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

Good morning, ladies and gentlemen. Welcome to the ENGAGE XR Holdings plc Interim 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 all questions submitted today and publish responses where it's appropriate to do so, and these will be available via your Investor Meet company dashboard. Before we begin, 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. I would now like to hand you over to CEO, David Whelan. Good morning, sir.

Hello, and welcome to the interims presentation for ENGAGE Plc. I'm the CEO, David.

Hi. I'm Séamus, the CFO here in ENGAGE.

So what is ENGAGE? ENGAGE is a business-focused spatial computing platform and metaverse platform designed for corporations and organizations to hold meetings, events, group participation, training and development and educational services. [Presentation]

Okay, welcome back. So one of the terms that you would have heard quite often is the term metaverse. When we talk about metaverse, really what we're talking about is the evolution of the Internet. So the Internet today is a very flat experience. On your desktop PC, you're looking at a screen. Or even when you're communicating through the Internet and on platforms such as Skype or Teams, you're just looking at a video presentation. Where the metaverse comes into its own, metaverse is a 3D spatial computing way of interacting with each other. So you're in these virtual environments with other users, and it can communicate more naturally. So if you're in a large group, say, for a standup -- daily standup, you can lean over to the person next to you and whisper in their ear without disturbing anybody else. You can draw on a virtual little whiteboard, you do kanban board. So as a remote communications platform, the metaverse can be a very, very powerful tool. It can also be used for sales training, education and events. And one of the very successful events we actually held earlier this year was the Fatboy Slim concert, which I'll be talking about later in the presentation. What I'm going to do now is I'm going to pass over to Séamus to talk about the financial overview for 2023.

Thanks, Dave. I just want to quickly run through some of our H1 2023 highlights. ENGAGE revenue totaled EUR 2.1 million in the first half of the year, up 18% from the same period last year. We're broadly in line with H2 2022 where we've seen very positive 2 months since the period end with over EUR 1 million in revenue generated in July and August of this year. Our cash position at the 30th of June was EUR 9.4 million following our oversubscribed equity raise of EUR 10.5 million, before expenses, in the first quarter of this year. We've had 17 deals in excess of EUR 50,000 in the first half of this year, up from 7 in the prior year. And our average deal size has grown to EUR 21,000 from EUR 18,000 in the same period last year. Looking at some of the metrics that we measure internally. Our total license numbers, we've shown 84% compound semiannual growth rate in license numbers since we launched the platform with in excess of 12,000 active licenses at the 30th of June this year. And in July of this year, we signed 5,000 license deals, bringing our total licensed users to in excess of 17,000 as we stand here today. Our average contract size, 24% of our contracts won this year have been in excess of EUR 50,000 with 13% between EUR 25,000 and EUR 50,000 and 63% less than EUR 25,000. This piece is a nice [ intro ] to this slide. Moving straight down to customer retention, [ plank 4 ] in this slide, our revenue retention rate for the first half of this year was 201%, which means that renewing customers have doubled their committed spend with us year-on-year, which is a strong endorsement for the success of the platform. We've also seen a growth in gross margin from 81% in the prior period to 93% this period, reflecting the increased contribution of ENGAGE revenue to overall revenue. We've added 30 new enterprise and education customers to the platform in the first half of this year, bringing the total number to in excess of 220 at the period end. Our total licensed users at the end of June was in excess of 12,000, an increase of 48% in the prior year. And as mentioned already, we've had a new sign-up post period end for more than 5,000 annual licensed users. So just looking at the opportunity that is presented to us for ENGAGE, we feel we're targeting 3 key markets: the global team collaboration software market, the global e-learning market and the global virtual events market. They are all extremely large markets as we stand here today, and they're also forecast to grow between 9.5% and 21.4% compound annual growth over the next 7 to 8 years. Management feels that we can address between EUR 10 billion to EUR 44 billion of that addressable market. Within the overall markets, the VR and AR compound annual growth is expected to be a multiple of the non-VR and AR growth. Our cross-platform use on desktop, phone, tablets and all major VR headsets gives us a distinct advantage to target those markets. We expect 2023 and the rest of year to be another successful period with regard to addressing that target market.

Okay. So one of the partnerships which we announced last year was a stronger relationship with Lenovo. So Lenovo are one of the largest hardware manufacturers in the world. They sell more Chromebooks and desktops than any other company, and they have a huge database of clients. Later -- well, earlier this year, they released their ThinkReality VRX headset, which is an enterprise-focused headset. And as part of that release, they have signed partnership agreements with the ENGAGE team, where we are now going to be approaching their top 100 clients and selling metaverse services and spatial computing services using their hardware. And so this is just a short overview of that device. [Presentation]

Okay. So that device was officially launched this summer. We expect revenues coming in from this partnership before the end of this year. So what are the use cases of ENGAGE? So ENGAGE is a -- it's a very open platform, and we enable our customers to build new business models and to do proofs of concepts very, very easily on the platform. But some of the leading areas where ENGAGE has been used on a daily basis are virtual meetings and virtual product launches, team building, remote education, immersive content development and digital twins. So digital twins are a full replication of a real-world location. And here, you can actually see the Kia dealership. But one of the new areas which we're moving into is AI-enhanced remote training and development using our AI called Athena. Now Athena is running on ChatGPT. It's a very smart system. So it's embodied in an avatar where you can go and communicate with her verbally, but you can also create training on the fly as you interact with core ENGAGE systems. So she can actually create environments, and she can bring in videos for you. She can create sticky notes. We're still at the very, very early stages, but what we're planning on doing is making this a commercial release to our clients where they can hire virtual employees to be front of house. They can be training and development officers. They can also be used in education as well. So I'm going to play this video, which was created with one of our business developers in the U.S. [Presentation]

Okay, welcome back. So one of the other services that ENGAGE offers are metaverse and digital twin services. So these are always on persistent worlds that the general public can go in and visit. One of the examples which I spoke about earlier was the Kia digital twin example, which is a car showroom that Kia offer, but we have many, many other clients in our metaverse offering. So we have clients such as Adtalem, Stanford University, HSBC, KPMG. And so we have quite a broad range of different clients and services within this fully online open world. One of the cool and interesting areas that we do work in is in virtual events. So quite often, we're holding virtual events for corporations, and it's their gateway into the ENGAGE platform. So corporations will come to us and go, hey, look, we have a budget of it could be EUR 50,000 or EUR 100,000 and we want to hold a virtual event, what can you guys do for us because we don't want to hold events on video platforms anymore. They're not very immersive or not very engaging. But one of the events that we did hold very -- in Q1 of this year was the Fatboy Slim concert. And really, we wanted to produce this event as a showcase of ENGAGE where it can be more than just standing on a stage and presenting and doing a PowerPoint presentation. It can be a very immersive and fun event. So we were working with Fatboy Slim and he said, look, I want you guys to go live. I want people to really feel like they're going on a trip, and I think we certainly achieved that. So this is very unlike any other metaverse concert you would have attended, which were pretty much glorified music videos that were only 10 minutes long. This was an hour-long experience, really, really immersive, designed for VR. And we had thousands of people attend the event in March and has opened up quite a few doors for us in many other areas. This is just a short snippet of that concert. [Presentation]

Thanks, Dave. So this slide just represents a snapshot of some of our bigger clients that we've been working on, on the platform. We've obviously mentioned a few of these earlier on in the presentation. We've had strong ties for a number of years with HSBC and Meta. We've onboarded Lenovo at the back end of last year and signed up a very exciting commercial resale agreement with them. Kia have been one of our bigger customers in recent times. HSBC and a number of other banks are using the platform now. And we've also got strong ties to the world of professional services with KPMG, just 1 of a number of the big 4 that we work with from a consulting point of view. So just as a quick wrap-up, just to look at our trading and outlook for the second half of this year. As I mentioned earlier in the presentation, we've had a very strong July and August with combined revenue of in excess of EUR 1 million, which was in line with our expectation, but it does show that the trajectory for the second half year is upwards. We're seeing continued growth in customers for ENGAGE. Our most significant win post period end includes a 5,400-license deal with a U.S. State Department of Education. Just prior to the end of August, we had a significant 3-year renewal with another U.S. educational body worth in excess of $250,000. We're very excited about the new revenue opportunities opening up with partnerships growing stronger with Meta and Lenovo during the second half of this year. As Dave mentioned, new hardware releases focusing on AR and spatial computing services are going to be released over coming -- the next coming months, providing new product possibilities for our platform to exploit. And finally, ENGAGE leading the way for AI integration with immersive technologies via our Athena AI, which Dave demoed earlier through video, with use cases centered around enterprise trading, sales services and content development. Thank you for your time today, and we're happy to take any questions that you may have.

David, Séamus, thank you very much indeed for your presentation this morning. If I may, I will just bring back up your cameras there. [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. David, Séamus, as you can see in the Q&A tab, we have received a number of questions throughout your presentation this morning. And thank you to all of those on the call for taking the time to submit their questions. But guys, if I may just hand back to you just to read out those questions and give your responses where it's appropriate to do so, and then I'll pick up from you at the end. Thank you.