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

Good morning, ladies and gentlemen and welcome to the ENGAGE XR Holdings plc Investor presentation. [Operator Instructions]. The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all questions submitted today and publish responses where it is appropriate to do so and these will be available via your Investor Meet company dashboard. Before we begin, if I may, I would like to submit the following poll. And if you could give that your kind attention, I'm sure the company would be most grateful. And I'd now like to hand you over to CEO, David Whelan. Good morning, sir.

Hello, everybody. Welcome to this full year results presentation. My name is David. I'm the CEO of ENGAGE plc and I'm joined here by Séamus. There you go Séamus.

Hi, everyone.

Yes. So what is ENGAGE? ENGAGE is a metaverse platform. It's a metaverse platform, totally focused in business and enterprise. And we have some really great use cases and clients. So as you can see on the list here, we have KPMG, Kia, 3M and HSBC, are some of our clients. So you might be asking yourself, what is the metaverse? So the metaverse is an evolution of the Internet. But it's not going to be for everything. So if you fill in a form online today and it takes you 2 minutes, you're going to do the same in 5, 10 years' time. But where it really comes into its own is in group collaboration for events. These are the areas where the metaverse will definitely become very useful. Any place where you need to interact with many, many people online. Currently, today, people use Zoom and Teams for large events and exhibitions but there's really no interaction, where you're just looking at a video of a lot of heads on the screen and then everybody is waiting for the turn to speak. Where when you're in a metaverse like -- most of you have seen this already, now you have spatial audio, you can walk around, you can have private conversations with people and you can interact. And it's also very useful for training and development where you can come in here and do product demonstrations and learn about different subjects. Now Séamus is going to talk about the financial overview.

Thanks, Dave. Yes. So obviously, the main reason for our presentation today is to give everyone a run through our finances for 2022 and an update on current trade in 2023. 2022 was a very strong year for ENGAGE. We saw a huge growth in revenue with no slowdown post pandemic, which is something that was raised as an issue -- as a potential issue for the company. We've seen an 86% increase in ENGAGE revenue between 2022 and 2021. Our average deal size has grown from EUR 17,000 to EUR 21,000. Our revenue retention rate for customers is 121%, which means customers that are renewing are spending in excess of what they spent in the previous year with us. And you can see in the bottom right-hand square, we've had 14 deals in excess of EUR 75,000 during 2022, up from 4 in the prior year, highlighting the continued growth of the company. Our cash position at the end of April was EUR 10.3 million, following our oversubscribed equity raise of EUR 10.5 million before expenses in the first quarter of this year. Looking at some of the KPIs that we measure ourselves on. During 2022, our total license numbers have grown on a compound semiannual growth rate of 94%. And at the end of 2022, we have in excess of 10,000 active enterprise and education licenses on the platform. As mentioned on the previous slide, our contracts -- average contract size is growing. We have 16% of our contracts in excess of EUR 75,000 during 2022 with a further 20% between EUR 25,000 and EUR 75,000. Just looking at some of our key metrics that we have said we measure ourselves on in the medium term. One of our targets was to grow ENGAGE revenue in excess of 100% year-on-year. Our total ENGAGE revenue grew 86% year-on-year from EUR 1.8 million to EUR 3.3 million. We recorded our record monthly revenue in December 2022 of EUR 0.6 million. And our quarter 1 revenue is in excess of EUR 1 million, which is up 5% on the same period 2022, which is in line with our expectations for the first quarter of this year. Our gross margin, we target it to be in excess of 80%. We've increased our gross margin year-on-year to 82%, as the ENGAGE revenue contribution grows. We've added 30 new enterprise and education customers to the platform during 2022, bringing the total number to 190 at year-end and we're in excess of 200 as we stand here today. Our revenue retention rate, as I mentioned on the previous slide, was 121% with renewing customers increasing their committed spend with us. We targeted an average contract value of EUR 20,000 per enterprise and education customer and we've achieved that during 2022 with our average contract value reaching EUR 21,000. And we do expect that to continue to grow during 2023 onwards. Obviously, our cash position is a key metric for us. At the end of 2022, we had cash balance of EUR 2.2 million. Well, we had a very heavily oversubscribed fund raise in quarter 1 of this year, raising EUR 10.5 million before expenses, EUR 9.9 million after expenses. Our expected cash burn during the first half of this year is approximately EUR 400,000 per month. That's following significant payroll savings, recovered payroll costs from quarter 4, 2022, quarter 1, 2023 by 25%. Payroll costs are our most significant cost in the nature of the business. So I'm just going to talk briefly about the opportunity and market size that ENGAGE is dealing with. And just on the next slide here, we can see the market opportunity that we are targeting, which are, targeting 3 key areas of the market; global team collaboration software, global e-learning and global virtual events. You can see here that they are massive markets, which in excess of [ $400 billion ] available. We consider our initial target addressable market between $10 billion and $44 billion. Within these markets, the VR and AR compound annual growth rate is expected to be a multiple of the non-VR and AR compound annual growth rate. And our cost platform support on desktop, phone, tablets and VR headsets, enable us to target a broader market unrestricted by the availability of VR and AR hardware. We expect 2023 to be another formative year for us, especially with the launch of Link at the end of 2022, with regard to building an evidence base for our addressable target market.

Okay. So one of the big things that we were focused on last year was building partnerships with leading players in the space and one of these partnerships, which we announced was with Lenovo. Lenovo are the biggest hardware manufacturer for computing devices in the world. The sell 30 million Chromebooks a year. They're releasing their own headset called the VRX in a matter of weeks. And this is a headset which is totally focused on enterprise use cases. And in the partnership, what they're going to be doing is reselling ENGAGE services on the headset and ENGAGE is actually going to be an install on many of the devices going out there. So we're very, very excited by this opportunity because we know Lenovo have a proven track record. And they actually work with most of the Fortune 500 companies in the world. So we expect big things coming from this partnership. So I'm just going to play a little preview of this headset. [Presentation]

Okay. So that was the video preview of the headset. What we've been doing over the past few months is, we've been training up the Lenovo sales staff on how to sell ENGAGE [indiscernible] joint pitches with Lenovo to their own clients. They have 10,000 salespeople chomping at the bit to sell these services. So it's going to be an interesting second half of the year when we start seeing revenue come in from this partnership. So what are the use cases for ENGAGE? So as I said previously, ENGAGE is used for virtual meetings and exhibits. It's also used for remote training and development, virtual product launches, remote education, team building and collaboration events and digital twins. And actually, the image you can see there is the Kia showroom. So they've built a whole virtual showroom inside ENGAGE, which they use for training and development. So they train salespeople remotely inside a virtual environment. But they also have this showroom available for general public on ENGAGE Link where you can go in and look at the cars and ask information about dealerships. So just to look at the collaboration, training and development aspects. In this short video presentation, you're going to see some of the features on ENGAGE. This video is a little bit dated. And you'll also see some of the educational use cases on the platform. [Presentation]

Okay. Welcome back. So just looking at digital twins and metaverse. One of the big services we released last year was ENGAGE Link. So ENGAGE Link is an always-on persistent location where the general public can come in and walk around and visit locations that our clients have built, they can also attend events. Now this is the first time that this has been available on the platform because previously, our users used to use ENGAGE kind of similar to Zoom and Teams, where they would open up a room, they would hold a meeting or a event and then when they log out the room would close down, very similar to Zoom or Teams, whereas, now we have the ability to leave these rooms open all the time. So think of it like the front page of your website, except instead of being like a flat page, you're actually inside a virtual environment walking around. So it brings up very, very interesting use cases. So in this video, we're actually just going to show you a preview of ENGAGE -- of ENGAGE Link, which is our enterprise metaverse offering. [Presentation]

Okay. Welcome back. So that is ENGAGE Link, which is our metaverse offering on [indiscernible] so we are fitting it up quite quickly. We have new names going onto the platform month-on-month and it takes a little bit of time to onboard these people. So hopefully, in the coming months, we'll be announcing more names in that. We already have people like Lenovo, Kia, Pfizer, HSBC, HTC, Pearson Education. So there's quite a few clients and you've seen quite a few logos on that previous video. So one of the items to attract people to the platform is running events on the platform. So we worked in collaboration with Fatboy Slim on an immersive concert. Now there have been metaverse concerts in the past but they haven't been true concerts. They've been 5, 10 minutes experiences, more like glorified music videos, whereas, what we worked on with Norman was a full hour long concert where it was all about the experience. So you travel within his mind, you go on a journey through his mind as you're listening to some of his greatest hits. It was a great success. We held it March. It attracted a lot of people to the platform. So I'm just going to play just a short clip from that gig. [Presentation]

Okay. Welcome back. As you can see, our gig was quite strange and unusual but it really shows off some of the features of the platform. So we've shown the collaboration of people inside dancing. You could see 360 video playing and animation. So the platform itself is very powerful. That's actually opening up a lot of opportunities to work with other artists in the future. So here is just some of the clients. Some of these I spoke about already. As you can see, we have Pearson, KPMG, Stanford University. So these are pretty big names and actually Meta are a client of ours as well. So Meta use us for professional events and use us for meetings as well for clients, whilst they've also founded 10 metaversities on the platform, through a third-party provider who has built a business on top of our platform called [ B3 XR ]. And actually, that partnership is growing and expanding and we hope to announce more about that in the coming months. And as you can see Kia had a car showroom on the platform, BHP are one of the big mining companies. So the thing with ENGAGE is, it's across all different sectors, education, enterprise, mining, medtech and consultancy services. We have a wide variety of different clients, which is fantastic. So it just shows how robust the platform is. So yes, I'll pass back over to Séamus.

Thanks, Dave. So just to conclude, we just wanted to give a quick overview of our current trading and outlook for the first quarter of 2023. Our quarter 1 revenue was up approximately [ 40% ] compared to the equivalent period last year, in excess of EUR 1 million, which is in line with management expectations. As we already spoke about, we had a significantly oversubscribed fund raise, raising EUR 10.5 million before expenses, with continued institutional and retail support across existing and new investors. As at the 30th of April, we had cash on the balance sheet of EUR 10.3 million. We took action to realign our cost base, which we reduced by 25% from quarter 4, 2022 to quarter 1, 2023. We see continued growth in customers for ENGAGE Link, new clients won in the period, including an international food processing company, a multinational energy company and a global education organization. We see continued growth in total customers, which now exceeds 200. New clients include -- additional new clients include 2 of the world's leading banks. As Dave mentioned and showed a demo on the previous slides, we hosted ENGAGE's first VR concert and titled "Eat Sleep Repeat" with Fatboy Slim. And we're currently exploring further revenue opportunities in relation to this. Our pipeline continues to grow and the Lenovo partnership is opening up some exciting opportunities. We and the Board are confident in our outlook going forward for 2023. And we're happy to take any questions you may have now at this stage. Thank you.

David, Séamus, that's great. And thank you very much indeed for your presentation this morning. [Operator Instructions] But just while 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. And David, Séamus, we did receive a number of pre-submitted questions ahead of today's event. And as you can see there in the Q&A tab, we've also received a number of questions throughout your presentation this morning as well. So firstly, thank you to all of those on the call for taking the time to submit their questions. And guys, if I may hand back to you just to respond to those where it's appropriate to do so and then I'll pick up from you at the end.

Thanks very much. Thanks everyone for joining us today. I'm going to read through the presubmitted and the live questions right now and either myself or Dave will answer them as appropriate. First one that was submitted was, are ENGAGE still on track to hit their target of EUR 10 million revenue by 2025? I can take that. The guidance that's out there in the marketplace at the moment from both of our brokers doesn't extend to 2025 as yet. But the Board are confident that the measures that we put out to hit EUR 10 million, by 2023 is broadly in line. Obviously, there's a huge potential for upside from the Lenovo partnership but we think we're in a good place in relation to that. Can you provide any information on ENGAGE's pipeline value? So our pipeline as it stands is very strong. As we mentioned in the presentation, we're closing bigger and bigger deals. Our existing sales team are doing great work. In the first half of this year, as we noted, our U.S. sales team which we staffed up in 2022 is bearing fruit. We've got a significant proportion of our revenue coming through from United States and North America in this -- at the start of the year and our pipeline continues to grow there. When is ENGAGE XR expected to become profitable? That's broadly in-line with the first question, around hitting our EUR 10 million revenue figure. Again, I can only speak about what's already out in the marketplace from our brokers, from our analysts. And there isn't -- there's no indication of profitability in those but we do expect it to occur in the short-term future. So it's not forecast for 2023 or '24 but we would hope that in the near future after that, we would be hitting breakeven and profitability. Do you see any benefits of a June listing in the United States?

I can take this one, Séamus, if you want. So this time last year, if you asked me, I would have said yes. But right now, markets are very -- they're not very stable at the moment. We're obviously waiting to see what news comes out of America in the next 3 weeks, if they're going to default. So it's not something that I would rule out. But right now, I think markets are too volatile right now to consider a dual listing right in this period.