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

Yes. Let's head on over to -- let's go into one -- maybe one of [ Models ] World or something like that. Oh, we've got the MindWise here, which is a great place, Waking Dream. Let's go ahead and pop on over to some of our -- let's show them the Tilt Brush art that I was talking about.

Okay. So one of the very cool things on ENGAGE is that we support a huge array of different formats and different tools. And one of the key things about the metaverse is it's all going to be very much interlinked. So there's going to be different platforms who specialize in different things. So where we are here, this is created on a paint application owned by Google called Tilt Brush. Chris is going to explain the process of getting it in here and the artists who created this wonderful location.

Yes. So this was built by one of the very popular Tilt Brush artists, and she is so happy to be able to bring this into a place where it can be fully experienced with up to 60, 70 people in the same space. So the way she does is she just builds it on that third-party app, Tilt Brush, brings it into our SDK, our Unity-based SDK, optimizes it there and then pushes it up onto her account into here. And then she grabs a place in the metaverse on ENGAGE Link, and now the entire world can come in and experience this content.

Yes. I think one of the best comments that we've heard from our clients recently is that we're very much the Swiss Army Knife of the metaverse, where people can pretty much build anything, prototype very quickly. And it's one of the key reasons why so many clients come to us, is that they don't really know what they want from the metaverse. They're trying to work out a strategy, and ENGAGE is one of those platforms that allows them to build out a strategy very quickly, find out what works and what doesn't work. And another key factor that makes us very successful is that we are ISO security-certified, and we have GDPR compliance. So a lot of these clients who are coming to us, these big names, banking institutions, et cetera, come to us because there's a level of comfort known that we've gone through all the certification. So yes, I think what we'll do now is we're going to get out of VR, and we're going to be happy to answer any of your questions. Thanks very much for coming on this tour.

Thank you.

David, Chris, that's great. And if I may, just bring back up your cameras. [Operator Instructions] I would just want the team take a few moments to review those questions that were submitted already. I would 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 via your investor dashboard. David, Chris, as you can see in the Q&A tab, we have received a number of questions throughout today's presentation. So thank you to all of those on the call for taking the time to submit their questions. And if I could just hand back to you to maybe run through the Q&A tab to respond to those where it's appropriate to do so, and then I'll pick up from you at the end. Thank you.

Yes. Well, I hope you did enjoy that sharp presentation, and this is the real version of us, so you could actually see within that video. We do kind of look like our avatars. There's still a lot of work to go, but we're definitely not as cartoony as some other platforms out there. So the first question I have here, can you see Engage being listed on Nasdaq in the next 3 years? Yes, it's a possibility. I wouldn't rule anything out. It's a short and sweet answer. So the next question then from [ LG ], how much ENGAGE professional services or cost and dev support is typically required for clients to launch a fully functional meta world? Or are they doing this in-house with third-party developers? Which client or after how long do clients typically become self-managing on the ENGAGE platform? So maybe, Chris, if you want to answer some of that?

Yes, I would love to. So there's a couple of different ways to bring content into ENGAGE. The primary way is with our SDK. The advantage of an SDK is it allows you to add a bunch of additional functionality to those assets, such as putting gravity on an object or putting a collider on an object. That's the best way to bring it in. But for those that don't know Unity or don't know how to do that, like myself, who -- I'm a behavioral scientist of 20 years. I don't know how to code. So for me, using the cloud file manager that's currently in beta and getting ready to be released to the public, we actually have, I want to say about 800 people using that right now in beta, and it's as easy as drag and dropping file. So you're just dragging video files, you're dragging 3D model assets, going to one of the big marketplaces where they sell 3D assets, just downloading that content, dragging it in and bringing it into ENGAGE. It is that easy that somebody like my mom could do that. How long does it take to become self-managing? Well, in the case of cloud file manager, it's very quick. Everyone is familiar with the drag and drop.

What I would say is originally, ENGAGE was designed as an education platform. So we tailored the experience to be suitable for educators in the [ parties ] to build content very quickly. So even our menus are on virtual iPads, which educators know how to use. So it makes it very familiar when they get in there to pick up these tools and run with them. The next question I have...

I was going to say, too, on regards to the MetaWorld, a lot of folks are actually even working with our internal content team to build out their first MetaWorlds because we do expect a very high quality, and we are curating those. So a lot of assistance from our in-house team for those initial MetaWorlds. And beyond that initial one, we leave it more in the clients' hands.

Cool. So the next question I have from [ LG ] again is, what increase in head count do you expect for your sales and research and development teams next year to support the growth of ENGAGE Link? So what I would say is, we're 100 staff and right now, we're just over 100. Our technical staff are extremely strong. So with such a small team, we've built a very impressive platform. And some of the platforms we're going against, they have 1,700, 2,000 people working on those platforms, and we definitely hold our own. And I think it's a great validation of the platform that actually some of our perceived competitors are using our platform on a very regular basis. So HTC have built their own platform. They use us for events. Meta built their own platform. They use us for events as well and some huge corporations. From the sales side, I think that's the area of the business that we are growing extensively. So we grew our business development team from 2 at the beginning of the year to -- I think we have a team of about 12 people now, Chris. And we are growing that side of the team as well. So customer success, retention, those kind of areas, is the area of key growth for the company, and that's what we're going to be expanding into next year. So the next question I have, Chris, is for you from [ LG ] again. When do you expect ENGAGE Link to be fully cloud-based?

Oh, that's a good question, to go cloud-based. I mean that is the future. ENGAGE will be cloud-based at some point. That's the future of all platforms, where we can have that very friction-free log-in process and the ability to process graphics and stuff in the cloud to even bring a higher resolution experience. It's still fairly early days for that. There's still quite a bit of friction in cloud-based rendering, but we do see that in the future for sure. I don't really know what timeline. David, what would you guess?

I would guess somewhere in the region of about 3 to 5 years before we start seeing it being adopted more widely. Really, it's dependent on the Internet providers. So you need a stable Internet connection with 100 megabytes download, 50 meg up, I think, to have a reasonable browser-based experience. Now we have seen Google with their project that -- I think they closed down. I forgot the name. Stadia -- Google Stadia.

Yes. Yes.

So that is a fantastic product, maybe a little bit early to the market. But this reminds me, history repeats itself. And there was an alternative to YouTube that was up and running on the Internet just before broadband adoption, and it failed. And then YouTube came out. So you need to have the right product phase at the right product time. And I think with ENGAGE, where we are now, we are seeing a lot of businesses and corporations looking to reduce costs, looking to reduce carbon footprint and hire more remote workers in areas where they'll be less expensive to hire. So instead of hiring someone in the center of London and paying a big, big wage, they can hire somebody maybe out in the suburbs. And they're looking for better ways to communicate and connect. And that's one of the major use cases on the platform. We see corporations using this for onboarding, for daily stand-ups, for communication. Video communication is fine when there's 2 or 3 people talking. When you need groups of 5, 10 or 15 creative people all collaborating together, that's when video communication starts to fall down. Next one then from Michael D. And I think this one would be for you, Chris. How has the Education Plaza been received so far by the likes of Stanford University?

Yes. It's very exciting because up until now, almost everything that occurred in ENGAGE was private accounts, having to invite people and bring in -- using codes and things like this. So they're very excited about the fact that they can be -- have an as always-on 24/7 place that they can basically advertise their sales, services, products right there on the plazas at any time in an experiential way. So they're very excited to be able to come out publicly. And we have 3 different settings for our MetaWorlds, which is very convenient for our educational customers. You've got the public-facing MetaWorlds that we have. You also have the option of having private MetaWorlds, where it's invite-only, and then internal MetaWorlds where it's really designed just for your internal employees, students, et cetera. So lots of different options there. But yes, everyone is very excited about this prospect, all of our partners are.

And second question here, I think the two of us can share, is what is the strategy to onboard more educational institutions? So we have a couple of different approaches. So we are working with some of the best premium educational institutions in the world. Stanford University is one. Those guys are actually doing research papers using the ENGAGE platform and publishing those papers. So when they publish those papers globally, other universities take notice, and they want to get in on the action, especially when they're showing real benefits from using an immersive method of teaching for some of the lessons that -- compared to others. So that's one way of getting other universities involved with us. We also work with education partners such as VictoryXR, who have set up 10 Metaversities, which Chris, maybe you can speak a little bit more of.

Yes. That's been getting a lot of publicity and a lot of people reaching out to us the fact that VictoryXR and us were building these digital twins of the university. It's getting a lot of airplay, and people are reaching out to us because of that. I should also say, our relationship with Stanford has been a big boon for us because Dr. Jeremy Bailenson, who is our partner, is really probably the leading researcher for virtual reality and education. And the word is definitely out on the street that we have his endorsement, and we've just been getting a ton of reach-outs specifically because of his endorsements.

Yes. I really -- I think that's the end of the questions unless something else comes in. But I really want to emphasize here what we're talking about. Metaverse really is a marketing term. It's just an evolution of the Internet or part of the Internet. So if you're going shopping today on Amazon or you're filling in a form online, you're going to do the same thing in 5 years' time because it's very easy and quick to do. But if you want to communicate with larger groups of people, go to entertainment events, go to like a virtual office and communicate with your colleagues, this is where the metaverse or the spatial 3D Internet really comes into its own. So it's not going to be for everything. This is an add-on or an evolution of part of the Internet. That's really what we're working towards. And quite often, I'm asked, the metaverse, is that what Facebook are building? That's like saying, Facebook are building their own version of the Internet. All different companies will have their own versions of the metaverse, the same as all different companies have their own websites. They will all eventually be linked together. When it's cloud-rendered, it's going to be easy to jump from one to the other. Whereas at the moment, in the very beginning, it is very much a [ wide ] network where you have to download clients to get into these applications. And the reason we're not web-based right now at the moment is that we are the only metaverse platform with ISO security certification. It's very hard to get that security certification if you're a web-based application because you're sending data through a browser. And a browser, you're reliant on the security of the browser itself, whereas having your own internal application that you can secure is easier to sell to these large corporations, whereas selling them a web-based solution at the moment until it's cloud-rendered, really, a lot of those web-based solutions won't get through the process or the application process to work with these big clients. And that's why we have big corporations like Lenovo, KPMG, Pfizer, Kia. These are well-known brand names. And I think one of the great things that stands to us is even for such a small company, we're working with 20 of the Fortune 500 companies. We're aiming to work with 100 Fortune 500 companies in the next 18 months, so we're very, very ambitious. Another question came in there. What is the average client cost for setting up in MetaWorld in ENGAGE? So what we're actually charging here -- we're not selling digital land, okay? So I've seen many platforms out there, and they have this idea of digital scarcity where we're going to make a finite amount of land, and we're going to sell this land. And if you buy lands that's next to a celebrity, that land is going to be more expensive. We don't do that. That's a crazy way to look at things. There's an inherent value in buying land in the real world because there is only a certain amount of land that you can get. Digital land can go on and on forever. So what we're actually charging is hosting for these spaces, the same as charging for websites. Now we do have a special introductory fee that we're charging some of these clients, where they want like their branding in one of the heavy-traffic locations or do you want the branding on the building, kind of like an advertising spend. And that will depend on each client. And also some clients are paying more than other clients, and also our enterprise clients will pay more than education. But we're not excessively charging them. Where we make our money at the moment still is in selling licenses to these organizations. And they're using these public spaces for product launches or customer reach-out or network events, but they still have their private spaces within ENGAGE. But we are certainly going to evolve the business model next year, where we're going to be taking revenue share from people who are holding events on the platform or concerts on the platform. We'd be also charging revenue share for people who want to sell content to other users on ENGAGE. And that could be, say, training company setting, fire safety training to the likes of Lenovo or whichever organization they wish to do so, and we'll take a percentage fee of that. And the clients that we're working with today, they're building their own business models and they're finding out what works and what doesn't work. This really is 1995 all over again. So I've seen a lot of businesses. They've built virtual worlds. They've put their logo on the world and said, "Hey, this is our metaverse strategy." That's exactly the same as businesses back in 1995, who spent a huge amount of money for domain names. They put their logo on a web page, put their phone number underneath and set phones to do business. A lot of those businesses went out of businesses. And they've been replaced by YouTube, eBay, Amazon. These companies utilize the Internet technology in the correct way. And we're working with businesses now in the background, and it can be frustrating that we can't speak about a lot of the businesses we work with, but we're working with these businesses today. And not everything works. So there's a lot of failures and some successes, but they're figuring out what works and what doesn't work to put them in good stead over the next few years. So it is very exciting times for the business. So I think that's really from us. It's a short update. We just wanted to show you what our vision -- our early vision of the metaverse is. This is, again, the very first release. It's 0.1. We have a long way to go, but I do think we're certainly on the right path, and we're certainly quite different to any of the other platforms out there. So thanks very much, and we will see you again soon.

David, Chris, that's great. If I may just jump back in there, thank you very much indeed for addressing all of those questions that came in from investors this afternoon. And of course, if there are any further questions that do come through, we'll make these available to you immediately after the presentation has ended for you to review and then add any additional responses where it's appropriate to do so. David, perhaps before redirecting those on the call to provide you their feedback, which I know is particularly important to yourself and the company, if I could please just ask you for a few closing comments. I think you may have just well delivered those, but if there's anything further to add, that would be great.

Yes. Look, I think if you think the Internet is going to evolve, if you think it is going to go to a spatial Internet in the future, if you think we're doing something different from everybody else, there's very few people that have the capabilities of what this company can do, and we've come a hell of a long way over the last 3 or 4 years, I do think you should seriously look at supporting this company and other companies as well. The Internet is going to change. It's not all going to be beholden to one company or one business or one person. This is going to be a shared virtual world, and we certainly have a duty of care to make sure that we build it correctly. We are pioneers, but I definitely think this is the future of spatial computing. And I will make two predictions, okay? And these predictions are -- I'm quite often asked, are we reliant on the adoption of VR headsets? We absolutely aren't. We're supported on mobile phones, tablets, desktop PCs. 50% of our user base actually just use phones and tablets when they log in. And every now and again, they go into VR for the immersive element of it. If I was to make a prediction of the worldwide adoption of immersive technology wearables, what I would say is back in 1969 -- before 1969, very few people had televisions in their house. And after 1969, a lot of people had televisions in their houses. And the catalyst for that was the moon landing because 1/4 of the world's population watched the moon landing on TV, and they all went out and bought TVs later. I think what will happen in the next 3, 6 years is that someone will walk on Mars, and your option is going to be do you want to watch it on a 12K TV or do you want to stick on an immersive VR headset, stand on the surface of Mars and watch that person take a step of Mars. And I think when that happens, you'll see a huge adoption of immersive technology. And my second prediction will be that, that person will be a woman. So yes, it's going to be an interesting few years to see if both those predictions come right.

David, that's great. And Chris, as well thank you once again for taking the time to update investors today. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order that the management team can better understand your views and expectations? This is going to take a few moments to complete, but I'm sure it will be greatly valued by the company. On behalf of the management team of ENGAGE XR Holdings plc, we would like to thank you for attending today's presentation. That now concludes today's session. So good afternoon to you all.

Bye now.

Take care.