Motorsport Games Inc. (NASDAQ: MSGM), a leading racing game developer, announced its third-quarter 2024 financial results, highlighting increased revenues and reduced net loss compared to the previous year. The company's CEO, Stephen Hood, and CFO, Stanley Beckley, discussed the latest developments, including the successful update of Le Mans Ultimate and the introduction of innovative gaming features. Despite the positive developments, the company acknowledged the need for additional funding to sustain operations over the next year.
Key Takeaways
- Motorsport Games reported increased Q3 revenues of $1.8 million, up by 6.4% year-over-year.
- Net loss significantly improved to $0.6 million, down from $3.5 million in the same quarter of the previous year.
- Adjusted EBITDA stood at $0.1 million, a substantial improvement from a $2.5 million loss in Q3 of the prior year.
- The company achieved cost savings through headcount reductions and operational streamlining.
- Motorsport Games released major updates and features for its Le Mans Ultimate game.
- The company is actively exploring funding options to address liquidity concerns.
Company Outlook
- Motorsport Games is optimistic about the future, emphasizing its strong technology and product offerings.
- The company plans to introduce real-time driver swaps in Q1 2025.
- An optional subscription service is expected to launch soon, enhancing the gaming experience and generating additional revenue.
Bearish Highlights
- Motorsport Games has acknowledged a shortfall in liquidity and the necessity for additional funding to maintain operations over the next year.
Bullish Highlights
- The company has reported a growing ecosystem with its race control platform surpassing 100,000-user registrations.
- Strategic partnerships, like the one with Kindred Concepts, are expanding and demonstrating the appeal of Motorsport Games' technology.
Misses
- Despite improved financials, the company's cash and cash equivalents have decreased to $0.5 million as of October 31, 2024.
- There is an acknowledged risk of insufficient cash to fund operations without securing additional financing.
Q&A Highlights
- The Q&A session provided further insights into the company's strategic plans and financial stability.
- Management reiterated their commitment to exploring all available options to secure the necessary capital for growth.
In conclusion, while Motorsport Games has shown resilience and innovation in product development and cost management, the company faces challenges in securing the funding needed to sustain operations. The management remains committed to exploring strategic alternatives and ensuring the long-term success of Motorsport Games.
InvestingPro Insights
Motorsport Games Inc. (NASDAQ: MSGM) presents a complex financial picture that aligns with the company's recent earnings report. According to InvestingPro data, MSGM's market capitalization stands at a modest $3.91 million, reflecting the company's current financial challenges.
Despite the reported improvements in Q3 revenues and reduced net loss, InvestingPro Tips highlight that MSGM is "quickly burning through cash" and that "short term obligations exceed liquid assets." These insights corroborate the company's acknowledgment of liquidity concerns and the need for additional funding to sustain operations.
On a positive note, MSGM is "trading at a low earnings multiple" with a P/E ratio of 2.09, which could be attractive to value investors. Additionally, the company is "profitable over the last twelve months," which aligns with the improved financial results reported in the earnings announcement.
However, the stock's performance has been challenging, as indicated by another InvestingPro Tip stating that the "price has fallen significantly over the last year." This is reflected in the 1 Year Price Total (EPA:TTEF) Return of -52.67%, underscoring the volatility and risks associated with the company's stock.
For investors seeking a more comprehensive analysis, InvestingPro offers 13 additional tips for MSGM, providing a deeper understanding of the company's financial health and market position.
Full transcript - Motorsport Gaming Us LLC (NASDAQ:MSGM) Q3 2024:
Operator: Thank you for standing by and welcome to Motorsport Games Inc. Third Quarter 2024 Earnings Call. [Operator Instructions]. As a reminder, today's conference is being recorded. I would 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 third quarter 2024 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 third quarter 2024 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 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 findings of the SEC including its most recent quarterly report on Form 10-Q for the quarter ended September 30, 2024 for a detailed discussion on 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 third quarter 2024 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 is also available on the Investor Relations section of Motorsport Games' website at www.motorsportgames.com. And now I'd like to turn the call over to Stephen Hood, Chief Executive Officer of Motorsport Games. Stephen?
Stephen Hood: Thank you everyone for joining this conference call today. Since our last conference call, workers diligently continued at Motorsport Games and our development team at Studio 397 to deliver improved player experiences against the backdrop of ongoing cost optimization. We continue to drive gain revenues whilst reducing expenditure. As announced last month, the company undertook further headcount reductions aimed at reducing cash expenditure and streamlining operations. This was a necessary move to maintain our steadfast commitment to rightsizing the entire operation so that we can emerge stronger and ultimately prepared for success. A reduction in personnel has not meant a reduction in productivity or progress however. We believe we have struck the right balance between cost saving and retaining of key staff and vital knowledge. The team we have today are more than capable of carrying this company into a new phase with continued product and technology growth, which will serve our customers, shareholders and clients. In September, Le Mans Ultimate received its biggest update so far with large free feature updates alongside the second of our 2024 downloadable content or DLC packs. An innovative co-op mode that I've spoken about regularly was delivered offering a unique opportunity for racers to play together with friends at a pace that suits them in a play by mail game style and powered by our online platform, RaceControl. This feature is not available in any other product on the market and something that we are particularly proud of and expect to make use of in partnership with some of our clients also seeking further opportunities for improved customer retention. Players now have the opportunity to play one chapter of a story at a time of their choosing, which can only be of benefit in today's hectic world where time to play is at a premium. Whilst the underlying technology that powers our simulation online platform and gaming is incredibly strong, we realized the deployment of our experiences must be to the benefit of a wide range of gamers. F1 Arcade, powered by our technology, is a more recent example of high-end simulation technology being very much proven as pick up and play. Additionally, we delivered a feature that players have been asking for since day one, the ability to save a race and resume it in a race weekend game mode. As the simulation is built to represent the 24 hours of Le Mans and the FIA World Endurance Championship, our product must be able to allow users to complete technically challenging endurance races in a way that suits them. And both this save and load feature and a co-op game mode fulfill this requirement. Next (LON:NXT) up, we're on a path to deliver real time driver swaps in the new year expected in Q1 2025, which will continue to take our product to a new level. Players will be able to team up with friends and play in real time races, sharing the car and in turn experiencing shared moments that will further broaden the appeal of our newest game. Part 2 of our 2024 season pass for Le Mans Ultimate completed the Hypercar grid for players with the Isotta, Fraschini and the Alpine LMDh both with great support from the manufacturers. We expect our subsequent packs to generate greater interest as we bring the ever-popular GT3 series cars to the game. Data from another of our products, rFactor 2, historically shows these are by far our most popular vehicle class and we're eager to see this translate into Le Mans Ultimate as we continue to bring the product up to date to match the real world offering and changes in the sport. Part of this major update is an extension to our race control platform to enable new features and services as part of an optional subscription service. We made a commitment to expand the overall offering and subscription plans are a part of that. We are conscious, however, of the never-ending stream of subscription services out there and intend for our offering to provide major value across our two pillar titles, rFactor 2 and Le Mans Ultimate. With every new game tapping into this to deliver unbeatable value, this service should go live next month and become a useful revenue stream. I must also make mention of our partnership with Kindred Concepts, creator and operators of the hugely successful F1 Arcade. They recently expanded to a fourth venue, the latest in Washington, D.C. This is a partnership that enables us to demonstrate the appeal of our game and technology and we're hopeful of exploring more of what we can do together next year. With every new venue opened, more players get to experience our racing simulation. We receive additional per seat license revenue from Kindred Concepts and we position our technology as the pinnacle of single seat racing. As I hope you will have understood, I am upbeat about the potential future of this company, Studio and its technology. Our announcement regarding strategic alternatives came about because the Board and I believe with the right financing, we will have the opportunity to grow this business quickly and sustainably. In the 18 months since our return to this business with the mandate to steer a new course, we have made enormous progress, reducing debt, reducing cash spend and at the same time building, launching and cultivating an iconic product in Le Mans Ultimate. Now I would like to invite Stanley Beckley, our Chief Financial Officer, to talk about the financial results for the Q3 of 2024.
Stanley Beckley: Thank you, Stephen, and good evening, everyone. As with previous earnings calls, I won't be offering any forward-looking guidance today. Instead, I will focus on providing an update on our financial results and highlights from the third of 2024. Revenues for the quarter were $1.8 million up by $0.1 or 6.4% when compared to the same period in the prior year. The increase in revenues was primarily due to higher digital game sales from the release of Le Mans Ultimate on PC in February 2024. Net loss for the quarter was $0.6 million compared to a net loss of $3.5 million for the same period in the prior year, an improvement of $2.9 million. The decrease in net loss is driven by $1.4 million in other income, which is primarily comprised of foreign currency gains incurred in emerging transactions denominated in a currency other than U.S. dollars. Net loss also decreased due to a $0.5 million reduction in operating expenses related to headcount reductions and lower general and administrative expenses during the three months ended September 30, 2024 compared to the same prior year period as well as a $0.2 million improvement in gross profit. Net income attributable to Plus A common stock was $0.0 per share for the third quarter of 2024 compared to a net loss of $1.31 for the same period the prior year. We are reporting adjusted EBITDA of $0.1 million for the third quarter of 2024 compared to an adjusted EBITDA loss of $2.5 million for the same period in the prior year. The improvements in adjusted EBITDA are the same as those discussed in respect of the change in net income for the period and comparative quarter as well as a decrease in stock-based compensation compared to the prior year period. As it relates to liquidity, this continues to be a key area of focus for the company. Net cash used in operations for the nine months ended September 30, 2024 was approximately $0.7 million representing an average monthly net cash burn from operations of $0.1 million down $1.0 million when compared to the average monthly cash burn of $1.1 million for the nine months ended September 30, 2023. As of September 30, 2024, the company had cash and cash equivalents of $0.8 million which had decreased to $0.5 million as of October 31, 2024. Based on our cash position and average monthly cash burn, we do not believe there is sufficient cash on hand to fund company 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 of similar transactions strategic alternatives for our business, including but not limited to the sale or licensing of our assets in addition to the release of our NASCAR license contractions and further cost reduction 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 everyone joining us today. If I could leave you with one lastly thought, it's this. We've shown that a united and focused team of passionate, talented individuals can defy the odds and transform our organization into the forward-thinking games company we were always meant to be. I'm confident that together, we will empower our people to lead us into a successful future, delivering entertainment experiences that could genuinely disrupt the racing and driving segment within which we operate. We have perhaps the best technology, amazing people, a growing ecosystem with our race control platform which incidentally passed the 100,000-user registration mark just this week, we are working as hard as possible. Thank you all for your time and attention. I deeply appreciate it.
Operator:
Operator: I would now like to turn the conference back to Mr. Stephen Hood for any additional or closing remarks.
Stephen Hood: Thank you. I would just like to say thank you for the attention that we received this evening. It is much appreciated. Thank you all for your time.
Operator: This does conclude today's call. We thank you for your participation. [Operator Closing Remarks].
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