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

So just looking at some of our financial highlights for the first half of the year. Group revenue grew to $2.2 million, up from $2.1 million in the prior period. Within that, the Engage platform revenue was $2.1 million, up from $1.8 million in the prior year. But most importantly, our recurring revenue grew period-on-period, up from 66% and in the first half of 2023 to 83% in the first half 2024, reflecting increased license revenue and a reduction in one-off revenue, which I will discuss further in the following slide. Our gross margin did decline from 93% to 89% in the period. That's reflective of a one-off hardware purchase for a key customer in the period, which isn't something that we plan to repeat going into 2025. Our EBITDA loss was $1.8 million, an improvement from our H1 '23 loss of EUR 2.1 million, which is reflective of the increased revenue in the period and also continuous cost control within the company. Our cash at the end of the period was $5.5 million compared to $9.4 million in the same period 2023. Just looking at our revenue breakdown within the Engage platform. We're seeing quite a good spread across our 3 main markets. We've generated 35% of our revenue from the North American market. 30% within Ireland and the U.K. and a new growing market for us is Asia and Oceania, which generated 30% of our revenue, primarily in the Middle East region in conjunction with PwC. At the end of the period, we had over 17,000 licensed customers on the platform and the breakdown by industry shows that education has comprised 47% and of our total license numbers, government and tourism 24% and banking 10%. And we do expect that trend to continue as our main focus is on those areas. Looking at our revenue by type for the first 6 months of the year. You can see clearly that education and enterprise revenue has grown. Education revenue up from just shy of 400,000 to just over 800,000 and enterprise revenue up from just shy of 600,000 to 900,000. This was offset by a reduction in one-off professional services and events revenue, which has declined from just over 900,000 to 350,000. This revenue mix is very positive for the company and shows 83% of our revenue is recurring in nature through license revenue, which is far more beneficial for the company and is far more scalable than one-off professional services and event revenue. So just looking at our Engage license breakdown. As I mentioned on an earlier slide, we have in excess of 17,000 active license holders at the end of the period. That's shown a compound semi annual growth rate of 71% since the platform began. Our average contract value in the period, we saw 23% of our contracts in excess of 50,000 and a couple of much larger ones in 2024 as well. We've seen 23% between 25,000 and 50,000 and the balance then less than that of 54%. I -- so just to wrap up with the current trading and outlook slide. Our H1 revenue was $2.2 million, with a further $800,000 of contracted revenue due to be recognized at the end of the second half of this year. Four of our largest ever deals have been signed in the past 12 months, primarily in the education and corporate training space. We've seen significant growth in some key education customers, which I mentioned earlier, Inspired Ed growing over 500% and Optima Ed growing over 400%. As Dave already mentioned and shared a video, our school of AI has been released and our AI bot builder -- it's driving pipeline growth and is a key focus for both new and renewing customers. Our sales pipeline is showing less in deal quantity but more in deal quality with significant deals at various stages of negotiation. And to wrap up, management remain confident in delivering market expectations for this year. Thank you for your time, and we'll happily take any questions you may have now.

[Operator Instructions].

Thanks very much. Thanks, everyone, for listening to the presentation. And I'm going to run through the questions here. I'll call them out. And either myself or Dave will answer them as appropriate. I just want to go through them in the order they were submitted. There is some commonality understandably between some of the questions, but I think we should be covering everyone's queries by the ones I do go through. So first query that's submitted is, does July and August financials make the board less or more confident to delivering against expectations for the year. I can take that. We are still very confident in delivering our expectations for the year. We've made progress during July and August, and we're also in negotiations with a number of large customers which will help deliver against our targets that are out in the market at the moment. So there's been a -- there's a number of questions understandably about the share price and in terms of how we are dealing with the share price and what we can do to improve it. So I suppose the key point here is that we, as a company, know that all new things that's going to move the share price positively upwards in a meaningful way is getting to profitability. Our stated goal is to get to profitability during the second half of 2025. We still feel that we are on track to do. So and that is the team that's going to move the share price in the most meaningful way. Any news that we've put out hasn't had a significant movement on the share price, even when it has been very positive, such as the announcement of our 7-figure deal at the start of 2024, but we will continue to release news as appropriate, but our main focus is getting to profitability. Next one is one for you, Dave. [indiscernible] are Engage doing to increase the visibility of the services that we offer.

Yes. So we're enabling resellers on our platform to become successful. We're dealing with very large corporations like Meta, for example, who will be promoting Engage in the future. but also the likes of Optima Domi, Inspired Education, some other key partners that we have those guys are growing substantially on our platform, more than doubling their license holdings with us, and they're out there pushing our platform forward and selling licenses on our behalf, which is fantastic. It's a great way to grow the business by enabling these third-party resellers to be our champions and to be our sellers instead of hiring a massive sales team by ourselves. But you will hear more and more about the platform especially in the coming weeks as we release our AI capabilities and as Meta released news about devices coming out quite shortly.

Thanks, Dave. That actually covers out the following on question, which is that the new low-price Lenovo headsets are being launched next week and to what extent will this benefit our business model. As Dave already mentioned, it's going to drive far more increased education focus and then for [indiscernible] to the platform with a lower price line obviously bringing more people into the marketplace.

Yes. Just to add to that. Look I'm pretty excited about what they have to announce next week. Obviously, we're privy to a lot of additional detail, but I think people will start to see that, yes, that the market is starting to come to us in the areas that we thought would be most valuable in education, training and development. So it should be an interesting few weeks for us.

Thanks, Dave, a very frank question though we're happy to answer. Are you willing to take a much smaller salary until you reach a cash-generative position. The Executive Boards, Dave, Sandra and myself have taken a substantial pay cost since the middle of the year, and we will continue to operate on that basis until we get to a cash generative position. That's something that we have all of us been willing to do, and we'll work to make sure that the company achieves a stated goal of getting to profitability without the need for a further raise. Let's see. Sorry, there's some new questions have to come in. So just give me a moment to read through those. So somebody asked what's our current borrowing rate on run rate. So our current run rate is just shy of $300,000 per month based on cost savings I mentioned with the Executive Board taken paycuts. Any financing plan in the next 3 to 6 months, the company doesn't see a need to raise funding in the short term as stated, we expect the funds that we have bring us to breakeven and profitability in the second half of next year. A lot of these are sharing similar comments. So I think one of the last ones I can answer is what is the -- I'm sorry, to jump the moment. What is the correlation between engaged licensed users and revenues. So the correlation is that we have 2 main different types of licensed users, enterprise and education users. Enterprise license users are on a higher price line to our education license users. We're seeing significant growth in our education side of the house and continued traction on the enterprise side, too. And then the follow-up question is, given 6-figure renewals is the likely range of increase of license users by the year-end. So at the moment, we have just over 17,000 license users at the end of June as part of that, we would hope to see that getting closer to or past hitting about 20,000 by the year-end, all going well. Okay. There's another couple of ones answer coming in. What is happening with the platform partner, which Meta and Lenovo. So with Meta, we are working closely with them, very closely with them on their new headset release and being promoted heavily by them. They brought a number of contracts during this year. Lenovo, we're also still working closely with them on the headset launch, and they are still actively pushing out to their customer base. Second question, let's come in is what are the expectations and guidance for H2 revenue for license renewals and new licenses from the pipeline. So obviously, I can only speak to what's out in the public domain and care to come, as you know, this morning, which obviously management team are in agreement with. We expect the balance of our revenue for the year to reach our stated target come from the pre-existing contracted revenue noted in the RNS of GBP 0.8 million, license renewals of around GBP 1 million, GBP 800,000 from new customers and the balance coming in from one off professional services and non-engaged services. There are no forecasts in the market beyond 2024. We really broke it out lease in the near future. Yes, it is our expectation to put out forecast for 2025 as and when appropriate, closer to the year-end, when we have better visibility on 2025 contracted revenue. And then the last question at the moment is, can you please advise on the new chairman role, so I might leave that one to you, Dave.

Yes. Kartik is very, very experienced. He is U.S.-based. He's had $2 billion exits in the past as well. So he's helping us create a better pipeline, introducing us and to [indiscernible] as well, helping us grow that bottom line and grow our revenue and get us to profitability as quickly as possible. So is a really, really good guy, and I'm delighted to have him onboard.

Thanks, Dave. I think what I was answering questions have already answered, I think that probably covers all the questions I can answer at this stage.

Fantastic. Steve, thank you indeed for that. And of course, any further questions that do come in the company won't be able to review those and will publish responses where appropriate to do so on the Investor Meet Company platform. Before redirecting investors provide you with their feedback, not particularly important to you and the company. And David, if I could just ask you for a few closing comments, please.

Yes. Look, we've had a really good first half of the year booked in record revenue. We -- as Séamus said, we had [ another 800 grands ] to recognize later this year as well. So it's been a very, very strong start were quite positive and quite upbeat on what the remainder of this year has to offer for Engage. And as I said, the big media conferences on next week. I'd recommend people to stay tuned to that, and you can kind of see the direction we're going in. So thanks very much for your time today.

Fantastic thanks for updating investors today. Can I please ask investors not to close the session. It will be automatically redirected to provide your feedback in order the team can better understand your views and expectations. This only takes a moment to complete and is greatly valued by the company. On behalf of the management of Engage XR Holdings plc, we'd like to thank you for attending today's presentation. That concludes today's session, and good morning to you all.