Motorsport Games Inc. (NASDAQ: MSGM) (“Motorsport Games” or the
“Company”) today reported financial results for its first fiscal
quarter ended March 31, 2023. The Company has also posted a Q1 2023
Review video and Q1 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.
Stephen Hood, Chief Executive Officer of
Motorsport Games, commented, “I am incredibly passionate about the
world of motorsport, and I see a tremendous opportunity for growth
and innovation in this exciting industry. I am pleased to be able
to rejoin Motorsport Games as CEO and lead this team in driving the
company forward. With our expertise in racing game development,
esports, and broadcasting, I believe we are increasingly
well-positioned to capitalize on the growing demand for immersive
motorsport experiences and create new opportunities for fans and
participants around the world.”
Hood added, “It has been apparent in my first
few weeks the entire team across the Motorsport Games business are
energized about what we can deliver if we are united and decisive.
I am firm in my belief about what can be achieved and hope to be a
catalyst in a change of fortunes for the Motorsport Games
business.”
First Quarter 2023 Business
Update
|
● |
rFactor 2 Quarterly Content Update Released: In
February 2023, the Company released updates to rFactor 2 that
includes an exciting new vehicle – the Honda Civic Type R, the
introduction of the superb, laser-scanned version of Long Beach,
and a wealth of improvements to enhance the player experience. |
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|
● |
Raised Approximately $11.3 Million of Gross Proceeds in 3
Registered Direct Offerings: During February 2023, the
Company announced the closing of 3 registered direct offerings
priced at-the-market under NASDAQ rules. The aggregate gross
proceeds from the 3 offerings were approximately $11.3
million. |
|
|
|
|
● |
Completed Debt for Equity Exchanges with Motorsport
Network, LLC: The Company entered into debt-for-equity
exchange agreements with its majority stockholder, Motorsport
Network, LLC (“Motorsport Network”), pursuant to which all of the
Company’s outstanding debt under its $12 million line of credit
with Motorsport Network was cancelled in exchange for shares of the
Company’s Class A common stock. |
|
|
|
|
● |
Regained Full Compliance with NASDAQ Listing
Rules: The Company received notice from the Nasdaq Stock
Market LLC (“Nasdaq”) on January 30, 2023 informing Motorsport
Games that it has regained full compliance with the Nasdaq Listing
Rules. |
|
|
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|
● |
Delivered the Finale of the 2022-23 Le Mans Virtual Series,
the 24 Hours of Le Mans
Virtual: The 2022-23 Le Mans Virtual
Series, a joint venture between Motorsport Games and the Automobile
Club de l’Ouest (“ACO”), returned for more of the elite, endurance
esports competition which has attracted world motor racing
champions, captured global attention, and received plaudits from
teams, drivers and fans alike. The grand finale, the 24 Hours of Le
Mans Virtual, was held on January 14-15, 2023 and had a cumulative
total of approximately 8.8 million video views with approximately
27 million minutes watched. |
Select Financial Highlights
The Company reported a net loss for the first
quarter of 2023 (“2023”) of $5.3 million, or $2.33 per share,
compared to a net loss of $16.0 million, or $12.97, for the first
quarter of 2022 (“2022”). The Company also reported an Adjusted
EBITDA loss for 2023 of $4.3 million, compared to an Adjusted
EBITDA loss of $5.6 million for the same period in the prior year.
The Company benefited from no impairment losses in 2023, compared
to $9.3 million of impairment losses in 2022, with the remaining
$1.4 million reduction in net loss primarily due to reduced
external marketing spend and lower payroll costs in 2023 when
compared to 2022, as a result of the actions taken under the
Company’s previously announced 2022 Restructuring Program.
Revenue for 2023 was $1.7 million compared to
$3.3 million for the same period in the prior year, a reduction of
$1.6 million, or 48%. The Company experienced less favorable
pricing and lower volume of digital sales in its existing product
portfolio, as well as lower physical retail sales, in 2023 when
compared to 2022.
Quarterly Financial Highlights
|
|
Three Months Ended March 31, |
|
|
|
2023 |
|
|
2022 |
|
Revenues |
|
$ |
1,729,355 |
|
|
$ |
3,321,789 |
|
Cost of revenues |
|
|
1,248,736 |
|
|
|
2,013,806 |
|
Gross profit |
|
|
480,619 |
|
|
|
1,307,983 |
|
Total operating expenses |
|
|
5,892,008 |
|
|
|
16,911,333 |
|
Loss from operations |
|
|
(5,411,389 |
) |
|
|
(15,603,350 |
) |
Interest expense |
|
|
(199,120 |
) |
|
|
(201,596 |
) |
Other (loss) income, net |
|
|
351,317 |
|
|
|
(162,099 |
) |
Net loss |
|
|
(5,259,192 |
) |
|
|
(15,967,045 |
) |
Less: Net loss attributable to
non-controlling interest |
|
|
(158,245 |
) |
|
|
(829,428 |
) |
Net loss attributable to Motorsport Games
Inc. |
|
$ |
(5,100,947 |
) |
|
$ |
(15,137,617 |
) |
|
|
|
|
|
|
|
|
|
Net loss attributable to Class
A common stock per share: |
|
|
|
|
|
|
|
|
Basic and diluted |
|
$ |
(2.33 |
) |
|
$ |
(12.97 |
) |
|
|
|
|
|
|
|
|
|
Weighted-average shares of
Class A common stock outstanding: |
|
|
|
|
|
|
|
|
Basic and diluted |
|
|
2,192,155 |
|
|
|
1,166,816 |
|
The following table provides a reconciliation
from net loss to Adjusted EBITDA loss for 2023 and 2022,
respectively:
|
|
Three Months EndedMarch 31,
2023 |
|
|
Three Months EndedMarch 31,
2022 |
|
Net Loss |
|
$ |
(5,259,192 |
) |
|
$ |
(15,967,045 |
) |
Interest expense |
|
|
199,120 |
|
|
|
201,596 |
|
Depreciation and
Amortization |
|
|
502,357 |
|
|
|
567,840 |
|
EBITDA |
|
|
(4,557,715 |
) |
|
|
(15,197,609 |
) |
Acquisition-related
expenses |
|
|
53,750 |
|
|
|
1,250 |
|
Impairment of goodwill and
intangible assets |
|
|
- |
|
|
|
9,279,322 |
|
Stock-based compensation |
|
|
249,233 |
|
|
|
353,030 |
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA |
|
$ |
(4,254,732 |
) |
|
$ |
(5,554,333 |
) |
Cash Flow and Liquidity
As of March 31, 2023, the Company had cash and
cash equivalents of approximately $5.8 million. During 2023, the
Company had negative cash flows from operations of approximately
$5.7 million, representing an average monthly net cash burn from
operations of approximately $1.9 million. The Company expects to
continue to incur significant operating expenses as it develops its
product portfolio and, as a result, expects to have negative cash
flows from operations for the foreseeable future until its product
base is suitably established to create sufficient revenues and cash
inflows to support the Company’s operations .
As of April 30, 2023, the Company’s cash and
cash equivalents has reduced further to $4.9 million. 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 for the remainder of 2023 and that
additional funding will be required in order to continue
operations. The Company will need to supplement its available
liquidity with additional debt and/or equity financing, as well as
ongoing cost control initiatives.
The Company’s future liquidity and capital
requirements include funds to support the planned costs to operate
its business, including amounts required to fund working capital,
support the development and introduction of new products, maintain
existing game titles and certain capital expenditures. The adequacy
of the Company’s available funds generally depends on many factors,
including its ability to successfully develop consumer-preferred
new products or enhancements to its existing products, continued
development and expansion of the Company’s esports platform and its
ability to collaborate with and/or acquire other companies or
technologies to enhance or complement the Company’s product and
service offerings.
The Company is currently seeking additional
funds through a variety of arrangements and through maintaining and
enhancing strong cost controls. There can be no assurances that the
sources of liquidity referred to above will provide the Company
with sufficient liquidity to meet its ongoing cash requirements as,
among other things, the Company’s liquidity can be impacted by a
number of factors, including the Company’s level of sales and
expenditures, as well as accounts receivable, sales allowances,
prepaid manufacturing expenses and accrued expenses.
(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; and (iv) other 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 6:00 p.m. ET today, May 11, 2023, to discuss its
financial results. The live conference call can be accessed by
dialing 1-844-826-3033 from the U.S. or 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 leading 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 the joy of racing accessible to everyone. The
Company is the officially licensed video game developer and
publisher for iconic motorsport racing series across PC,
PlayStation, Xbox, Nintendo Switch and mobile, including NASCAR,
INDYCAR, 24 Hours of Le Mans and the British Touring Car
Championship (“BTCC”), as well as the industry leading rFactor 2
and KartKraft simulations. 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 an
award-winning esports partner of choice for 24 Hours of Le Mans,
Formula E, BTCC, the FIA World Rallycross Championship and the
eNASCAR Heat Pro League, among others. Motorsport Games is building
a virtual racing ecosystem where each product drives excitement,
every esports event is an adventure and every story 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; (iii) the Company’s belief that it is
increasingly well-positioned to capitalize on the growing demand
for immersive motorsport experiences and create new opportunities
for fans and participants around the world; (iv) the expected
future impact of implementing management strategies and the impact
of other industry trends; (v) the Company’s expectation that it
will continue to incur significant operating expenses as it
develops its product portfolio; (vi) the Company’s expectation that
it will have negative cash flows from operations for the
foreseeable future until its product base is suitably established
to create sufficient revenues and cash inflows to support the
Company’s operations; and (vii) 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 for the
remainder of 2023 based on the cash and cash equivalents available
as of March 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 expectation to supplement
liquidity with additional debt and/or equity financing and cash
generated by cost control 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 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, 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 the Company’s 2022 Restructuring Program;
(v) difficulties and/or delays in resolving the Company’s liquidity
and capital requirements, 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, as well as any
inability to achieve cost reductions, including, without
limitation, those which the Company expects to achieve through the
2022 Restructuring Program; and/or (vi) difficulties, delays or the
Company’s inability to successfully complete the 2022 Restructuring
Program, 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 the 2022 Restructuring Program, 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 the
2022 Restructuring Program 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:
MOTORSPORT GAMES INC. AND
SUBSIDIARIESCONSOLIDATED STATEMENTS OF
OPERATIONS |
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2023 |
|
|
2022 |
|
Revenues |
|
$ |
1,729,355 |
|
|
$ |
3,321,789 |
|
Cost of revenues [1] |
|
|
1,248,736 |
|
|
|
2,013,806 |
|
Gross profit |
|
|
480,619 |
|
|
|
1,307,983 |
|
|
|
|
|
|
|
|
|
|
Operating
expenses: |
|
|
|
|
|
|
|
|
Sales and marketing [2] |
|
|
618,410 |
|
|
|
1,688,449 |
|
Development [3] |
|
|
2,397,134 |
|
|
|
2,404,338 |
|
General and administrative [4] |
|
|
2,779,110 |
|
|
|
3,423,153 |
|
Impairment of goodwill |
|
|
- |
|
|
|
4,788,268 |
|
Impairment of intangible assets |
|
|
- |
|
|
|
4,491,054 |
|
Depreciation and amortization |
|
|
97,354 |
|
|
|
116,071 |
|
Total operating expenses |
|
|
5,892,008 |
|
|
|
16,911,333 |
|
Loss from operations |
|
|
(5,411,389 |
) |
|
|
(15,603,350 |
) |
Interest expense |
|
|
(199,120 |
) |
|
|
(201,596 |
) |
Other (loss) income, net |
|
|
351,317 |
|
|
|
(162,099 |
) |
|
|
|
|
|
|
|
|
|
Net loss |
|
|
(5,259,192 |
) |
|
|
(15,967,045 |
) |
Less: Net loss attributable to
non-controlling interest |
|
|
(158,245 |
) |
|
|
(829,428 |
) |
Net loss attributable to Motorsport Games
Inc. |
|
$ |
(5,100,947 |
) |
|
$ |
(15,137,617 |
) |
|
|
|
|
|
|
|
|
|
Net loss attributable to Class
A common stock per share: |
|
|
|
|
|
|
|
|
Basic and diluted |
|
$ |
(2.33 |
) |
|
$ |
(12.97 |
) |
|
|
|
|
|
|
|
|
|
Weighted-average shares of
Class A common stock outstanding: |
|
|
|
|
|
|
|
|
Basic and diluted |
|
|
2,192,155 |
|
|
|
1,166,816 |
|
[1] Includes related party costs of $0 and
$6,228 for the three months ended March 31, 2023 and 2022,
respectively.[2] Includes related party expenses of $17,076 and $0
for the three months ended March 31, 2023 and 2022,
respectively.[3] Includes related party expenses of $15,488 and
$22,606 for the three months ended March 31, 2023 and 2022,
respectively.[4] Includes related party expenses of $92,045 and
$22,886 for the three months ended March 31, 2023 and 2022,
respectively.
A photo accompanying this announcement is available at
https://www.globenewswire.com/NewsRoom/AttachmentNg/b7630b64-ebb1-4807-8f98-234815464f6b
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