
such risks and uncertainties include, but are not limited to: (i)
difficulties, delays or less than expected results in achieving the
Company’s growth plans, objectives and expectations, such as due to
decreased sales of the Company’s products due to the disposition of
key assets, further changes in the Company’s product roadmap, the
Company’s inability to deliver new products for its various other
licenses, a slower than anticipated economic recovery and/or the
Company’s inability, in whole or in part, to continue to execute
its business strategies and plans, such as due to less than
anticipated customer acceptance of its new game titles and/or less
than anticipated benefits from its future technologies, the Company
experiencing difficulties or the inability to launch its games as
planned, less than anticipated performance of the games impacting
customer acceptance and sales and/or greater than anticipated costs
and expenses to develop and launch its games, including, without
limitation, higher than expected labor costs and, in addition to
the factors set forth in (ii) through (vi) below, the Company’s
continuing financial condition and ability to obtain additional
debt and/or equity financing to meet its liquidity requirements,
such as the going concern qualification on the Company’s annual
audited financial statements posing difficulties in obtaining new
financing on terms acceptable to the Company, or at all; (ii)
difficulties, delays in or unanticipated events that may impact the
timing and scope of new or planned products, features, events or
other offerings, such as due to difficulties and/or delays arising
out of any resurgence of the ongoing and prolonged COVID-19
pandemic; (iii) less than expected benefits from implementing the
Company’s management strategies and/or adverse economic, market and
geopolitical conditions that negatively impact industry trends,
such as significant changes in the labor markets, an extended or
higher than expected inflationary environment (such as the impact
on consumer discretionary spending as a result of significant
increases in energy and gas prices which have been increasing since
early in 2020), a higher interest rate environment, tax increases
impacting consumer discretionary spending and/or quantitative
easing that results in higher interest rates that negatively impact
consumers’ discretionary spending, or adverse developments relating
to the ongoing war between Russia and Ukraine; (iv) greater than
anticipated negative operating cash flows such as due to higher
than expected development costs, higher interest rates and/or
higher inflation, or failure to achieve the expected savings under
any cost reduction and restructuring initiatives; (v) difficulties
and/or delays in resolving the Company’s liquidity and capital
requirements due to reasons including, without limitation,
difficulties in securing funding that is on commercially acceptable
terms to the Company or at all, such as the Company’s inability to
complete in whole or in part any potential debt and/or equity
financing transactions or similar transactions, any inability to
achieve cost reductions, including, without limitation, those which
the Company expects to achieve through any cost reduction and
restructuring initiatives, as well as any inability to consummate
one or more strategic alternatives for the Company’s business,
including, but not limited to, the sale or licensing of the
Company’s assets, and/or less than expected benefits resulting from
any such strategic alternative; and/or (vi) difficulties, delays or
the Company’s inability to successfully complete any cost reduction
and restructuring initiatives, in whole or in part, which could
result in less than expected operating and financial benefits from
such actions, as well as delays in completing any cost reduction
and restructuring initiatives, which could reduce the benefits
realized from such activities; higher than anticipated
restructuring charges and/or payments and/or changes in the
expected timing of such charges and/or payments; and/or less than
anticipated annualized cost reductions from any cost reduction and
restructuring initiatives and/or changes in the timing of realizing
such cost reductions, such as due to less than anticipated
liquidity to fund such activities and/or more than expected costs
to achieve the expected cost reductions. Factors other than those
referred to above could also cause the Company’s results to differ
materially from expected results. Additional examples of such risks
and uncertainties include, but are not limited to: (i) delays and
higher than anticipated expenses related to the ongoing and
prolonged COVID-19 pandemic, any resurgence of COVID-19 and the
ongoing war between Russia and Ukraine; (ii) the Company’s ability
(or inability) to maintain existing, and to secure additional,
licenses and other agreements with various racing series; (iii) the
Company’s ability to successfully manage and integrate any joint
ventures, acquisitions of businesses, solutions or technologies;
(iv) unanticipated operating costs, transaction costs and actual or
contingent liabilities; (v) the ability to attract and retain
qualified employees and key personnel; (vi) adverse effects of
increased competition; (vii) changes in consumer behavior,
including as a result of general economic factors, such as
increased inflation, higher energy prices and higher interest
rates; (viii) the Company’s inability to protect its intellectual
property; and/or (ix) local, industry and general business and
economic conditions. Additional factors that could cause actual
results to differ materially from those expressed or implied in the
forward-looking statements can be found in the Company’s filings
with the Securities and Exchange Commission (the “SEC”), including
its Annual Report on Form 10-K for the fiscal year ended December
31, 2022, its Quarterly Reports on Form 10-Q filed with the SEC
during 2023, as well as in its subsequent filings with the SEC. The
Company anticipates that subsequent events and developments may
cause its plans, intentions and expectations to change. The Company
assumes no obligation, and it specifically disclaims any intention
or obligation, to update any forward-looking statements, whether as
a result of new information, future events or otherwise, except as
expressly required by law. Forward-looking statements speak only as
of the date they are made and should not be relied upon as
representing the Company’s plans and expectations as of any
subsequent date.
Website and Social Media
Disclosure
Investors and others should note that we
announce material financial information to our investors using our
investor relations website (ir.motorsportgames.com), SEC filings,
press releases, public conference calls and webcasts. We use these
channels, as well as social media and blogs, to communicate with
our investors and the public about our company and our products. It
is possible that the information we post on our websites, social
media and blogs could be deemed to be material information.
Therefore, we encourage investors, the media and others interested
in our company to review the information we post on the websites,
social media channels and blogs, including the following (which
list we will update from time to time on our investor relations
website):
Websites |
Social Media |
motorsportgames.com |
Twitter: @msportgames & @traxiongg |
traxion.gg |
Instagram: msportgames & traxiongg |
motorsport.com |
Facebook: Motorsport Games & traxiongg |
|
LinkedIn: Motorsport Games |
|
Twitch: traxiongg |
|
Reddit: traxiongg |
The contents of these websites and social media
channels are not part of, nor will they be incorporated by
reference into, this press release.
Contacts:
Investors:Investors@motorsportgames.com
Media:PR@motorsportgames.com
Appendix:
The following table provide a comparative
summary of the Company’s financial results for the periods
presented:
|
Three Months Ended September 30, |
Nine Months Ended September 30, |
|
|
2023 |
|
|
|
2022 |
|
|
2023 |
|
|
|
2022 |
|
Revenues |
$ |
1,693,871 |
|
|
$ |
1,223,142 |
|
$ |
5,162,356 |
|
|
$ |
6,553,918 |
|
Cost of revenues [1] |
|
831,479 |
|
|
|
602,856 |
|
|
2,946,382 |
|
|
|
3,472,819 |
|
Gross profit |
|
862,392 |
|
|
|
620,286 |
|
|
2,215,974 |
|
|
|
3,081,099 |
|
|
|
|
|
|
|
|
Operating
expenses: |
|
|
|
|
|
|
Sales and marketing [2] |
|
358,120 |
|
|
|
1,440,659 |
|
|
1,411,318 |
|
|
|
4,669,328 |
|
Development [3] |
|
1,566,839 |
|
|
|
2,631,066 |
|
|
5,751,741 |
|
|
|
7,717,046 |
|
General and administrative [4] |
|
1,526,614 |
|
|
|
4,008,335 |
|
|
7,459,957 |
|
|
|
10,781,098 |
|
Impairment of goodwill |
|
- |
|
|
|
- |
|
|
- |
|
|
|
4,788,268 |
|
Impairment of intangible assets |
|
- |
|
|
|
- |
|
|
4,004,627 |
|
|
|
4,640,102 |
|
Depreciation and amortization |
|
75,614 |
|
|
|
92,703 |
|
|
277,822 |
|
|
|
326,499 |
|
Total operating expenses |
|
3,527,187 |
|
|
|
8,172,763 |
|
|
18,905,465 |
|
|
|
32,922,341 |
|
Loss from operations |
|
(2,664,795 |
) |
|
|
(7,552,477 |
) |
|
(16,689,491 |
) |
|
|
(29,841,242 |
) |
Interest expense [5] |
|
(230,190 |
) |
|
|
(244,953 |
) |
|
(674,060 |
) |
|
|
(638,211 |
) |
Other (loss) income, net |
|
(639,147 |
) |
|
|
(739,285 |
) |
|
369,345 |
|
|
|
(1,511,978 |
) |
Net loss |
|
(3,534,132 |
) |
|
|
(8,536,715 |
) |
|
(16,994,206 |
) |
|
|
(31,991,431 |
) |
Less: Net loss attributable to
non-controlling interest |
|
(44,093 |
) |
|
|
(21,431 |
) |
|
(232,196 |
) |
|
|
(933,234 |
) |
Net loss attributable to Motorsport Games
Inc. |
$ |
(3,490,039 |
) |
|
$ |
(8,515,284 |
) |
$ |
(16,762,010 |
) |
|
$ |
(31,058,197 |
) |
|
|
|
|
|
|
|
Net loss attributable to Class
A common stock per share: |
|
|
|
|
|
|
Basic and diluted |
$ |
(1.28 |
) |
|
$ |
(7.29 |
) |
$ |
(6.60 |
) |
|
$ |
(26.61 |
) |
|
|
|
|
|
|
|
Weighted-average shares of
Class A common stock outstanding: |
|
|
|
|
|
|
Basic and diluted |
|
2,720,328 |
|
|
|
1,167,359 |
|
|
2,538,863 |
|
|
|
1,167,178 |
|
|
|
|
|
|
|
|
A photo accompanying this announcement is available at
https://www.globenewswire.com/NewsRoom/AttachmentNg/b5764246-4792-4b5a-8fe7-0a3eacbff712
Motorsport Games (NASDAQ:MSGM)
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