04 Nov Motorsport Games Reports Third Quarter 2021 Financial Results

MIAMI, Nov. 4, 2021 — Motorsport Games Inc. (NASDAQ: MSGM) (“Motorsport Games” or the “Company”) today reported financial results for the third quarter ended September 30, 2021. The Company also posted a Third Quarter 2021 review video and Q3 Earnings Slides highlighting key milestones that occurred in the period, which are accessible on the investor relations section of its website.

Dmitry Kozko, Chief Executive Officer of Motorsport Games, commented, “We are thrilled to have released our first, built from the ground up, NASCAR title, NASCAR 21: Ignition on October 28, 2021. This is a significant achievement for us as we all are incredibly excited to start to showcase our passion and capabilities. We are also delighted to announce that we are continuing platform expansion by bringing the first-ever NASCAR title to Nintendo Switch. NASCAR Heat Ultimate Edition+ will bring the joy of NASCAR racing to the NASCAR Switch community comprised of fans from around the world. We started accepting pre-orders on October 15, 2021, with an official release date of November 19, 2021. With these two titles launching, we continue to believe we are well-positioned to reach our outlook for the full year.”

Kozko also commented, “On the esports front, we officially launched the Le Mans Virtual Series in the third quarter of 2021. The first two rounds have been completed and we are anticipating a spectacular grand finale event for the 24 Hours of Le Mans virtual as a live, televised event from the 2022 Autosport International motorsport show on January 15-16, 2022.”

Third Quarter 2021 and Subsequent Business Update

• INDYCAR License Agreement. The Company has entered into a gaming and esports license partnership with INDYCAR. The esports and gaming licenses are long-term agreements for the development of the official games and esports of the INDYCAR Series. The debut title is expected to launch in 2023 on Xbox and PlayStation consoles as well as for PCs.

• 2021 Le Mans Virtual Series Esports Event. A product of the joint venture between Motorsport Games and the Automobile Club de l’Ouest, the creators and organizers of the world-famous 24 Hours of Le Mans and promoter of the FIA World Endurance Championship (FIA WEC), the Le Mans Virtual Series returns to competition with a revised format and portfolio of prestigious partners. The event will be held on January 15-16, 2022 at Autosport International and includes a $250,000 prize pool, as well as an exciting live grand finale that will be televised for all fans.

• NASCAR 21: Ignition. The Company officially launched its new NASCAR franchise racing game, NASCAR 21: Ignition, on October 28, 2021, on PlayStation, Xbox and PC.

• NASCAR Game for Nintendo Switch. The Company announced the upcoming launch of NASCAR Heat Ultimate Edition+ on Nintendo Switch, the first-ever NASCAR title to come to Nintendo Switch. The launch date is targeted for November 19, 2021.

• Board of Directors Addition. The Company added 30-year gaming, entertainment and consumer industry leader Peter Moore to its board of directors. Mr. Moore’s involvement with Motorsport Games will give him the opportunity to leverage his career experiences in sports and gaming with his personal passions in motorsports and cars.

​Financial Results for the Three and Nine Months Ended September 30, 2021

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)

For the three months ended September 30, 2021, revenues from the Gaming segment decreased $6.7 million, or 77%, to $2.0 million from $8.8 million for the three months ended September 30, 2020. The decrease in the Gaming segment revenues compared to the 2020 period was primarily due to the launch of a new game release in Q3-2020, which did not recur in Q3-2021 and the resulting lower sales of console and PC games. The NASCAR Heat 5 game was released in July 2020 and the majority of sales from a new release occur closest to the launch date. As an event subsequent to Q3-2021, the Company released its next generation NASCAR console/PC game, NASCAR 21: Ignition, on October 28, 2021, and also anticipates releasing NASCAR Heat Ultimate Edition+ on Nintendo Switch in the fourth quarter of 2021. Revenues from the sale of both these releases will be recorded as units are sold beginning in Q4-2021.

Esports segment revenues were $0.1 million and $0.2 million for the three months ended September 30, 2021 and 2020, respectively, a decrease of $0.1 million, or 51%, with the decline attributable to higher sponsorship revenues received during Q3-2020.

Net loss attributable to Motorsport Games Inc. was $6.6 million, or $0.56 per share of Class A common stock, for Q3-2021, as compared to net income attributable to Motorsport Games Inc. of $1.2 million for Q3-2020. The decrease in profitability was primarily due to lower revenues for Q3-2021 as a result of the 2021 new game release occurring after Q3-2021 as well as higher operating expenses due to an increase in the number of games being developed.

Net (loss) income was ($6.7) million and $2.6 million for the three months ended September 30, 2021 and 2020, respectively. Adjusted EBITDA loss⁽¹⁾ was $5.5 million for Q3-2021, as compared to an Adjusted EBITDA gain of $3.0 million for Q3-2020. The following table provides a reconciliation from net (loss) income to EBITDA and Adjusted EBITDA for Q3-2021 and Q3-2020:

Jon New, Chief Financial Officer of Motorsport Games, commented “We exceeded analysts’ consensus expectations on revenues and gross margin for Q3-2021, while our Q3-2021 Adjusted EBITDA loss was higher than expected, primarily due to higher development expenses from newly-added games to our product pipeline and, to a lesser extent, higher marketing costs. The comparison of results for the third quarter and first nine months of 2021 were significantly affected by the timing of the NASCAR game releases, as discussed above.”

Nine Months Ended September 30, 2021 compared to Nine Months Ended September 30, 2020

Revenues were $6.9 million and $16.1 million for the nine months ended September 30, 2021 and 2020, respectively. For the nine months ended September 30, 2021, revenues from the Gaming segment decreased by $9.4 million, or 57%, to $6.7 million from $15.8 million for the nine months ended September 30, 2020. The decrease in revenues was due primarily to the timing of product releases as discussed above.

For the nine months ended September 30, 2021, revenues from the esports segment consisted of $0.12 million, which was comprised primarily of sponsorship and event revenues from Le Mans esports events. Esports segment revenue was $0.29 million for the nine months ended September 30, 2020. The difference of $0.17 million primarily relates to sponsorship income earned from the Formula E esports events during the nine months ended September 30, 2020.

Net loss attributable to Motorsport Games Inc. was $26.2 million, or $2.32 per share of Class A common stock, for the nine months ended September 30, 2021, as compared to net income attributable to Motorsport Games Inc. of $0.9 million for the nine months ended September 30, 2020.

Net (loss) income was ($26.7) million and $2.4 million for the nine months ended September 30, 2021 and 2020, respectively. The 2021 net loss of $26.7 million included $12.4 million of IPO-related expenses including non-cash, stock-based compensation of $9.5 million, non-cash depreciation and amortization of $1.2 million, partially offset by a $1.4 million non-cash gain on equity method investment.

Adjusted EBITDA loss⁽¹⁾ was $12.0 million for the nine months ended September 30, 2021, as compared to an Adjusted EBITDA gain of $3.3 million for the nine months ended September 30, 2020.  The $15.3 million unfavorable variance includes $9.5 million of non-cash, stock-based compensation, $2.9 million of IPO-related expenses, $0.8 million in increased depreciation and amortization and $2.1 million of acquisition related expenses, partially offset by a $1.4 million non-cash gain on equity method investment. The following table provides a reconciliation from net (loss) income to EBITDA and Adjusted EBITDA for the nine months ended September 30, 2021 and 2020:

Business Outlook as of November 4, 2021

The Company expects full-year 2021 revenues of approximately $20.5 million and updated Adjusted EBITDA loss of approximately $12.0 million. We are pleased to have gained the INDYCAR license during the third quarter of 2021 and this will continue to increase our development costs as we work toward a 2023 release of the new INDYCAR game and our other planned product releases.

The Company expects to meet or exceed these numbers based on its current business, which may be impacted by, among other things, difficulties, delays in or unanticipated events that may impact the timing and scope of new or planned products or offerings, less than expected consumer acceptance of our products, less than expected effectiveness of our advertising and marketing plans, a slower than anticipated economic recovery as a result of the ongoing and prolonged COVID-19 pandemic and the other factors described in the Company’s  filings with the SEC, including its Annual Report on Form 10-K for the fiscal year ended December 31, 2020, its Quarterly Reports on Form 10-Q filed with the SEC during 2021, as well as in its subsequent filings with the SEC. Other assumptions on which this guidance is based include our current expectations as to external factors that our outside of our control, such as, without limitation, foreign exchange translation, tax policy and rates, interest rates, government stimulus spending, employment rates and consumer confidence.

Use of Non-GAAP Financial Measures

EBITDA and Adjusted EBITDA (the “Non-GAAP Measures”) are measures that are not defined by generally accepted accounting principles in the United States of America (“U.S. GAAP”). See the reconciliations of the Non-GAAP Measures to their most directly comparable U.S. GAAP measures in the financial tables above.

EBITDA, a measure used by management to assess our operating performance, is defined as net (loss) income plus interest (income) expense, depreciation and amortization, less income tax benefit. Adjusted EBITDA is defined as EBITDA adjusted to exclude: (i) IPO-related expenses; (ii) acquisition related expenses; (iii) gain attributable to equity method investment resulting from the acquisition of additional equity interest in the Company’s Le Mans joint venture; (iv) stock-based compensation expenses; and (v) other charges or gains resulting from non-recurring events, if any.

We use the Non-GAAP Measures to manage our business and evaluate our financial performance, as they have been adjusted for items that affect comparability between periods that we believe are not representative of our core ongoing operating business. Additionally, management believes that the Non-GAAP Measures are useful to investors because they enhance investors’ understanding and assessment of our performance and facilitate comparisons to prior periods and our competitors’ results.

Each of the Non-GAAP Measures 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, each of the Non-GAAP Measures 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 and debt service requirements. The Non-GAAP Measures have limitations as analytical tools, and investors should not consider any of such measures in isolation or as substitutes for our results as reported under U.S. GAAP. Management compensates for the limitations of using non-GAAP financial measures by using them to supplement U.S. GAAP results to provide a more complete understanding of the factors and trends affecting the business that would be presented by using only measures in accordance with U.S. GAAP. Because not all companies use identical calculations, our measures may not be comparable to other similarly titled measures of other companies. Reconciliations of the Non-GAAP Measures to their respective most directly comparable financial measures calculated and presented in accordance with U.S. GAAP are presented in the tables within this release.

We do not provide a reconciliation for Adjusted EBITDA on a forward-looking basis because we are unable to provide a meaningful or accurate calculation or estimation of reconciling items and the information is not available without unreasonable effort. This is due to the inherent difficulty of forecasting the timing and amount of certain items, such as, but not limited to, certain acquisition related expenses and stock-based compensation expenses. Each of such adjustments has not yet occurred, are out of our control and/or cannot be reasonably predicted. For the same reasons, we are unable to address the probable significance of the unavailable information.

Conference Call and Webcast Details

The Company will host a conference call and webcast at 5:00 p.m. ET today to discuss the results. The live conference call can be accessed by dialing (877) 344-8082 from the U.S. or (213) 992-4618. Alternatively, participants may access the live webcast on the Motorsport Games Investor Relations website at https://ir.motorsportgames.com under “Events.”