ENGAGE XR Holdings plc (EXR) Earnings Call Transcript & Summary

Good morning, and welcome to the ENGAGE XR Holdings plc full year results investor presentation. [Operator Instructions] The company may not be in a position to answer every question received during the meeting itself. However, the company will review questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. And now I'd like to hand you over to CEO, David Whelan. Good morning.

Hello, everyone, and welcome to this Metaverse apartment. My name is David Whelan. I'm the CEO of ENGAGE XR, and I'm joined here today by Séamus, who is our CFO. Today, we're talking about our final results. So I'm going to leave Séamus, take it away.

Thanks, Dave. So 2021 was another year of significant growth for ENGAGE. There was continued acceleration in demand for our platform with numerous 6-figure deals signed during 2021. During the year, we also had an oversubscribed placing, in June 2021, raising EUR 9 million before expenses. With the funding, we've grown the leadership team and continued to strengthen it. We've hired a new U.S.-based Director of Revenue and also a Head of Marketing in USA. They're tasked to growing the sales and marketing function of the group into 2022. Some of our major client wins include 6-figure dollar contract with Optima Domi to provide the first-ever VR-based charter school; a 6-figure euro contract with a Korean enterprise customer; and also significant contracts with 3M, BMW, Abbott and the U.S. Department of State, to name a few. Financially, our group revenue grew to just shy of EUR 2.4 million, which is a 68% increase on the prior year. Within that figure, there's an over 200% increase in ENGAGE revenue, growing from just shy of EUR 600,000 in 2020 to EUR 1.8 million in 2021. ENGAGE now comprises over 70% of total group revenue, and our group gross margin grew to 79% from 72% in 2020. We've had a 258% increase in our ENGAGE user base year-on-year. And at the year-end, we have a very strong cash balance of EUR 7.8 million. Just looking a little -- into a little bit more detail into the numbers. You can see below, as I mentioned, total revenue has grown from EUR 1.4 million to EUR 2.4 million year-on-year. ENGAGE revenue now comprises 75% of total group revenues. Our non-ENGAGE revenue, which is our showcase experiences and museum work, has -- is down year-on-year, but that's purely due to the shift in focus to the ENGAGE platform, where there's huge opportunities for the growth exist. There's a 7% increase in our group gross profit margin from 72% to 79%. And as mentioned, we have a strong cash balance at the year-end, and our current cash burn is running at about EUR 250,000 per month. Our ENGAGE revenue, we can see we've had compound annual growth from FY '19 to FY 2021 of 464%. But within our revenue figure, it's important to break down what we view as recurring, professional services and nonrecurring. So our recurring revenue during 2021 was 73% of total ENGAGE revenue. This will be license sales to enterprise and education customers. We had 19% of what we would consider nonrecurring revenue, which would be event revenue where we run one-off events for key customers. And then the final portion, which is a small part of our business, but an important one, nonetheless, is where we do professional services work for our customers, which might be where we create custom content for customers where required. Our total license numbers at the year-end totaled over 6,500, which is up from just shy of 3,000 at the end of 2020, and compound semiannual growth rate from the start of 2019 of 126%. Customer-wise, we view our customers as active customers if they're in excess of EUR 3,000 in the average contract value to us. Anything below that is considered a trial customer. At the year-end, we had 57 active customers in excess of EUR 3,000, up from 23 at the end of 2020. Just looking at some of the clients, I think it's very clear to see that we're working with some of the biggest and brightest companies in the world. We're working with Facebook, HTC, Unilever, KPMG, 3M, just to name a few. And you can see the depth and breadth of the clients that we're working with in the below slide. Last year, when we did our presentation for our annual results, we announced a medium-term outlook and some KPIs that we're measuring ourselves against internally and also that we're happy to report externally to our investors and shareholders on a yearly basis. Our first metric was to have growth in ENGAGE revenue in excess of 100% year-on-year. So we've delivered that. Our ENGAGE revenue is EUR 1.8 million in 2021, compared to EUR 600,000 in 2020, an increase of almost 200%. The second KPI was to have gross margin in excess of 80% once ENGAGE revenue is between EUR 5 million to EUR 10 million year-on-year. Our 2021 gross margin, as previously mentioned, is 79%, so we're already very close to hitting that target. Our next metric was to have 10% average month-on-month increase in customers to reach a target of 500 active customers. Our active enterprise and education customers at the year-end was 139, compared to 44 at the end of 2020. We wanted to have forecast revenue retention within ENGAGE of at least 80%. That was quite a prudent figure, and our actual revenue retention rate was 178% in 2021, showing that customers have remained with us and those that have remained with us have spent more with us year-on-year as they grow their license numbers. Our average contract value target was to reach an average contract value in excess of EUR 20,000 per contract. And during FY 2021, we had an average contract value of EUR 16,000, compared to EUR 15,000 in 2020. I'll now hand it back to Dave, who's going to talk about our new exciting offering within the Metaverse.

Thanks, Séamus. So what we announced in the middle of last year is that we're working on a Metaverse. This is actually even before the META announcements or Facebook's announcements, which is more focused on enterprise clients and education clients. So what I'm going to show you here now is a short presentation video which we did release last year talking about our vision for the Metaverse and the future of spatial computing. [Presentation]

Okay. I hope you enjoyed that short presentation. So just to dive a little bit deeper into what our offering is, so what we're offering is a framework for businesses and educational institutions to build their own MetaWorlds in their own vision and they can control everything that happens within their own MetaWorld. So a MetaWorld is a unique location. It's just a singular location like this apartment which we're in today, where it can be designed any way that you see fit. And then because you own the MetaWorld, you can control everything that happens inside. So you can set a dress code. You can say that this is private, just for our employees or for students. You can also mute free users if it is like a free public space. And some of the MetaWorlds that you can see up on the screen here, that's actually Facebook's Menlo Park. Facebook, a client of ours, may use us for professional events and for their clients. And I think it's very telling that Facebook, even though they have their own platform, which is very much tailored for kids and entertainment, they're using us for professional service. You can see Accenture there actually had an onboarding -- an event inside ENGAGE earlier -- late last year. HTC, they host professional events in here as well for their own customers. And again, it is very telling that HTC use us for events even though they've had their own platform for a while called VIVE Sync. And we've had events with other premium brands such as BMW, Audi, Yahoo! and many, many others throughout the year. So really, what these MetaWorlds, what are being used for today, are product launches, immersive experiences, company events, private meetings, training and development and education. But up until now, really, ENGAGE has been very much a software service where clients will come to us, they'll purchase maybe 500 or 1,000 user accounts, and they'll use it privately and internally. Whereas the Metaverse and -- Séamus, can we go to the next slide there -- the Metaverse really is where we're going to interconnect all of these locations through a series of bridges or portals. So you can actually see there on the small image in the middle of the screen just down here, that's a portal. So when you walk through one of these portals, it will bring you to another location in another virtual world. And it's a really kind of cool and strange experience. And on the bottom there, you can actually see -- that's a render. It's a work in progress of our Central Plaza. So the way that our Metaverse is connected is that we have a Central Plaza where any new user who comes into the platform, they'll start at Central Plaza and then there will be a series of portals to different locations. And the locations we're going to have in the beginning are Enterprise Plaza, Creative Plaza and Education Plaza. So in Enterprise Plaza, we're going to have clients. We haven't announced launch partners yet, but that's coming quite soon. So when you get in -- let's say HTC is an example -- when you get to Enterprise Plaza, you can see HTC world. And you can walk straight in there. And then it's a complete world designed and developed by HTC, and they can provide services and product launches and whatever they want to do inside there. And say, when you go to Education Plaza, we'll have brands like Stanford University, as an example, where you can go into virtual Stanford University, attend classes, talk to students. So it's really an open world for businesses, professionals to connect and actually build new business models through the platform. So quite soon, you'll be seeing people offering services and subscription services to these different types of Metaverse. And you can actually see the structure in the very top there. So it's a very much node structure and that can be build out to infinity. So yes, if you go to the next slide. So why would people use us instead of other platforms? So security is a massive thing for our clients. We went through ISO certification last year, and we're the only social VR platform that actually has that security certification. But also because we're in Europe, we subscribe to GDPR compliance. And it's one of the big things why clients come to us, why Facebook use us for their client services, why HTC use us as well. It's because the security is key. Any time that we sign up a blue chip company, we get a document with about 250 questions that we need to fill in or we have done in the past. Now what we do is we just show them our certification, and that actually negates a lot of the red tape to get that client signed on with us. And we also have a system called Meta Traversal. And currently, we're the only platform that does this, where any business build within the ENGAGE Metaverse, which is codenamed Oasis for the moment. If they build a world and they want to connect to another world, which is on a different platform, we have a system where, if you walk through a portal, it can actually open up any of those other platforms. And the example I want to talk about here is Ready Player Golf. So McKinsey & Co, they have a space inside ENGAGE, which is a social space, where they invite many of the world's top tech executives into the social [ golf house ] is what we have. And they would hang around for about half an hour to an hour, just all communicating and networking. And then when you want to play a round of golf, they walk through a portal inside ENGAGE and it opens up another application called Pro Putt and then they can play 18 holes of golf and then they'll come back in to ENGAGE. So this is Meta Traversal. And really, how we see the Metaverse in the future is, it's not going to be just one dominant platform where everything is on it. There's going to be different platforms which will cater to different use cases and different clients. So the Facebook, with Facebook Horizons, they are very much catering for a younger audience for entertainment and social gatherings. Then you have other platforms which are going to be good for, say, dating. Other platforms are going to be good for, say, video games, kind of like Fortnite, as an example, which call themselves a Metaverse, but really it's a video game. And really, what we're aiming for ENGAGE to be is definitely the platform of choice for enterprise and education clients. And it is a framework, build whatever you want on the ENGAGE framework. You can host it on your own web services if you want, or you can host it on the cloud with us, but you can interlink it with [ any verse ] and really think of this like the evolution of the Internet. So if you go back to the late '90s, AOL tried to dominate the Internet and everybody needed to be on AOL. And then look what happened there. People and companies wanted their own hosting, they wanted their own services. They needed to use different technologies. They made their own websites, and they hosted them externally. The Metaverse is going to be the very same way. You're going to have different platforms using different services. So kind of think of ENGAGE as the next generation of HTML or Javascript, where people are going to be building their own Metaverses using our framework and then using them or publishing them wherever they like and having their own business models. Okay, if you go to next one. So just as an example, these are 3 different examples from 3 different industries. So we have 3M who have been on the platform. A really, really fantastic client of ours, and they're really going headlong into the Metaverse. They're using ENGAGE privately at the moment for company onboarding and training and development, but they definitely have an eye on the Metaverse. Optima Domi then, they're a charter school in the U.S. funded by the U.S. government. They have a thousand students who are being taught inside the platform every day. And then HTC are using us for events. So I'm just going to play one of these videos first. I'm going to play the 3M video just to show you that example of how people are using ENGAGE today. [Presentation]

Okay. I hope you enjoyed that video. So we are working very, very hard here at ENGAGE XR to bring this Metaverse to life. So expect the launch of our version of the Metaverse, the business version of the Metaverse, in the second half of this year, and we're going to be announcing launch partners quite soon. So I'll just pass back over to Séamus.

Thanks, Dave. So just in terms of the team, obviously, you know myself and Dave. We've been in front of you many times at this stage. And we've already spoken about a number of team on this slide, but 2 key hires that we've mentioned earlier in the deck. Richard Allin has come onboard as our Chief Revenue Officer; and Kyle Horner has come onboard as our Head of Marketing. They've both started at the back end of Q1 of this year, and we're looking forward to seeing them grow the market and sales function within the organization. We took some time to hire the right people for these roles, but we're very confident that they are the 2 people to lead us forward. So just in terms of building out the organization, you can see on the left-hand side, we are now -- we feel that we are fully staffed up from a product engineering and operations management perspective. We do still have some active hires in the marketing, sales and customer success side of things. Kyle will obviously have the opportunity to take on some people in marketing, and we have already tasked Richard with taking on 6 salespeople to help grow out the sales function. On the customer success side, since we last spoke, we've added -- we've got 6 on the customer success side of the house and there's more being added in different time zones as we speak. And we will soon have 24-hour round the globe coverage to support all of our customers. I'll just hand you back to Dave now just to wrap up with an outlook slide.

Yes. So we are very excited about our vision for the Metaverse. We're still generating revenue as it is today, selling ENGAGE as a service, as we always have, and we are seeing revenues accelerate. But when the Metaverse offering becomes available, ENGAGE Oasis becomes available, there's going to be new sources of revenue. So our clients are actually building new services on top of the platform and selling those services. And we're going to be taking a percentage of everything that's made through the platform. So we're very excited about that opportunity. ENGAGE being used by 2 of the most prominent VR companies today, as I said, look, Facebook is a client of ours; HTC is our client of ours. They are leading the way in the technology front for building VR and immersive headsets. But the thing -- great thing about ENGAGE is it's not just in VR. I'm wearing a VR headset today. Séamus is on his mobile phone using ENGAGE. We also have Chromebook support and desktop support. It doesn't matter what computing device you're on, ENGAGE will be available to everybody. So it really is opening out to the market. We have a significant user base and it's growing really quickly. So at the tail end of last year, we had 100,000 professional users on the platform. It actually grew to 150,000 users within the last 3 months. So we're seeing a huge adoption of ENGAGE services. As Séamus mentioned as well, we hired our Chief Revenue Officer, who's based in the USA. He's got a wealth of experience, and I definitely see him really pushing us forward and getting some of those big line contracts on the platform. Two years ago, it would have been fair to say we were signing deals in the tens of thousands. Last year, we started signing deals in the hundreds of thousands. This year, we will sign deals in the millions of dollars. That's where we're going. We have hired a Marketing Director as well for the first time. So we've been very light on marketing up until now. And this guy coming in, Kyle, he's very, very experienced, especially in the digital front. So you're going to see and hear a lot more about the ENGAGE platform in the coming months. And we've also hired one of the largest PR companies in the U.S. called 5WPR. So we are starting to spend now big on marketing and the sales push now that we have the tech pretty much summon up. so yes, look, I want to thank everybody for watching this presentation today, and I'm sure we'll be talking to many of you throughout the year. Thank you. Bye.

David, Séamus, thank you very much for your presentation. [Operator Instructions] I'd like to remind you that a recording of this presentation along with a copy of the slides and the published Q&A can be accessed by your investor dashboard. As you can see, we've received a number of questions throughout today's presentation, and thank you to those investors for submitting their questions. Could I ask you to read out the questions and give response to that as appropriate for you to do so? And I'll pick up from you guys in the end.

Thanks very much. Dave, I'll -- as per previous, I'll read out the questions, and we can answer them between us.

Yes. No worries.