Motorsport Games(MSGM) - 2024 Q2 - Quarterly Results

Management Commentary & Business Update Motorsport Games made significant progress in Q2 2024, enhancing 'Le Mans Ultimate' with new paid DLC, strengthening its balance sheet through liability reduction and capital raise, and planning accelerated console porting - The company has made significant improvements to 'Le Mans Ultimate' and introduced its first paid DLC, adding a second revenue stream for the title[1] - A settlement with INDYCAR LLC reduced liabilities by $2.9 million, and a Registered Direct Offering (RDO) raised approximately $1 million in gross proceeds[1] - Given the positive reception of 'Le Mans Ultimate', the company has decided to accelerate efforts to bring the title to game consoles[1] - The inaugural paid DLC pack for Le Mans Ultimate, featuring the Imola Circuit and new cars, was released in July 2024[2] Q2 2024 Financial Performance Q2 2024 saw a significant financial turnaround to net income, driven by reduced operating expenses, one-time gains from liability settlements, and improved gross profit margin Key Financial Highlights | Metric | Q2 2024 (USD) | Q2 2023 (USD) | Change (USD, %) | | :--- | :--- | :--- | :--- | | Revenue | $1.9 million | $1.7 million | +$0.2 million (+8.2%) | | Gross Profit | $1.1 million | $0.9 million | +$0.2 million | | Gross Profit Margin | 59.0% | 50.2% | +8.8 percentage points | | Metric | Q2 2024 (USD) | Q2 2023 (USD) | Change (USD) | | :--- | :--- | :--- | :--- | | Net Income (Loss) Attributable to MSGM | $2.4 million | ($8.2 million) | +$10.6 million | | Net Income (Loss) per Share (Class A) | $0.87 | ($3.04) | +$3.91 | - The $10.3 million improvement in net income was primarily due to a $6.9 million reduction in operating expenses, a $2.5 million gain from the INDYCAR settlement, a $0.6 million gain from the BARC (TOCA) settlement, and a $0.3 million gain from an asset sale to Traxion.GG Limited[4] Adjusted EBITDA (Non-GAAP) | Metric | Q2 2024 (USD) | Q2 2023 (USD) | Change (USD) | | :--- | :--- | :--- | :--- | | Adjusted EBITDA Loss | ($0.2 million) | ($2.7 million) | +$2.5 million | Reconciliation from Net Income (Loss) to Adjusted EBITDA (Loss) | | Three Months Ended June 30, 2024 (USD) | Three Months Ended June 30, 2023 (USD) | |:---|:---:|:---:| | Net income (loss) | $2,087,483 | $(8,200,882) | | Interest expense, net | $29,746 | $244,750 | | Depreciation and amortization | $587,160 | $508,874 | | EBITDA | $2,704,389 | $(7,447,258) | | Acquisition-related expenses | $336,172 | $231,607 | | Gain from settlement of license liabilities | $(3,248,000) | - | | Impairment of intangible assets | - | $4,004,627 | | Stock-based compensation | $10,658 | $521,303 | | Adjusted EBITDA | $(196,781) | $(2,689,721) | Cash Flow and Liquidity The company faces critical liquidity challenges with $0.5 million cash as of June 30, 2024, and a $0.2 million monthly cash burn, necessitating immediate additional funding or cost reductions | Date | Cash and Cash Equivalents (USD) | | :--- | :--- | | June 30, 2024 | $0.5 million | | July 31, 2024 | $1.3 million | - For the six months ended June 30, 2024, the company had a negative cash flow from operations of approximately $1.4 million, an average monthly burn of $0.2 million[7] - Management explicitly states that the company does not have sufficient cash to fund its operations over the next year and will require additional funding[8] - To address the liquidity shortfall, the company is exploring options including equity/debt financing, sale or licensing of assets, and further cost reduction initiatives[8] Appendix: Detailed Financial Statements This appendix provides unaudited Condensed Consolidated Statements of Operations for Q2 2024 and 2023, detailing revenues, expenses, settlement gains, and net income calculations Condensed Consolidated Statements of Operations (Unaudited, for the three months ended June 30) | | 2024 (USD) | 2023 (USD) | |:---|:---:|:---:| | Revenues | $1,881,653 | $1,739,130 | | Gross profit | $1,110,006 | $872,963 | | Total operating expenses | $2,549,258 | $9,486,270 | | Gain from settlement of license liabilities | $3,248,000 | - | | Income (loss) from operations | $2,058,748 | $(8,601,744) | | Net income (loss) | $2,087,483 | $(8,200,882) | | Net income (loss) attributable to Motorsport Games Inc. | $2,376,306 | $(8,212,089) | | Net income (loss) per Class A common share | $0.87 | $(3.04) | Supplementary Information This section defines non-GAAP measures, outlines investor communication details, and provides forward-looking statements highlighting significant risks related to financing, cash burn, and product launches - Adjusted EBITDA is a non-GAAP measure used by management, defined as net income (loss) adjusted for interest, depreciation, amortization, acquisition expenses, gains from settlements, impairment charges, and stock-based compensation[10] - The company will host a conference call and webcast on August 9, 2024, to discuss its financial results[13] - The press release contains forward-looking statements concerning the company's financial condition, operational plans, and potential strategic alternatives, which are subject to significant risks and uncertainties, including liquidity challenges and the ability to obtain new financing[15][16] - The company uses its investor relations website (ir.motorsportgames.com), SEC filings, press releases, and social media to communicate material information to investors[20]