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Motorsport Games Inc. (MSGM)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 delivered a swing to profitability despite revenue decline: revenue $1.76M (down 41.9% YoY) and net income $1.02M; diluted EPS $0.33, driven by $0.5M other operating income, $1.7M lower OpEx from Q4 headcount actions, and a $0.2M settlement gain .
  • Gross margin expanded to 73.5% (vs 78.0% YoY; vs 45.8% in Q4), reflecting lower amortization in cost of revenues and mix shift toward Le Mans Ultimate; Adjusted EBITDA improved to $0.61M from $(0.98)M YoY .
  • Liquidity improved post-quarter: cash rose from $1.1M (Mar 31) to $3.1M (Apr 30) on $2.35M net proceeds from a $2.5M private placement led by Pimax; average operating cash inflow of ~$0.1M/month in Q1, though management still expects net operating cash outflows ahead .
  • Narrative catalysts: June 10 feature update and final 2024 season pack for Le Mans Ultimate, plan to move from Early Access to 1.0 in 2025, and exploration of console ports (PS/Xbox); management also highlights improved market confidence (shares >2.5x post investment announcement) .

What Went Well and What Went Wrong

  • What Went Well

    • "We are confident that the business is showcasing an improved outlook," with increased Le Mans Ultimate revenue and a $2.5M strategic investment led by Pimax to secure near-term operations .
    • Swing to positive net income ($1.02M) and Adjusted EBITDA ($0.61M), aided by $0.5M Innovate legal fee reimbursement, $1.7M OpEx reduction from Q4 headcount actions, and a $0.2M Luminis settlement gain .
    • Strong product roadmap momentum: June 10 driver swaps/team functionality, final 2024 content pack, and intent to transition LMU to version 1.0 in 2025; exploring console ports to expand addressable market .

  • What Went Wrong

    • Revenue fell 41.9% YoY to $1.76M, primarily due to a $1.5M decline in NASCAR-related revenues (license sold, no longer authorized in 2025) and $0.2M lower rFactor 2 revenue, partly offset by +$0.4M from Le Mans Ultimate .
    • Liquidity remains a key risk: despite improved cash post-placement, management expects net operating cash outflow for the foreseeable future and continues to pursue capital financing, asset sales/licensing, and further restructuring .
    • Gross margin down YoY to 73.5% from 78.0% on lower revenue scale; while margin improved vs Q4’s 45.8%, sustainability depends on continued LMU monetization and content cadence .

Financial Results

MetricQ1 2024Q4 2024Q1 2025
Revenue ($USD Millions)$3.03 $1.97 $1.76
Gross Profit ($USD Millions)$2.36 $0.90 $1.29
Gross Margin (%)78.0% 45.8% 73.5%
Net Income (Loss) ($USD Millions)$(1.66) $(2.88) $1.02
Diluted EPS ($)$(0.61) $(0.89) $0.33
Adjusted EBITDA ($USD Millions)$(0.98) $(2.47) $0.61
Cash & Equivalents ($USD Millions)—$0.90 (Dec 31) $1.10 (Mar 31); $3.10 (Apr 30)
  • YoY drivers: $(1.5)M NASCAR revenue decline and $(0.2)M rFactor 2 decline; +$0.4M LMU increase; net income aided by $0.5M Innovate reimbursement and $1.7M OpEx cuts .

Segment breakdown (context):

  • FY 2024: Gaming represented 100% of revenue; Esports 0% (no LMVS event in 2024). Q1 2025 segment breakout not disclosed .

KPIs (operational)

  • LMU net unit sales milestone: 100,000 (Q4 2024) .
  • RaceControl: subscription offering launched Dec 2024; management noted strong engagement; no Q1 subscriber count disclosed .
  • Operating cash: approx $0.1M/month average inflow during Q1 2025 .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Financial guidance (Revenue/EPS/OpEx)Q2 2025 and FY 2025NoneNo formal guidance provided; CFO reiterated no forward-looking guidanceMaintained (no guidance)
LMU feature/content roadmapQ2 2025N/AJune 10 driver swaps/teams; final 2024 season pack; plan to move to v1.0 in 2025Operational updates (no financial guide)
Console port exploration2025N/AExploring PS/Xbox ports; discussions underwayNew initiative (no financial guide)
Dividends2025NoneNoneMaintained (none)

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2024, Q4 2024)Current Period (Q1 2025)Trend
Product roadmap (LMU)Q3: major co-op/save features; Pack 2; subscription launching . Q4: LMGT3 content uplift; subscription traction; further updates in Feb 2025 .June 10 driver swaps/teams; final 2024 pack; plan to move LMU to 1.0 in 2025 .Continued acceleration; toward 1.0 release.
Console portsQ3/Q4: aspiration noted; positive conversations and opportunity contingent on PC success .Actively exploring PS/Xbox; discussions with porting/publishing collaborators .Increasingly concrete exploration.
Subscriptions (RaceControl)Q4: launched; strong early adoption; “within touching distance of 6,000 active subscribers” .Cited as revenue driver; no count update disclosed .Monetization building; disclosure limited.
Liquidity/financingQ3/Q4: cash constraints; exploring capital financing and strategic alternatives .$2.5M private placement closed; cash to $3.1M by Apr 30; still expects operating cash outflows; pursuing additional financing/asset licensing and restructuring .Near-term relief; medium-term need persists.
Legal/regulatoryQ4: Innovate litigation summary judgment in favor; Luminis settlement improving position .$0.5M Innovate reimbursement; $0.2M Luminis settlement gain in Q1 .Tailwinds to P&L and equity.
Market/toneQ3/Q4: improving player sentiment, organic growth without paid marketing .CEO: improved outlook; shares >2.5x post investment announcement; confidence in roadmap .Constructive tone strengthening.

Management Commentary

  • CEO Stephen Hood: “Following our recently announced closing of a $2.5 million private placement… along with increased revenue from our Le Mans Ultimate racing title, we are confident that the business is showcasing an improved outlook.”
  • Hood: “Q2 2025 is likely to be a busy period… with a significant update planned for June 10th featuring new game features and the release of the final 2024 season content pack…”
  • CFO Stanley Beckley: “The decrease in revenues was primarily due to a $1.5 million decrease in NASCAR-related revenues… a $0.2 million decrease in rFactor 2… offset by a $0.4 million increase… from sales of Le Mans Ultimate… Net income is driven by $0.5 million [Innovate] reimbursement, a $1.7 million reduction in total operating expenses… and a $0.2 million gain [Luminis].”
  • CEO Hood (market reaction): “Shares [were] trading more than 2.5x higher than the period prior to the announcement of the investment.”

Q&A Highlights

  • The call featured prepared remarks without a disclosed analyst Q&A segment; management reiterated no forward-looking financial guidance, emphasized liquidity measures, and clarified LMU roadmap and console exploration .
  • Clarifications:
    • Liquidity: $3.1M cash at Apr 30 after net $2.35M proceeds; continued pursuit of financing/strategic alternatives; expected net operating cash outflows ahead .
    • Revenue drivers: NASCAR license exit reduced back-catalog revenue; LMU growth (+$0.4M YoY) and RaceControl subscription cited as offsets .
    • Product cadence: June update and content pack; intent to move to v1.0 this year; console port discussions ongoing .

Estimates Context

  • Wall Street consensus via S&P Global for Q1 2025 EPS and revenue was unavailable; the S&P Global data returned no consensus values for EPS or revenue (actuals only). Values retrieved from S&P Global.
  • Implication: no formal “beat/miss vs consensus” comparison can be made for Q1 2025. Management did not provide guidance to benchmark against .

Key Takeaways for Investors

  • Profitability inflection achieved on lower revenue, aided by legal reimbursements, cost reductions, and settlements; sustainability will depend on LMU monetization and operating leverage as content rolls out .
  • Liquidity improved with the Pimax-led $2.5M placement, but cash generation remains a focus; expect additional financing/asset licensing/restructuring initiatives to be pursued .
  • Gross margin recovered vs Q4 (73.5% vs 45.8%) and remained robust despite smaller scale; near-term margin trajectory tied to amortization trends and LMU mix .
  • Product roadmap is a near-term catalyst (June features, final pack; 1.0 target in 2025) with optionality from console ports, potentially expanding TAM and marketing avenues .
  • RaceControl subscription/platform strategy strengthens monetization and engagement, offering recurring revenue to complement DLC/content cycles .
  • Legal tailwinds (Innovate reimbursement, Luminis settlement) support equity and P&L, while management tone remains confident on growth opportunities .
  • Trading setup: watch for June LMU update execution, any console port announcements, and additional financing/strategic actions; absent consensus estimates, price action may hinge on operational disclosures and liquidity progress .

Appendix: Non-GAAP and Adjustments

  • Adjusted EBITDA excludes items such as gains on settlement of license liabilities/agreements, impairment of intangibles, loss contingency, and stock-based compensation; Q1 2025 reconciliation shows EBITDA $1.29M, adjustments for $(0.175)M purchase commitment liabilities gain, $(0.5)M settlement gain, and stock-based comp to arrive at $0.61M Adjusted EBITDA .
  • Q4 2024 Adjusted EBITDA $(2.47)M; FY 2024 Adjusted EBITDA $(3.93)M, with noted exclusions including settlement gains and impairment in prior periods .

Sources: Q1 2025 press release and 8-K, earnings call transcripts, Q4 2024 and Q3 2024 materials .