Motorsport Games Inc - Ordinary Shares - Class A Stock

Thank you for standing by, and welcome to Motorsport Games Inc. Second Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, today's call is being recorded. I would like to now turn the conference over to Ben Rossiter-Turner from Motorsport Games. Please go ahead.

Thank you, and welcome to Motorsport Games Second Quarter 2026 Earnings Conference Call and Webcast. On today's call is Motorsport Games' Chief Executive Officer, Stephen Hood; and Chief Financial Officer, Peter Hansen-Chambers. By now, everyone should have access to the company's second quarter 2026 earnings press release filed today after market close. This is available on the Investor Relations 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 statements 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 filings with the SEC, including its most recent quarterly report on Form 10-Q for the quarter ended June 30, 2026, 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 second quarter 2026 financial results. You will find a reconciliation of these non-GAAP measures to the 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 over the call to Stephen Hood, Chief Executive Officer of Motorsport Games. Stephen?

Thank you, Ben. Good afternoon, everyone, and thank you for joining the Motorsport Games Second Quarter 2026 Earnings Call. We're now 6 consecutive quarters into proving that this business works. First half revenue was $7.6 million, up 74% year-on-year, and gross margin expanded to almost 85% from just under 79% a year ago. We're not just growing, we're growing more efficiently. We generated positive operating income for the sixth quarter in a row.

Le Mans Ultimate and RaceControl remain the 2 engines behind that. And this quarter, RaceControl took another real step forward, which I'll come back to. Le Mans Ultimate player engagement accelerated in this quarter. We spoke last time about the all-time peak of more than 8,800 concurrent players achieved in March. That momentum spiked again. April was our highest ever month for average daily active users, which, as I've said previously, is the number that matters most to us. It tells us players are sticking around, not just appearing for a moment.

I'm delighted to say that we've now sold more than 0.5 million units of the base game and more than 1.2 million individual pieces of DLC or downloadable content since launch. That's 0.5 million players enjoying Le Mans Ultimate enough to then go on and spend additionally to extend that experience, an experience that has clearly resonated within the player base we've built. This is the interesting part. Each and every one of those players competing online has an account on RaceControl.

They exist within a platform we operate within our ecosystem. That is an advantage to us on several fronts. We can ensure a cleaner onboarding experience for new players, we can communicate with them directly, and we can continue to invest in building the platform. I've said before that RaceControl deserves to be understood not solely as a feature that supports Le Mans Ultimate, but as a stand-alone platform business. And this quarter makes that case better than any quarter before it.

Peter, our new CFO, will walk you through just how fast that's scaling, but the short version is this. We're building a unique model in our sector. It's recurring, it's predictable, high margin and isn't seasonally affected by releases as a traditional game release model. It helps us to engage with and retain players, establishing a loyal community. We can monetize the most engaged players and funnel those revenues back into the service and products to improve them further.

RaceControl might still be in its infancy, but we believe that it will prove to be an ever more critical component of our distinct entertainment offerings in the future. We believe it's already proving to be a real jewel in our portfolio, amplifying our games in a distinct way versus the competition.

On our last call, we talked about wanting to bring content to Le Mans Ultimate that reaches players who aren't already bought into the Le Mans and European racing world. As strong as we are in Europe, understandable given the product title, we know that's not the entire addressable market and that there are great racing experiences outside the laser focus on Le Mans content we've stuck to since launch. In July, after quarter end, we updated the game to version 1.4 and with it added Daytona and Laguna Seca, 2 of the most iconic circuits in American racing as the first part of our newly released U.S. Track Pack.

We expect Packs 2 and 3 in September and December, respectively, and we're actively exploring what comes next for Le Mans Ultimate content in 2027. Whilst we do not envisage opening our Le Mans gaming title to completely unrelated racing content, we do believe there are still significant content offerings that can be added to the Le Mans Ultimate experience over at least the next couple of years. To go beyond this, we will need to release a new title. We will have more on that on our next earnings call.

For now, let me move on to console progress and how we're shaping up on bringing Le Mans Ultimate to PlayStation and Xbox platforms. On consoles, development of Le Mans Ultimate for PlayStation and Xbox continues as planned. As I said before, this is complex work, bringing a high-fidelity simulation experience to the home console market isn't routine in our industry, but we believe console players are starved of the kind of experience we know we can deliver. Not every player can justify the expense of a suitable gaming PC, let alone a simulator rig complete with the wheel and pedals.

Bringing Le Mans Ultimate to console widens our reach and allows us to connect with a market that is genuinely underserved. PC-level simulation experiences are hard to find on console platforms. Arriving on console will be another important milestone in the growth of our company, and the learnings from this project will directly benefit future releases. Before I hand over, a word on our leadership.

Peter Hansen-Chambers joined us as Chief Financial Officer effective July 1, and this is his first call with us. He brings a wealth of experience from highly respected games companies, including Codemasters and more recently, Hutch, where he was CFO and Co-CEO. I'm very glad to have him on board. Internally, I have been relaying to our team that in order for us to take the next step on our journey, we need to evaluate how we make progress. So the recovery of Motorsport Games, whilst a wonderful story is not the story.

There is still so much more to do, and it's important that everyone in our organization appreciates the energy that will be required to move ahead. Peter's energy, enthusiasm and experience is a key part of our continual evolution. I also want to thank Stanley Beckley for his role in getting this company back on track. We're delighted that he continues with us in his role as Chief Accounting and Compliance Officer. The workload has grown, and it made sense to expand the team so that we can meet the challenge of transitioning from recovery to growth whilst retaining the talent and expertise that help shape our return to form.

This strength has allowed us to act opportunistically where we see value for the company's long-term health and value for shareholders. We completed the purchase of a significant amount of Class A common stock from Driven Lifestyle Group, which retired all outstanding Class B shares. Every outstanding share of our common stock now carries equal voting rights. Finally, I want to relay we're increasingly focused on the next stage of growth.

I said on our last call that we're in the formative stages of a new long-term project that leverages everything we've built and operate today, our simulation technology, the RaceControl platform, our live service infrastructure, F1 Arcade and the proven underpinnings that power our successful Le Mans Ultimate game, alongside the relationship with our players that we took so much care to build and continue to maintain.

The Motorsport Games of today is a boutique game studio, building not just the games, but the entire ecosystem for racing and driving fans. Our long-term bets are paying off, and everything we've experienced this past quarter has reaffirmed our belief that we have the foundations in place to deliver on our road map, the detail of which will be shared on our next earnings call.

And with that, I'll hand over to Peter.

Thank you, Stephen, for the kind introduction, and good evening, everyone. It's genuinely exciting to be here. Having spent my first few weeks getting under the hood of the business, I can see real value in what's already been built. Talented people, strong technology and relationships that give us a platform to build from. As with previous earnings calls, I won't be offering forward guidance today. Instead, I'd like to walk through our first half and second quarter results and explain why we believe they represent real progress as we strive to build an exciting, high-performing gaming company that delivers not only for our players today, but for the business long term.

Before I get into the numbers, I want to share some context upfront that I think is useful for how you read our results and view the business over time. Le Mans Ultimate is a live service multi-season project that is continuing to grow and evolve in order to engage, retain and grow our player base through the release of new content, features and other improvements. Given the nature of that undertaking, what happens in any given month or quarter is shaped by various factors.

There's normal seasonality, the usual impact you'd see around holidays or over the summer, for instance. For us, there's also the real-world motorsport calendar, given many of our players that have an interest in real-world motorsport influencing performance around such events. There's the composition of our own release schedule. Some updates are quick and modest. Others are bigger, more ambitious pieces of work that simply take longer to complete and then land with more impact when they do. Some releases prioritize what the community are telling us, whilst others may be focused on longer-term strategic benefit to the business.

All of these factors influence performance at any given time, and therefore, growth will not be a straight line each and every month or quarter-to-quarter. With this in mind, we would encourage everyone to judge our performance over a longer time horizon than any single quarter in isolation to observe our overall performance as we continue to invest and build in the product. It's that ongoing investment and what it unlocks next that gives us real confidence in where this business is heading.

I'll start with RaceControl, our free-to-join player platform, which also offers premium subscription tiers because it's increasingly central to the story we want to tell as we transform Motorsport Games. As Stephen mentioned earlier, RaceControl allows us to establish an important direct relationship with our players whilst offering an opportunity for us to promote new content and features. Through RaceControl, we can convert engaged players into premium subscription tiers that offer better value by expanding the experience.

At the same time, this SaaS model means we can continue to support investment in new content and features, extending the lifetime of products, all whilst increasing player monetization. Subscription revenue from RaceControl for the first half of 2026 was approximately $1.4 million, up from approximately $0.3 million in the first half of 2025, growth of almost 349% year-on-year. On a run rate basis, RaceControl is now generating annual recurring revenue of approximately $2.9 million, up from $1.2 million for the whole of last year.

RaceControl revenues represented 18% of our total revenues for the first half of 2026 versus 7% in the first half of 2025 and less than 1% for the full year 2024. This is particularly impressive given this is happening alongside 74% growth in our total company revenue, not despite a decline in it. Behind those numbers is real subscriber growth. We ended June with over 40,500 paid subscribers, up more than 230% since June last year, all achieved organically. RaceControl is financially lucrative as well as strategically important.

It delivers high-margin recurring revenue and increases player lifetime value or LTV. We intend to keep investing in it, both to grow our subscriber base and to deepen engagement with our existing players. That momentum achieved with RaceControl reveals itself in our top line results, too. Revenue has grown every year since 2023, up 25.7% in 2024 and a further 30% in 2025. At the same time, gross profit margin has expanded alongside it from 47.6% to 81.5% over that same period. This is evidence that the business is scaling efficiently as it grows, not just growing.

For the first half of 2026 specifically, revenue was $7.6 million, up 74% year-on-year, and gross profit grew even faster at 86.9% to $6.4 million, with gross profit margin expanding further to 84.7% from 78.8% a year ago. That trajectory, consistent revenue growth alongside gross profit margin expansion now across 3.5 years is exactly the kind of compounding progress we want to continue delivering through the rest of 2026 and beyond.

Turning to profitability. I'm delighted to share that GAAP net income was positive for a sixth consecutive quarter, representing an impressive achievement for the business. In the first half of 2026, we delivered $1.2 million compared to $5.3 million in the first half of 2025. However, these numbers do not tell the full story. That prior year comparison isn't like-for-like as H1 2025 included a $0.8 million gain from the WESCO settlement agreement and a $0.5 million gain from the HC2 Holdings 2 settlement agreement and a $3.3 million foreign currency exchange gain, which did not recur this year.

On an adjusted basis, which we believe is the more meaningful measure of our underlying performance, adjusted EBITDA for the second quarter was $0.8 million for the quarter compared to $1.4 million in Q2 2025. However, it's worth noting that Q2 2025's adjusted EBITDA carries with it the benefits of nonrecurring gains related to discounts negotiated on a few outstanding vendor invoices. We have also continued making investments in expanding our product mix in 2026. If we look at the 6 months ended June 2026, we achieved adjusted EBITDA of $2.2 million, more than double the $1.0 million we generated in the same period last year, growth of approximately 122.7%.

With regards to adjusted diluted EPS, we reported $0.19 for the quarter compared to $0.25 a year ago, which was due to the same factors impacting adjusted EBITDA mentioned before. For the 6 months ended June 2026, adjusted diluted EPS was $0.33 compared to $0.24 in H1 2025. Adjusted EBITDA and diluted EPS reconciliations can be found on the Investor Relations section of Motorsport Games website at motorsportgames.com.

Turning to the balance sheet. We have continued to generate strong, consistent operating cash flow, averaging approximately $0.5 million per month over the 6 months ended June 30, 2026, driven by increased profitability and the capitalization of internally developed software.

As of June 30, 2026, we had cash and cash equivalents of $3.9 million. The year-to-date change in our cash position and working capital is largely explained by capital we deployed during the quarter, most notably the $3.7 million repurchase of Class A shares from Driven Lifestyle Group, which also retired all Class B super voting shares and simplified our capital structure.

We view this as a strong use of improving cash generation. We also secured a $3 million revolving credit facility from Citibank in February 2026, of which $1.2 million was drawn down as of June 30, 2026. In May 2026, Citibank extended the maturity of that facility to February 2028, giving us continued flexibility as we invest in growth.

Thank you all for your time. And now I will turn the call back to Stephen for closing remarks.

In closing, the story of the first half of 2026 is straightforward. Le Mans Ultimate continues to grow, RaceControl is proving itself to be a real platform business faster than we might have expected, and our margins and cash generation are moving in the right direction. Six consecutive profitable quarters are not an accident and neither is the pace of RaceControl's growth.

The moves we made this quarter on developing new revenue streams, on expanding our addressable audience, on governance, on financing and on the road map, all point in the same direction. We're building something to last and drive long-term shareholder value creation and sustainable profitability. We've got a lot more to share with you on the Q3 call, and I'm looking forward to it. Thank you all for joining us today, and thank you for your interest in Motorsport Games.

I'll now hand it back to the operator.

[Operator Instructions] We'll take our first question from Anja Soderstrom with Sidoti & Company.

Peter, this is Justin on for Anja. With the release of the first USA Track Pack in July, can you discuss how that is trending and the road map for additional content releases through the remainder of the year and into 2027?

[Operator Instructions]

Justin, thank you for your question. Yes, I mean, so far, we've seen a very good reaction from our community to that release. It, in fact, has been performing better than we had hoped, which is good. It's been a strong initial release. There had been some anticipation about what we were going to launch. And there's obviously more speculation about what will come. As it stands right now, we're working on additional content that will follow this year. We've got another 2 releases of packs that will come later in the year, date to be confirmed.

Very helpful. Turning to RaceControl, how is recurring revenue building? Can you give us a sense of the growth trajectory you anticipate and maybe where retention is running?

I'm sorry, Justin, can you repeat the question?

Sure. Turning to RaceControl. How is recurring revenue building? And can you give us a sense of the growth trajectory you anticipate and where retention is running?

Yes. Good questions. Yes, at the moment, we've got a run rate of $2.9 million for the year. The attach rate to subscription seems to be relatively consistent, and we're able to forecast that relatively accurately. So we feel quite confident in its continued growth throughout the rest of the year. We're not able to give guidance, obviously, in terms of precisely where that will land come the end of the year. But I think we announced growth of 349% year-on-year, which means it's becoming a much more meaningful part of the business, and we anticipate that will continue.

Obviously, this is new for Motorsport Games. It's taken up an increasing focus. There's a specific effort on improving retention. At the moment, we've got specific initiatives in place to ensure that subscribers do continue, and that seems to be working well at this time. So yes, I mean, I think the key thing is for us to continue to keep the game exciting, servicing it with new content and making it an attractive prospect that people can continue to subscribe to.

Last one for me is, Peter, congratulations on the new role. Can you talk about your key priorities in this role?

Sure. Yes. I mean it's great to join the business. I think it's got a great team. I love the product, I love the focus. But I also think we can do much more, and I know that Steve is very ambitious for the business. So it feels like a great place to be. We know that we can achieve a lot more, and we certainly want to try and accomplish that. Yes, I mean there's a number of things internally that we want to try and address.

I think first and foremost, I think there's some aspects about sort of how we approach sort of culturally, I mean, ultimately, I want to achieve help us to become a high-performing business, and that's kind of multifaceted and probably require a lot longer to discuss. We have performed very well today, but sort of culturally, it requires a number of other things in order to sort of have the energy to get us to the next phase of the journey.

I think Steve said in his talk that we've done well, but this is not the end of the story. This is just sort of part of the sort of just the first chapter, if you like, and it's been an eventful first chapter. So yes, there's a number of things that I think we need to work on to make sure that we've got the foundation for and the energy to sort of take us forward going forward.

[Operator Instructions] We'll move on to Peter Sidoti with Sidoti & Company.

Just 2 quick questions. Can you talk about subscriber acquisition costs and also just the competitive environment?

Sure. Peter, so yes, I mean, at the moment, we've been in a great place where we've been able to acquire organically. So obviously, the costs are very low and the margin is very high, which is great. Whether we will experiment with sort of paid acquisition in the future, I don't know. That's not something we're focused on right now. I think right now, I think we feel like although we're doing really well, and I am proud of the results that we've announced in terms of growth, I still think there's scope for us to further grow in terms of converting RaceControl account holders into subscribers.

I think we believe the value proposition is strong enough -- and I think we have to experiment with our communication and probably test some things in terms of maybe the way that we package some subscriptions, incentives, et cetera, learning from other industries. I think where we are in terms of that conversion, I would say, is very strong. If you look at sort of mobile free-to-play, which is a part of the game industry I've spent a long time in more recently, sort of traditionally, a successful game would be about 5% of the player base converting, that would be a target. And we are exceeding that right now. So I think we should be proud of it, but I think there's still a way to go before we need to necessarily go down the road of paying to acquire.

[Operator Instructions] And it appears that we have no further questions at this time. I'd be happy to return the call to our host for any closing comments.

[indiscernible]

Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.

Thank you for standing by, and welcome to Motorsport Games, Inc.'s First Quarter 2026 Earnings Call. 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.

Thank you, and welcome to Motorsport Games First Quarter 2026 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 first quarter 2026 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 statements 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 filings with the SEC, including its most recent quarterly report on Form 10-Q for the quarter ended March 31, 2026, 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 first quarter 2026 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 over the call to Stephen Hood, Chief Executive Officer of Motorsport Games. Stephen?

Thank you, Ben. Good afternoon, everyone, and thank you for joining the Motorsport Games First Quarter 2026 Earnings Call.

We have started 2026 from a position of real financial strength. Revenues of $4 million in Q1 have more than doubled year-on-year. We have once again generated positive operating income, posted significantly improved adjusted EBITDA and continue to grow our cash position from operations. The ongoing delivery of Le Mans Ultimate content or downloadable content or DLC, plus the ever-improving monetization of RaceControl are key to those revenues.

The financial independence we have now built driven principally by the consistent commercial success of our primary gaming title, Le Mans Ultimate and the recurring revenue we are generating through RaceControl is what has given us the ability to act decisively in the early weeks of this quarter, both for the benefit of all our shareholders and to set the company up for its next stage of growth. I will come back to that shortly.

First, on Le Mans Ultimate. Player engagement continues to accelerate. On March 31, we once again recorded a new all-time player peak, more than 8,800 concurrent players on Steam. This new peak was determined around the release of Version 1.3, introducing Circuit de Barcelona-Catalunya, the Duqueine LMP3 race car, and Logitech Trueforce support.

This growth in player numbers is not a one-off. We have consistently reported player growth since launch. In the first quarter of 2025, we had a peak of 4,000 players and an average of just over 1,300. Peak concurrent players grew 118% year-over-year. However, the metric we track most closely is average concurrent users because it strips out the spikes from content releases and shows whether people are actually sticking around. That number grew 169%. The floor is rising, not just the ceiling.

Looking ahead to the second quarter, we have an update planned for release in June to coincide with the real-world 24 Hours of Le Mans, the highlight of the World Endurance Championship upon which our game is based. The persistent cadence of meaningful improvements that has defined our work over the past 2 years continues and continues to be funded by the company's own operating performance.

I want to take a moment to speak about RaceControl specifically because I think it deserves to be understood not just as a feature supporting Le Mans Ultimate, but as a stand-alone platform business in its own right. RaceControl is our proprietary matchmaking, competition and live service platform. It is the infrastructure layer that powers organized racing for our community and increasingly, for those partners who want to reach that community.

Monthly recurring revenues have exceeded $0.2 million and the first 3 months of 2026 have been among the strongest periods of growth we have seen since launch. But what excites us the most is not where RaceControl is today; it is how quickly it can add meaningfully to our growth profile as we continue to layer in features and functionality. The road map ahead is substantial, and each addition compounds the platform's value to both our players and our commercial partners.

What makes RaceControl particularly attractive from a financial perspective is its margin profile. As a platform business built on infrastructure we already own and operate, incremental revenue carries significantly more favorable EBITDA contribution than our content business. It is, in the truest sense, a high-quality revenue stream, recurring, scalable and deeply embedded in the daily behavior of our most engaged players.

Beyond direct subscription revenue, RaceControl is becoming the activation layer of choice for automotive manufacturers, motorsports series and global consumer brands seeking direct engagement with a highly targeted, highly passionate audience.

Our recent collaboration with Genesis, the luxury automotive brand and WEC newcomer, demonstrates what that looks like in practice, and we are delighted that Logitech, one of the world's leading gaming hardware manufacturers, has chosen RaceControl as a platform to power the Logitech G Challenge Esports series. These are not peripheral partnerships. They are a validation that RaceControl has become an infrastructure that serious organizations want to access.

The combination of Le Mans Ultimate's ongoing commercial momentum, RaceControl's growing recurring revenue layer and our consistent operating profitability provides us with useful flexibility going forward. Progress on bringing Le Mans Ultimate to PlayStation and Xbox, in collaboration with our development partners, continues as planned. We are deepening investment in our proprietary simulation technology, which is the long-term retention engine for the core of our market. We are strengthening the team with targeted hires across engineering, platform and strategic leadership, and we are in the formative stages of preparing a new long-term project.

This new title will leverage everything we have built from our simulation technology, our live service infrastructure, our RaceControl platform and the community relationships we have cultivated through our popular racing game, Le Mans Ultimate. This is not a speculative greenfield project, but one that is being designed to take another giant stride in the company's output with the same accessible discipline that has defined our reemergence as a premier racing game developer. We believe this represents a significant long-term value creation opportunity, and we look forward to sharing more in due course.

On console specifically, our exact timing for the release of Le Mans Ultimate remains subject to further development progress. The work undertaken is complex. Realistically, we expect to announce more details on launch as we enter 2027 as we move into the latter stages of the project and build confidence in our expected launch window. As previously mentioned, we are taking a careful quality-first approach and plan to select the best release window rather than deliver out of financial necessity. Our existing and future player base is very vocal about their desire for a console release for Le Mans Ultimate, and we are pleased to confirm that development is progressing well.

I would now like to turn to a series of corporate actions we executed in the past few weeks, which mark a significant step forward for the company. We repurchased 904,395 shares of our Class A common stock from Driven Lifestyle Group, LLC. As part of that transaction, all Class B shares, which have carried a 10x voting advantage were retired, meaning every share now holds equal voting power. Shareholders also approved an expansion of the awards available under our employee equity plan, giving us an important tool to incentivize and retain the people driving our growth.

Before I hand over to Stanley, I want to step back and reflect on what this moment represents for Motorsport Games. The corporate actions we executed this quarter, the repurchase of shares from Driven Lifestyle, the retirement of Class B voting rights, the Citibank credit facility are not simply transactional steps. They are a direct reflection of how far this company has come.

And I want to take a moment to thank Driven Lifestyle. They were with us at inception and their early support was critical in getting Motorsport Games to where we are today. Their decision to retain a minority shareholding in the company is not only a vote of confidence in our future; it was also a pragmatic outcome from our balance sheet. By retaining an equity stake rather than a full cash exit, we were able to achieve the same strategic result, the retirement of all Class B super voting shares and the return of equal voting rights to all shareholders while deploying less cash to do so.

These actions also point forward. Our strengthened financial position built from operations has given us the ability to act decisively. We have returned greater ownership and strategic influence at the company, secured additional flexibility through the Citibank facility and positioned ourselves for the next phase of growth.

Everything we have built has been purposeful: the simulation technology, the live service infrastructure, RaceControl, the community, the commercial partnerships, we have been building a foundation, one that we continue to advance all whilst demonstrating its value supporting products like La Mans Ultimate.

We are not yet in a position to share the full detail of what that foundation will support next, but I want to be direct. We have a product road map, we believe has the potential to drive a very meaningful revenue and profit growth in 2027 and beyond. and we expect to discuss it in detail on our [ Q3 ] earnings call.

What I can tell you today is that our next stage of growth will not require us to start from scratch. It will leverage everything we have already proven: our technology, our platform, our audience and our operational discipline. The risk profile of what comes next is fundamentally different from the traditional game development bet because the foundation is already in existence and generating returns. We look forward to telling you much more.

For now, I'll hand over to Stanley Beckley, our Chief Financial Officer.

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 first quarter of 2026.

Revenues for the quarter were $4.0 million, up by $2.3 million or 129.3% when compared to the same period in the prior year. The increase in revenues was primarily due to a $1.6 million increase from sales of Le Mans Ultimate and a $0.7 million increase in RaceControl subscriptions compared to the same prior year period.

Monthly recurring revenues for RaceControl subscriptions now exceed $0.2 million. Management plans to grow this important revenue stream as we continue to diversify our product mix and work towards our goal of becoming a multi-format and multi-title video game developer and publisher.

Net income for the first quarter of 2026 and 2025 was approximately $1.0 million, respectively. Net income attributable to Class A common stock was $0.06 per share for the first quarter of 2026 compared to net income per share of $0.33 for the same period in the prior year.

We are reporting adjusted EBITDA of $1.5 million for the first quarter of 2026 compared to $0.6 million for the same period in the prior year. The improvement in adjusted EBITDA of $0.9 million was primarily due to the same factors driving the previously discussed change in net income for the first quarter of 2026 when compared to the same period in the prior year as well as an increase in stock-based compensation compared to the prior year period.

As it relates to liquidity, as of March 31, 2026, we had cash and cash equivalents of $5.9 million, which decreased to $3.8 million as of April 2026 due to the company's $3.7 million repurchase of its shares from Driven Lifestyle Group LLC on April 22, 2026, partially offset by cash inflows from operations. Management believes that this share repurchase from Driven Lifestyle will strengthen our corporate governance structure and position the company for its next stage of growth whilst underscoring our confidence in our business and liquidity position.

During the 3 months ended March 31, 2026, we generated an average positive cash flow from operations of approximately $0.5 million per month that was primarily due to increased profitability and the capitalization of internally developed software. We currently have no purchase commitment liabilities.

Furthermore, our working capital as of March 31, 2026, was $5.2 million versus $4.2 million as of December 31, 2025, underscoring a much improved balance sheet and liquidity position.

Management remains confident in the company's product road map as we work towards porting Le Mans Ultimate and console over the next several months.

We also secured a $3 million revolving line of credit from Citibank in February 2026. As of March 31, 2026, there was no amount owed to Citibank under the revolving line of credit. As of April 30, 2026, there was $1.2 million owed to Citibank under this revolving line of credit.

Thank you all for your time. And now I will turn the call back to Stephen for closing remarks.

In closing, the story of Q1 is a simple one. Le Mans Ultimate continues to grow. Our financial position continues to strengthen, and that strength is now actively translating into action. For our shareholders, that means meaningfully improved governance. For the long-term health of the business, it means continued investment in our team, our technology and the opportunities we are now in a position to pursue.

We are no longer running multiple games from a position of necessity. We are running it from a position of strength with options, with conviction and with a clear sense of where we are taking this company. The future we are building is not just for the next quarter; it is for the next decade.

Thank you all for joining us today. I look forward to updating you on our continued progress. I'll now hand it back to the operator.

[Operator Instructions] And our first question today will come from Anja Soderstrom with Sidoti & Company.

This is Alex on for Anja. My first question is on the Le Mans Ultimate Version 1.3 that you mentioned. It drew a record 8,800 player peak in March, which is an impressive milestone. And I'm curious, how has engagement trended since the launch? And could you talk a little bit about what the road map may look like for the remainder of 2026?

Alex, it's Stephen. Thank you for your question. I think, to be perfectly honest, it's trending upward. We talked specifically not just about the peaks but actually the average concurrent -- the stickiness of the product. And what we've seen over the history of the product, and certainly since 1.3 remains true, is that with more content and more exposure, we're building a record number of players sitting around buying the content and participating. We're seeing that ground swell, starting to follow the product.

We haven't proactively really spent marketing dollars in trying to accelerate that. So it's really organic growth of those player numbers. We do have new content packs that are planned for this year. which will be no surprise to anybody. They've proven very popular. Every time we add more cars, more track content and expand the game offering, which is built around Le Mans and the World Endurance Championship, by its nature, is quite singular.

We found that we reach new players. So we have an idea and a concept for new track content that will reach additional markets because typically, we found we're incredibly strong in Europe, which is no surprise given Le Mans's history and its location, and we've [ dined ] out very well on that. But in order to take this game internationally, we're starting to look at additional content that would attract people that aren't naturally bought into the Le Mans concept or European content. So we have got more things to reveal in the future, but I'm quite excited about that. I think it will keep climbing.

Great context. And you spoke about this in the prepared remarks a little bit that RaceControl continues to expand as another recurring revenue driver. Could you tell us a little bit about where you see recurring revenue as a percentage of the total business going and over the next 12 months or so?

Alex, I can take that. So we currently don't provide forward-looking guidance. What I can speak about is how well RaceControl has done. And in Q1 2026, for example, it was the biggest share of our revenues. Q1 2026 saw us generating RaceControl subscription revenues of $0.8 million, which was 19% of the total revenues of $4 million for the quarter, compared to RaceControl subscriptions only accounting for 6% of our revenues in Q1 2025.

So I can't speak too much about where we see it going in terms of specific numbers, but we do expect it to continue growing as the game becomes more popular and more units are sold. But we are getting to the point where our revenue stream is more diversified with RaceControl subscriptions encompassing a greater share of our total revenues.

Got it. And last one from us. Can you talk a little bit about the Formula 1 opportunity, what you're doing there today and how you see it evolving? And what sort of pipeline and other related revenue opportunities look like for that?

Alex, I guess this one is probably for me. The Formula 1 opportunity, I think, is always interesting. Formula 1 is a huge motorsport, the world over, international markets. It's a no-brainer for us to be interested in that space. That's one of the reasons why we were more than happy to provide our technology to power Formula 1 Arcade. So every arcade venue and every activity that they provide around the world in all their facilities, including the new pop-up facility, is powered by technology owned by and operated by Motorsport Games. That technology actually powers Le Mans Ultimate, a later version of that technology anyhow.

So one of the reasons we did that was to overcome this concept that our technology as a boutique sim racing software developer, which is what we are today, very specialized software company, can produce something that is accessible for a much larger market because people typically think that sim racing software is the preserve of maybe a kid in a bedroom with a simulator rig. This is the kind of stuff I have at home. But anybody can walk in off the street and enjoy our technology in an F1 Arcade venue from grandmas to 10-year-old kids to mom, dad, friends. It's a family entertainment experience powered by sim racing software.

That foot in the door with F1 Arcade, the group behind that and Liberty, who are part of that operation, is just part of our strategy to build our relationship with Formula 1: demonstrate the viability of the software, the advantage and the power of the software. I mean, bear in mind F1 Arcade chose not to use the official Formula 1 game, but instead chose Motorsport Games' software, software produced by our developers, Studio 397. And that is a crucial kind of positive step in building relationship, surfacing the technology and really enabling our engineers to provide Formula 1 through F1 Arcade cutting-edge software.

And whilst there is an exclusive agreement in place with Electronic Arts at the moment, like any software developer, we would be interested in expanding our offerings in the future. F1 Arcade is set to grow, but we're exploring possibilities about what we could support in terms of single-seater racing in the future, one element of which could be Formula 1. So I think it would be speculation right now. There isn't anything definitive, but we'd certainly be interested in expanding our offering.

Thank you. At this time, there are no further questions in queue. This will bring us to the end of the Motorsport Games First Quarter 2026 Earnings Call. We appreciate your time and participation. You may now disconnect.

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.

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?

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.

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.

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

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

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.

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

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.

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?

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......

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

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

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.

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?

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

Yes.

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.

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.

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.

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.

Thank you for standing by, and welcome to Motorsport Games, Inc.'s Third Quarter 2025 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.

Thank you, and welcome to Motorsport Games Third Quarter 2025 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 2025 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 company filings with the SEC, including its most recent quarterly report on Form 10-Q for the quarter ended September 30, 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 third quarter 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 is also 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?

Thank you, everyone, for joining this conference call today. I'm delighted to say that the positive trends reported in Q2 have continued into this quarter's results. We've entered a profit generation phase. The restructuring enacted some time ago continues to pay off. Our key gaming product in Le Mans Ultimate is scaling, and this helps improve margins quite significantly. Our model is working. Our player base is growing. Cash and cash equivalents, once a challenging element of our business has improved considerably relative to our scale, and we're again generating profit from operations for the second consecutive quarter.

We have continued to improve and expand our core gaming offering in Le Mans Ultimate and associated service platform, RaceControl. This has demonstrated a commitment to product improvement and resonates well with our audience. It's a testament to the unwavering energy of our prized employees, contractors and partners. This quarter delivered more success for our current focus product, Le Mans Ultimate, fresh from a record-breaking month in June, the title exited the Steam Early Access program into a full release on July 22. This delivered another record high concurrent and daily active user counts.

What is particularly pleasing about these numbers is that they were achieved outside of the noise and fanfare of the real-world 24 hours of Le Mans. Players were strongly and actively engaged in what our game offered and we're not just reacting to the licensed event upon which our game is based. We believe this bodes well for our future product planning, which I will touch on shortly. Since then, our player engagement has remained higher as we delivered the first elements of our latest Le Mans Ultimate expansion pack, the licensed European Le Mans series, which runs alongside the real-world championship on which our core game is based.

This new downloadable content or DLC entry is being delivered in installments with the iconic Silverstone Circuit and a new class of car with the Ligier JS P325 LMP3 alongside a season pass for a pack of 3 DLCs. This popular series is adding some much requested new circuits, a key focus for the team to deliver new optional content for the title. We have also been making great progress on a key user feature, driver swaps in team racing. For our most engaged users, these racing experiences where a team of players share the same car is the pinnacle of a collective racing simulation experience.

Cheering on your team as you battle mentally and physically against rivals across multiple hours elicits a unique challenge and one that builds a very strong audience bond to the product. Being part of a team is an important component in today's gaming landscape, and our title is built around this social community-driven aspect to great effect. This feature is of particular importance as it forms the foundation for the return of our highly respected and viewed eSports series, Le Mans Virtual.

In its last season, it was responsible for over 10 million viewers as verified by data analysts at UDelv. With an improved ecosystem underpinned by a dedicated game in Le Mans Ultimate, we are confident this series will prove to be a valuable marketing opportunity, not only for game and DLC sales, but also our subscription service, RaceControl which will power a more meritocratic approach to the series.

We are in the final stages of planning and hope to announce qualifying in the coming weeks and months and are currently in active negotiations to finalize partners to support the series. The interest from players, real-world drivers and teams and potential partners was evident when our team visited the SimRacing Expo in Europe last month. We're excited to bring this great series back with a dedicated game, and we'll be presenting in person to the official manufacturers, drivers and sponsors at the real-world season finale of the 2025 World Endurance Championship in Bahrain this week.

Our service platform, RaceControl, which drives our subscription offering has continued to grow with its highest performing quarter to date. We continue to drive new levels of engagement in this service with extensions to the custom delivery feature. This has resulted in an almost 100,000 deliveries being processed from our engaged subscribers. And now we are allowing players to share and download others designs in one click through the livery market that I spoke about in our last conference call.

We have turned this feature, Livery Hub, and it is available at our portal website, RaceControl.gg. This has driven much higher engagement from our players on the site, and we believe it to be a great showcase of what we can turn this platform into. We are building an ecosystem where you can access our service from anywhere at any time to engage with our products. There's more to come on that, and we can't wait to share.

I have often spoken about the opportunity to bring Le Mans Ultimate to console, and I am pleased to announce that work on this project is underway. Utilizing a highly respected outsourcing partner, we are able to maintain our existing pace on the current main revenue driver, Le Mans Ultimate on PC and our RaceControl subscription service without impacting the live service we're providing. In fact, many of our fans will be pleased to hear that some of the technologies required for this port to gaming consoles is going to be making its way back into the core PC product in the coming releases, even before the console product launches.

Delivering our core gaming product, which is still growing on PC to a console audience on PlayStation and Xbox will be another milestone for our revitalized business and could potentially turn this title into a long-term franchise for the company. Whilst we are currently financing the early stages of the console project, we are in active conversations with several interested parties who may put up the entirety or some of the investment required to bring this exciting project to market.

Beyond the financing investment, some of the proposals include useful marketing and publishing efforts that could increase the chances of success for our console product release. The core PC title performing so well has accelerated these conversations and opened new and exciting opportunities, which we are carefully considering. The exact date for a console version of Le Mans Ultimate remains subject to further development progress. But realistically, we expect this to be sometime around late 2026 or early 2027.

We plan on selecting the best release window and not to deliver a product out of financial necessity. Our CFO, Stanley, will talk in detail about the financial numbers recorded in Q3, but I would briefly like to draw attention back to the journey we have been on as a business. Upon my return to the company in April 2023, the company had negative cash flows of around $2 million per month. Now in 2025, the hard work is shining through. For the last 2 quarters in a row as a company, we are proudly able to say that we are reporting an operational profit.

Additionally, we now believe that the company has cash on hand to sustain itself for some time and even invest in meaningful projects that could lead to additional revenue opportunities. Cash on hand from June 2025 to October 31, 2025, has increased by $2.2 million. This is a testament to our team and our resilience. We are accelerating our growth plans, exploring new opportunities and sensibly increasing our team size to deliver more for Le Mans Ultimate, but also begin work in the very near future on additional titles from our first-in-class development team at Studio 397.

A new title is not expected to be announced for some time, but we are incredibly confident in the technology and market for player-driven multiplayer rating simulations across multiple platforms based on the success of Le Mans Ultimate. To this end, we continue to look at how best to structure our teams and processes to take advantage of our current momentum and abilities by setting up our teams for success whilst remaining lean. We have learned a great deal over the last 24 months and routinely explore ways in which we can learn and improve, including through the deployment of AI, not as a crutch to replace human input and creativity, but as a tool to accelerate growth and productivity.

Now I would like to invite Stanley Beckley, our Chief Financial Officer, to talk about the financial results for the third quarter of 2025.

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 quarter of 2025. I will be providing some information shortly on 2 significant milestones that the company achieved during the third quarter of 2025. Revenues for the quarter were $3.1 million, up by $1.3 million or 71.9% when compared to the same period in the prior year.

The increase in revenues was primarily due to a $1.8 million increase in 2025 from sales of our Le Mans Ultimate racing title, particularly DLC sales, a $0.4 million increase from RaceControl and a $0.1 million increase in our rFactor 2 title compared to 2024 offset by a $1 million decrease in NASCAR-related revenues, a gaming title we are no longer authorized to sell starting in 2025.

With the release of our Le Mans Ultimate title in February 2024, the company has more than made up for the loss of revenues from our NASCAR title, the license to which we sold in October 2023. NASCAR-related revenues were approximately $1 million and $3.5 million during the 3 and 9 months ended September 30, 2024, respectively. In comparison, revenues from our Le Mans Ultimate title were approximately $2.3 million and $5.7 million during the 3 and 9 months ended September 30, 2025, respectively, significantly more than NASCAR-related revenues during the same prior year period.

Net income for the third quarter of 2025 was $0.8 million compared to net loss of $0.6 million for the same period in the prior year, an improvement of approximately $1.4 million or 234.1%. The increase in net income is driven by an increase in consolidated revenues of $1.3 million, decreases of $1.3 million and $0.1 million in operating expenses and cost of revenues, respectively, offset by a decrease of $1.4 million in other operating income.

Net income attributable to Class A common stock was $0.14 per share for the third quarter of 2025 compared to net loss per share of $0.18 for the same period in the prior year. The company has achieved another significant milestone in its history. After adjusting for other nonrecurring losses of approximately $25,000, Q3 2025 was the second consecutive quarter that income from operations was generated by the company. Q3 2025 and Q2 2025 now stand as for only 2 quarters in the company's history that income from operations has been generated.

We are reporting adjusted EBITDA of $1.1 million for the third quarter of 2025 compared to $0.1 million for the same period in the prior year. The improvement in adjusted EBITDA of $1 million was primarily due to the same factors driving the previously discussed change in net income for the third quarter of 2025 when compared to the same period in the prior year, as well as the decrease in stock-based compensation compared to the prior year period. As it relates to liquidity, as of September 30, 2025, we had cash and cash equivalents of $4.1 million, which increased to $4.5 million as of October 31, 2025.

For the 9 months ended September 30, 2025, we generated an average positive cash flow from operations of approximately $0.3 million per month that was primarily due to increased profitability, $0.8 million from the Wesco Insurance Company settlement in June 2025 and $0.5 million from the settlement agreement with HC2 Holdings 2 Inc. in March 2025. The other significant milestone we achieved in Q3 2025 relates to the growing concern disclosures included in prior financial statement reports being removed in our Q3 2025 report on Form 10-Q.

Thank you all for your time. And now I will turn the call back to Stephen for closing remarks.

Thank you, everyone, for joining this call today. We're delighted with the ongoing progress outlined today. For a second consecutive quarter, we've turned to profit from operations and have built a healthy cash reserve off the back of continuing success of our core product, Le Mans Ultimate and the online platform, which supports our ecosystem approach, RaceControl. This puts users first and they are repaying us with enormous support.

Base game sales continue at pace, additional content or DLC sales for our game remain very strong and more people are joining our value-adding RaceControl subscription service every month. We're now in active development of a console version of our Le Mans game and believe we are not too far from another major step forward for the company as we become a multi-format developer and publisher. We believe in our future, and I hope you follow our journey.

Thank you again for joining this call today. I'll now pass it back to the operator.

[Operator Instructions] And it does appear that there are no questions at this time. This does conclude today's program. Thank you for your participation. You may disconnect at any time, and have a wonderful rest of your day.