Motorsport Games Inc

NASDAQ:MSGM

Q4-2025 Earnings Call

[Operator]

Thank you for standing by, and welcome to Motorsport Games, Inc.'s Fourth Quarter and Full Year 2025 Earnings Call. As a reminder, today's conference is being recorded. I would now like to turn the conference over to Ben Rossiter-Turner from Motorsport Games.

[Ben Rossiter-Turner, executive]

Thank you, and welcome to Medical Games Fourth Quarter and Full Year 2025 Earnings Conference Call and Webcast. On today's call is Motorsport Games' Chief Executive Officer, Stephen Hood; and Chief Financial Officer, Sandy Beckley.

By now, everyone should have access to the company's fourth quarter and full year 2025 earnings press release filed today after the 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 will make certain forward-looking statements. which are any statements that are not historical facts 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 statements made on the 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 filings with the SEC, including its most recent annual report on Form 10-K for the year ended December 31, 2025, for a detailed discussion of 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 fourth quarter and full year 2025 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 will also be available on the Investor Relations section of Motorsport Games' website at www.motorsportgames.com.

And now I'd like to turn over the call to Stephen Hood, Chief Executive Officer of Motorsport Games. Stephen?

[Stephen Hood, executive]

Thank you, Ben. Good afternoon, everyone. Thanks for joining the multiple games Fourth quarter and full year 2025 earnings call. I'm delighted to report that we've achieved record profitability with 30% year-over-year revenue growth, generated consistent positive quarterly cash flow and have substantially improved our cash position, which will enable us to accelerate our progress. Despite the challenges experienced across the wider gaming market, we have delivered a significant turnaround and stand before you today in a tremendously healthy state.

The last quarter of 2025 saw us generate 95% higher revenues than the same period in the prior year. At the end of 2025, we had cash and cash equivalents of $5 million, which increased to $6 million as of the end of February 2026. The company generated an average monthly positive cash flow from operations driven primarily by an increase in profitability. We also secured a revolving line of credit in February 2026. This line of credit is primarily in place on very good terms to ensure we are able to deliver on our multi-platform plans for Le Mans Ultimate without tempering our plan to initiate the build of a new gaming title.

Twelve months ago, I spoke on this call acknowledging the very real challenges our business faced. Limited cash availability and a company in transition following the strategic sale of our [ NASCAR ] license. Today, we are in a fundamentally different position. Le Mans Ultimate has captured the attention of the simulation racing community and validated the strategic decision we made to focus the company around a smaller, more disciplined development team and clear long-term platform strategy.

For Motorsport Games, 2025 was the year we proved this model works. During the year, we delivered 5 major updates to Le Mans Ultimate in February, June, July, September and December. This cadence of meaningful movements is unusual in our Racing segment and reflects both the commitment of our development team and the advantages of operating a live service product at pace.

In July, the Game successfully exited early access. Since then, we have continued to invest aggressively in improving the player experience. Expanding content and strengthening the underlying technology that powers our simulation experience. In September, we introduced the first content from the [ European ] Le mans series, responding directly to player demand for additional circuits and categories. In December, we released Version 1.2, which represented one of the most comprehensive updates to the platform to date.

While new content such as [ circuit Pollard and the Geneta-G61-LNP3 race car ] were important additions. The largest story was the investment we continue to make in our proprietary simulation technology. These technical improvements are the foundation of our approach to building long-term trust and retention in the core of our immediate market. We also made substantial progress in strengthening the competitive integrity of online racing.

Version 1.2 introduced [ Easy anti-cheat integration ], the launch of our [ driver badge reputation system and the first phase of live Stewart and automated incident detection system ] designed to identify a safe or I'm supporting driving behavior. These systems are critical to building a healthy and sustainable online competitive environment and further demonstrates motor games intention to improve the experience for not only our core market today, but those players, we believe we will reach over time.

Alongside this, we introduced a team online championships, enabling organized multiway seasons and engineer mode, which allows team meats to manage kit strategy remotely during insurance ratings. These types of features are intended to deepen engagement and reinforce Le Mans Ultimate's position as a premier endurance racing simulation. It's also important to recognize that over the past year, competitor racing titles have launched into the market. Some were highly anticipated. We welcome that competition. It pushes the younger forward, and we've seen a renewed energy within this market segment.

What is particularly encouraging is that despite those launches, Le Mans Ultimate has continued to grow its player base and engagement at an accelerated pace. In other words, we have competed in a very active market environment and the response from players has demonstrated that our focus on authenticity, technology and community is really meaningful support. Players are recognizing our passion and celebrate the utility of our chosen content.

Average concurrent players in [ speed ] increased from approximately 786 in January 2025 to nearly 3,000 by December, that same year, also a fourfold increase. I'm pleased to report that momentum has continued into 2026. In January, we recorded an all-time peak of over 8,700 concurrent players with an average player count exceeding 4,200 for a PC-only title which right now is where Le Mans Ultimate [indiscernible] and one that operates within a specialized simulation category. These numbers are strong and compare favorably with many long established competitors.

Importantly, this growth has been entirely organic. We have not invested significantly in marketing during this period. In areas where we do not have dedicated talent and experience we limit spend, there will come a time where we push our message to a wider audience. And as such, we're actively recruiting for exceptional marketing talent to join our team and raise awareness of our strong product offering, not least in the run-up to Le Mans Ultimate arising on gaming consoles. In the meantime, product quality, word-of-mouth efficacy and a highly engaged community are helping us reach new heights.

This brings me to [ RaceControl ], which is rapidly becoming a central pillar of our financial model. RaceControl is our proprietary [indiscernible] and competitive racing platform that powers the online experience for those products we choose to integrate both our [ factor II ] and Le Mans Ultimate benefit from this platform. Beyond enabling online play, it provides an optional subscription layer that allows us to deliver additional services and features to our most dedicated players. This platform has allowed us to transition from a traditional video game business model where revenue is largely front loaded around launch toward a hybrid model, combining game sales, DC content and recurring subscription revenues.

By the end of 2025, RaceControl had over 400,000 registered accounts. More than 26,000 active paying subscribers and was generating approximately $0.2 million in monthly recurring revenue. Importantly, the first 2 months of 2026 have been among the strongest monthly recurring revenue growth periods we have seen to date. Many of the features we have introduced such as team championships, driver badges, live steward and engineer modes are designed to specifically increase the value of this platform and strengthen subscriber retention. This combination of recurring revenue, active player engagement and ongoing content expansion creates a much more stable and scalable financial model for the company.

Beyond direct player revenue, RaceControl is also becoming a platform that global brand and rights holders want to utilize. Through RaceControl, we can provide a turnkey competitive infrastructure for online racing events including matchmaking, scheduling, anti-cheat, broadcasting tools, official classification. This creates opportunities for automotive manufacturers, multiport series and consumer brands to activate directly with highly engaged gaming audiences through our platform. The conversations we are having in this area are encouraging, and we'll share more on these developments in the future.

Speaking of the future, we continue to make progress on bringing Le Mans Ultimate to PlayStation and Xbox gaming consoles. Our external development partners are working alongside our internal teams to deliver the first console versions while simultaneously improving the underlying game engine for our existing and very supportive PC player base. Console represents a significant expansion of the addressable market for Le Mans Ultimate and we are taking a careful quality-first approach as we execute on this opportunity.

Finally, with the financial stability we have now achieved, we are beginning to explore the next phase of growth for multiple games. Le Mans Ultimate has demonstrated that our technology, our development approach and our community engagement strategy can deliver a profitable and sustainable business. We are now evaluating opportunity to extend that model to additional titles in the future. Whilst it is still only, our goal is clear to build a portfolio of racing experiences, supported by the same technology platform by service infrastructure and competitive ecosystem that powers Le Mans Ultimate today.

To sort that next phase of growth, we have begun strengthening the team with targeted hires across engineering, platform development and strategic leadership. These additions will help accelerate our ability to expand on the race control platform and support the development of future products. I'm also pleased to welcome Peter Hansen-Chambers to work alongside our management team in a consultancy role as we shape the company's next steps. Peter was previously Co-CEO and CFO of Hutch Games and brings deep experience in building and scaling successful game businesses having operated with top-tier IP, such as Formula 1 and other recognizable licenses in the motor sports space for many years. He has already made a positive contribution towards our forward plans, and we're excited about the perspective and expertise he brings to Motorsport Games and hope to speak more on this in the future.

With the foundation now firmly in place and operating as we have planned, we are confident in our ability to continue building momentum through 2026 and beyond. The turnaround phase is behind us. Now our focus is on scaling the platform we have built.

I will now turn the call over to Stanley Beckley, our Chief Financial Officer, to discuss the financial results for the fourth quarter, full year 2025.

[Stanley Beckley, executive]

Thank you, Steven, 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 fourth quarter and full year 2025.

Revenues for the quarter were $3.8 million, up $1.8 million or 95% when compared to the same period in the prior year. Higher digital game sales from the release of Le Mans Ultimate or [ Cogintitle ], along with higher downloadable content sales were primarily drivers for the increase. Net income for the quarter of 2025 was $0.8 million compared to a net loss of $2.9 million for the same period in the prior year, an increase of $3.7 million. Higher revenues, lower cost of goods sold and operating expenses were key contributors to the increase in net income for the full year 2025 when compared to the prior year period.

Consequently, net income attributable to Class A common stock was $0.15 for the fourth quarter of 2 compared to a loss per share of $0.89 for the same period in the prior year. We are reporting an adjusted EBITDA of $1.9 million for the fourth quarter of 2025 compared to an adjusted EBITDA loss of $2.5 million for the same period in the prior year. The reason for the increase in adjusted EBITDA are the same as those discussed to the expect of the change in net income for the period and comparative quarter.

For full year 2025, revenues were $11.3 million, up $2.6 million or 30% when compared to the prior year period. primarily due to a $5.8 million increase in 2025 from sales of our Le Mans Ultimate recent title released in February 2024, particularly DOC sales, which were higher compared to 2024. And $1.2 million from lease control, offset by a $4.4 million decrease in the revenues in 2025 related to NASCAR, a gaming title the company decided to sell so that we might concentrate our efforts elsewhere. As a result, we were not selling the NASCAR titles from the start of 2025.

Net income was $6.8 million for 2025 compared to a net loss of $3.1 million for 2024. Higher revenues, lower cost of goods sold and operating expenses were key contributors to the increase in net income for the full year 2025 when compared to the prior year period. Adjusted EBITDA was $7.3 million for the full year 2025 compared to an adjusted EBITDA loss of $3.9 million for the same period in the prior year, an improvement of $ 11.2 million. The increase in adjusted EBITDA was primarily due to the same factors driving the previously discussed change in net income for the full year when compared to the prior year period as well as the reduction in the nonrecurring gains being excluded from adjusted EBITDA.

Net income attributable to Class A common stock was 1.43 in 2025 compared to a net loss of $0.94 in the prior year. As it relates to liquidity, as of December 31, 2025, we had cash and cash equivalents of $5.0 million, which increased to $6.0 million as of February 28, 2026. For the year ended December 31, 2025, we generated an average positive cash flow from operations of approximately $0.3 million per month. That was primarily due to increased profitability million from the Wesco Insurance Company settlement in June 2025 and $0.5 million for the settlement agreement with HC2 Holdings to Inc. in March 2025. We currently have no outstanding debt of purchase commitment liabilities.

Furthermore, our working capital as of December 31, 2025, was $4.2 million versus negative working capital of $2.2 million as of December 31, 2024, underscoring a much improved balance sheet and liquidity position. We also secured a $3 million revolving live credit from Citibank in February 2026. There is currently no balance due to Citibank under the evolving line of credit. Thank you all for your time.

And now I will turn the call back to Stephen for closing remarks.

[Stephen Hood, executive]

Thank you again, everyone, for joining this call today. If I can summarize all the progress we've delivered over the last 12 months, it would be through the lens of our turnaround. We've had multiple profitable quarters, delivering a strong cash position. We have a scalable model in our race control platform, which is building an audience and paying subscribers at a steady rate. We have architected strong organic demand without significant marketing spend. We are hard at welcome bringing our most recent games to the console market and are close to incubating the next product from the company that brought you the evergreen Le Mans Ultimate. We have moved beyond stabilizing the business. We have demonstrated that our model works. And now our focus is on scaling it. Thank you for joining us today.

I will now turn it back to the operator.

[Operator]

[Operator Instructions] And we'll take our first question from Anja Soderstrom with Sidoti.

[Anja Soderstrom, analyst]

Congratulations on the [indiscernible] performance. I'm just curious with the development costs declining year-over-year. What's the main driver for that?

[Stanley Beckley, executive]

Yes. Anja, thanks for the question. So as we disclosed in our Form 10-K, we capitalized about $1.1 million of development costs. These were costs related to significant upgrades and enhancements to the game. We've released a lot of content to LMU since the games launched in February of 2024. To date, we've released about 7 individual downloadable content packs including the European Le Mans series, [ PAC1 ] that was released in September and back to that was released in December. PAC3 is scheduled for release later this month. So that's the main reason for the decrease in development cost. We also have -- in the past couple of years, we've gone some restructurings. So our payroll costs are also down for developed new contractors.

[Anja Soderstrom, analyst]

Okay. And is AI any sort of driver to the development costs coming down? How are you implementing AI?

[Stephen Hood, executive]

A very good question. AI is everywhere at the moment. It certainly features in the multiple games business. I think a lot of companies are kind of driving forward trying to figure things out. We're a high-tech software engineering business by nature. And AI is always featured in our development pipelines and in our products. But the way that we utilize it at the moment is in a lot of rapid iteration. One of the benefits of Lamantin at the moment as a live service is the rate at which we're putting out these updates. It's a live service that is very much in front of the community who are welcoming the regular updates and we're going to pack updates the new content coming out.

And AI is already forming a part of that development experience. obviously, not going to give away our secrets at the moment. But we're leveraging it, I think to an ever-growing extent. I think it does bring down development costs. But actually, the biggest advantage for us is that we can more readily put out updates that resonate with our players. So it's beneficial to us because it enables us to really drive home the creative advantage that we have.

[Anja Soderstrom, analyst]

Okay. And as you mentioned Le Mans Ultimate for PlayStation and Xbox, it's progressing. Are you still expecting to launch that in late 2026 or early 2027? And how meaningful do you think that's going to be to revenue? And what sort of impact is it going to have on margins?

[Stephen Hood, executive]

I'll take that again, Anja. I think the product is very much on track. We are going to drill down as we get closer to release with an exact release date I think the key thing I would like to project at the moment is it's less of a technical challenge for us now because we've been in this business for some time. It's actually about picking the right window for release. What's the most beneficial window for release? Do we pair it with a major motor sport event? What our competitors title is doing, but it's very much on track for either early to mid '27.

I think it's going to have a big impact. And I would say that because I've been in this industry for some time, I've worked on many a console products and the addressable market is huge. There's actually a real lack of high-end racing simulations available on console. And that's been a traditional problem for many, many years. There are lots of different racing games out there. They're more arcade titles.

And in order for the average consumer to engage in the kind of simulation experience, the depth of simulation, rate and experience that we provide, people are having to spend upwards of $200,000, $300,000, $400,000 in a high-end PC and real entered. That's a major investment. The not a lot of people are willing to do for the first time experience in recent simulation. But as you go to console can pick up a console for a few hundred dollars. If you can engage through that medium, which is more readily accessible to most people and you can experience our titles, it stands to reason that we can hit a much larger audience because the price of victory is dramatically reduced.

It may mean that people come into our ecosystem. It may mean that they come into contact with the race control in great numbers, and they may wish to step up to the PC put but we're going to put out a high-quality product on console on PlayStation and Xbox that will be available worldwide, and we're very excited about that. We're not putting out any guidance in terms of the addressable audience that we expect to reach but......

[Anja Soderstrom, analyst]

Can you hear me? We'll make it dropped off.

[Stanley Beckley, executive]

Yes. It looks like Stephen got cut off there, but I think it was just finishing of his thoughts.

[Anja Soderstrom, analyst]

Okay. Okay. So then I'm just also curious about the customer acquisition costs and also maybe how you anticipate AI to maybe be sort of a positive for you there, how you can work with AI to become more efficient there.

[Stanley Beckley, executive]

So as relates to customer acquisition costs, we have invested very little marketing over the past 2 years, and our growth has been primarily organic in this time. However, as we seek to get our message out to a wide audience where we're actively looking for suitable marketing talent to join our team. So with very little to no marketing spend, there's not much in terms of customer acquisition cost there. The second question about the use of AI. I believe Steven may have addressed that earlier, but AI -- the use of AI is used to some extent by the development team and with regards to answering customer queries. But Steven is back, and I think you can get into more details on that. Stephen, are you there?

[Stephen Hood, executive]

Yes, I managed to reconnect. Are you talking about AI?

[Stanley Beckley, executive]

Yes.

[Stephen Hood, executive]

Yes. I mean leveraging it across the business. I mean not to replace the creative direction that we have an expertise, but actually to just bring elements to market faster as the primary use of right now. shortcutting teams enables us to really punch about value, and that's the important utilization of AI for us. We are a relatively small team by choice right now. We're getting the wheels turn, but AI enables us to deliver a far more rapid rate and bring more content and choices to players, which is clearly working for us.

[Anja Soderstrom, analyst]

Okay. And then you have been driving quite nice revenue growth driven by the Le Mans release? And how should we think about continued growth there and profitability -- the siting profitability? And then also you improve the balance sheet and sort of your priorities for cash and capital allocation and are you expect to remain cash flow positive.

[Stanley Beckley, executive]

So I'll address the latter half of that question first. So our cash flow and liquidity position is much stronger, right, over the past year. than it has been since the inception. As we disclosed in our Form K that was released, filed after market closed today, we generated and now reached monthly positive cash flow of $0.3 million per month in 2025 of $4.1 million cash generated from operations for the entire year. compared to an average monthly cash burn of $0.2 million or 2.8 million used in 2024.

We had a robust cash balance as well of $6 million at the end of February. And we recently secured a [indiscernible] revolving line of credit facility from Citibank. And this line of credit facility will be more than sufficient for us to fully put the development of LMU console. As it relates to the revenue mix, our LMU franchise has more than made up for the loss of revenues from the sale of our NASCAR license.

In 2025, for example, revenues from our Le Mars franchise consisted of about 78% of annual revenues and versus 34% in the previous year. So the mix of the LMU revenues in addition to growing RaceControl subscriptions, which made up 11% of our total revenues in 2025 versus less than 1% in 2024. RaceControl subscription was that platform was launched in December has led to a bit more balancing and diversification of our revenue stream, and we expect that to continue to go into the future.

[Operator]

Thank you. This does conclude the Q&A portion of today's call and also the meeting today. Thank you. We appreciate your time and participation. You may now disconnect.