Engage XR Holdings (LSE:EXR) — Full Year Results

0:01 Good morning, and welcome to the ENGAGE XR Holdings PLC Full Year Results Investor Presentation. Throughout this recording meeting, investors will be in listen only mode. Questions are encouraged and can be submitted any time by the Q and A tab situated in the right hand corner of your screen. To click Q and A, scroll to the bottom, type your question, and press send. Company may not be in a position to answer every question received during the meeting itself. However, the company can review all questions submitted and publish responses where appropriate to do so. Before we begin, we'd like to submit the following poll. I'd now like to hand you over to Dave Willen, CEO. Good morning. Hello, and welcome to the full year results presentation

0:32 for ENGAGE XR. My name is David. I'm the CEO, and I'm joined here today with Seamus, our CFO. Hi, everyone. So what is ENGAGE? ENGAGE is a platform for professionals seeking spatial computing AI and metaverse services for use in training, events, development, and onboarding. You might ask what is spatial computing and mixed reality. These are terms that you hear quite often, especially with the release of headsets and from the likes of Apple. Spatial computing is the use of immersive technologies, like virtual reality headsets or mixed reality headsets, where you're inside a virtual environment and you're interacting with three d objects. Mixed reality is the ability to see the real world as well as the virtual world overlaid, and you can actually see in the video, on the presentation on the screen here, you can see that this is a a meeting, inside ENGAGE where we have people from The US and UK interacting, actually, that's inside my kitchen.

1:30 And why would you use this technology? You'd use this technology because it's four times faster to learn using immersive technology than it is in a traditional classroom, and, this is very useful within enterprise and within education where you can save time and money by getting people to learn tasks much, much quicker and retaining that knowledge. This is just a short trailer outlining some of the core features and functionality of the ENGAGE platform. ENGAGE is a business focused spatial computing platform designed for corporations, professionals, educational organizations, and event organizers. Used extensively for remote training, collaboration, events, and marketing, our platform enables our clients to directly engage with employees, customers, and suppliers inside virtual worlds in Digital Twins.

2:27 ENGAGE is working hand in hand with over 200 plus enterprise organizations globally to help turn their virtual strategies into reality. We know that augmented reality and artificial intelligence will play a key role in the office of tomorrow, and this is why we are leading the way with Athena AI and AR pass through capabilities supporting the next generation of immersive devices.

2:58 ENGAGE is not only a generational leap in communication, it's also a content creation tool and publishing platform. Build and prototype content and simulations easily with our inbuilt editor and share them with your organization or the wider community. It's up to you.

3:21 ENGAGE with the platform that does it all. Okay. Welcome back. So who are the players in this space from a hardware point of view? So we have Apple, Meta, PECO, who are a Chinese company, HTC from Taiwan, and Lenovo from China. So these are the main players who have headsets out today. The most recent being the Apple, headset, which is getting a lot of traction and a lot of notice, in press at

3:53 the moment. They call their device a spatial computing device, but really it's it's, the same as mixed reality, virtual reality. So it's digital objects in virtual worlds that you can interact with. And Meta, have the largest installed base currently. It's well over 20,000,000 headsets for the Quest two, and that's growing significantly. And we've great partnership with Meta, especially in the education space as well as Lenovo. Later this year, it's expected that Samsung and Google are partnering to release their own headset, which will be a high end headset focused on enterprise use cases. And Sony did announce at CES that they're also releasing a headset device which is focused on enterprise, and that's coming to market later this year. So it's a very, very active space with most of the major tech corporations having some kind of play in this space.

4:46 So with that, I'm just gonna pass over to Seamus. So during 2023, the market shifted somewhat for us. With the return to work and the removal of travel restrictions in late twenty twenty two and also tech company layoffs, there was a shift in the landscape in the latter part of 2023 for us. Negative there was a negative impact on our enterprise renewals at the end of 2023, and we changed our focus within the business team through back to K-twelve and third level education where revenue opportunities presented themselves. As a result, we expect churn and net revenue retention levels to improve in 2024. So what are the use cases, for ENGAGE? So as Seamus said, we are definitely seeing a lot of growth in education, k 12, universities, and colleges, but we're also seeing ENGAGE used in a lot of training and development scenarios, onboarding onboarding employees, and actually onboarding customers.

5:44 So we do use it for remote education. It's also a great tool for creating content. We have a lot of use cases for digital twins. You can see in the image here, this is the the Kia location where they use it for sales training. People do use us for virtual meetings, exhibits, events.

6:00 However, that has shrunk slightly over the past year with the return to work policies in many of these corporations, and it's been used quite a lot for team building and collaboration in the past. So with a focus around education, our first offering, being released actually in the next couple of weeks is our school of AI initiative. So this is where we bring famous people of history back from the dead where students can go in and ask them questions about pretty much anything, you know. But, obviously, we've trained these AI on a lot of documentation and a lot of historical fact. And, you know, you go in, you can talk to Nikola Tesla as an example, and ask him all about his inventions and how they've affected the world. These AI, avatars, they are powered by, ChatGPT.

6:48 And where we have audio clips of the real people, we've trained the AI on those audio clips to sound exactly like the real people. So not only do they look like the real people, they also talk like the real people, and they're trained to answer questions just like the the

7:02 real person would have in a real life. This is just the first stage of our AI rollout. With the same, features, we're also going to be rolling out an offering in, colleges and universities. And later in the second half of this year, we're also using these AI capabilities and rolling them out in professional training for onboarding staff and customer service for enterprise. We're all act we're already actually working with a a few of the corporations who are clients of ours on AI enhanced capabilities for training and development. So I'm just gonna play this short demonstration, which is recorded in real time. Who are you?

7:49 I am Nikola Tesla, a Serbian American inventor, electrical engineer, mechanical engineer, and futurist best known for my contributions to the design of the modern alternating current electricity supply system. My work on electromagnetism and wireless technology has left a lasting impact on the world. What is this place?

8:18 This is my laboratory where I conduct experiments and work on my inventions. It is a space where I push the boundaries of science and technology to bring about innovations that can benefit humanity. What do you think of your name being used by a modern company creating electric cars?

8:48 I appreciate the recognition of my work in the field of electricity and innovation. It is my hope that any modern company using my name will strive to uphold the values of progress and technological advancement that I held dear.

9:06 What if you could meet the people that shaped our society? Hear the voice of the great discoverers, the inventors. What if you could ask them what motivated them? Our spirits are alive. Powered by conversational AI based on memories, interviews, and experiences. Visit us in historical virtual locations using phones, tablets, or the latest immersive technology.

9:42 Bring history to life by talking to the people who shaped it. Don't just read about history created. I am real. Come visit me. We are school of AI.

10:18 Okay. So one of the key benefits of using ENGAGE, for immersive training and development is in drastic cost reductions in the cost of providing service. So So one of the areas that costs a huge amount of money for students to progress in is in film school. So when students go to film school, they have to deal with very, very expensive equipments. Red cameras, as an example, can cost tens of thousands of dollars. Students very often wouldn't have access to that type of equipment or LED walls and special effects. All of this stuff can be virtualized and put into a virtual setting. And one of the one of the companies we're working with is called the Metaverse Film School, where they provide students with immersive learning inside the ENGAGE platform where they have access to hundreds and thousands of dollars worth of equipment, you know, at a fraction of the cost all in in in a virtual setting.

11:59 Okay. I'm gonna pass back over to Seamus. He's gonna talk about some of the client wins that we've had last year. Thanks, Dave. So just on the right hand side of this slide, you can see some of the client wins that we've had during the year. It includes new clients and also clients that increased their spenders in 2023 or early twenty twenty four.

12:18 Some of the most significant wins during 2023 included successfully onboarding Bank of America and substantially growing their license count with us and their professional services with us. Obviously, announced as our first 7 figure deal in conjunction with PricewaterhouseCooper in The Middle East. We've also had significant wins with HSBC and Bosch and Lam in the period and significant renewals from the other clients listed there.

12:48 So just in terms of our growth strategy, we have five key areas that we're focused on. From the previous slide, you can see with our existing customers, we're looking to retain and grow and upsell within that customer base. New customers, we're focusing on quality, not quantity. The size and the ability the budget of the customer is far more important than the quantity that we bring on board.

13:13 As Dave has already outlined, we're sector focused. Core focus is on education and training. We're going to have product improvements throughout 2024, primarily around AI aided immersive education and training. And as we stand here today, we have a very strong pipeline, €5,000,000 in the pipeline at the moment through to the end of twenty twenty four, and that pipeline continues to grow week on week.

13:38 So just looking in the financials in a little bit more detail, just some of our high level figures for 2023. Our group revenue was 3,700,000, down from 3,900,000 in 2022. As outlined earlier in the deck, there were some challenges around enterprise renewals in the last part of 2023 and also some delays in contracts which pushed into 2024. Our ENGAGE platform revenue as a result remained flat at 3,300,000. We had recurring revenue within that of 66%, which was license revenue.

14:12 Our gross margin grew to 90% as a result of the mix between ENGAGE and non ENGAGE services. Our EBITDA loss shortened to EUR 4,000,000, down from EUR 5,800,000 due to strong cost control within the period. And at the year end, we had cash in the bank of €7,900,000 up from €2,200,000 in 2022. That cash balance is obviously derived from the oversubscribed placing in quarter one of twenty twenty three. So just in terms of our revenue profile,

14:42 as you can see from the map of the world there, 60% of our revenue is derived from North America, which is where our primary sales focus is, was at least during 2023. 15% is from Ireland and The UK, 14% from Europe, 8% in 2023 is from Asia and Oceania, and the rest of world accounted for 3%. That we do expect that profile will change through 2024 and 2025 as The Middle East becomes a far more significant market for us.

15:12 Looking at revenue by industry, you can see that education was our key focus with 40% of our revenue derived from the education sector. Banking became a bigger player for us in 2023 with Bank of America and HSBC coming on board, comprising 8% of our total revenue along with other banking clients, and the remainder then is made up of motor, telco, food, and other industries.

15:35 Looking at our ENGAGE revenue by type, you can see that our ENGAGE education revenue grew from €800,000 to 1,170,000 year on year. That highlights what we were discussing earlier in the slide deck about our core focus now being on education. Enterprise waned from 1,500,000 to 1,000,000 year on year as a result of poor renewals in quarter four of the year. Our professional services, which includes custom engaged studio work for clients and one off events grew from just shy of 1,000,000 to 1,100,000. That feeds into a recurring revenue of 66% derived from license revenue and 34% derived from professional services. Our total license numbers continue to grow period on period.

16:22 We grew from just over to just over 10,000 at the end of twenty twenty two to 15 just shy of 15,000 at the end of twenty twenty three. And we're seeing compound semi annual growth rate since inception of 77%. Our average contract value, you can see that 26% of our contracts are in excess of 50,000, 12% are between 25 and 50,000, and the rebalance are less than 25,000. So just to conclude with a trading and outlook slide, we've recorded our record revenue in Q1 of twenty twenty four of EUR 2,000,000, which includes our previously announced our first 7 figure deal in The Middle East. Four of our largest ever deals have been signed in the last nine months, primarily in the education and training markets.

17:09 The School of AI is being released within weeks, which will follow on offerings for universities and enterprises over the coming months. As mentioned, most, if not all, of our non renewing enterprise clients have now been cleared out of our pipeline, giving clarity to revenue expectations and also our key focus areas. New hardware that Dave spoke around at the start of the presentation on AR and spatial computing services are going to be released over the coming months, which provide new product possibilities for our platform. And finally, our sales pipeline is showing less in quantity but more in quality with €5,000,000 in potential deals at various stages of negotiation.

17:48 Revenue month to month may be lumpy, but we do expect to see more significant wins on a more regular basis. Very much for watching this presentation, and we're happy to take any questions. Fantastic. Dave, Seamus, thank you very much indeed for the presentation. Ladies and gentlemen, do please continue to submit your questions just using the Q and A tab situated on the right hand corner of your screen. Just for the team to take a few moments to review those questions submitted today, I'd like to remind you the recording of this presentation, along with a copy of the slides and the published Q and A, can be accessed via your investor dashboard.

18:19 Dave Seamus, as you can see, we've had a number of questions, both pre submitted and throughout today's presentation. Thank you to all the investors who have submitted those. Seamus, perhaps if could just hand over to you just to click on that Q and A tab and where appropriate to do so, just read out the question, give your response. I'll pass to David, and I'll catch up with you at the end. Perfect. Thanks very much. So I'm just gonna go through these in the order they were submitted, so it might be a bit of jumping around. A couple of questions are duplicated, so we'll just cover cover them once. So, Dave, this first one is more likely for yourself. Why was ENGAGE not available on the Apple Vision Pro when it was released? Yeah. So the Apple Vision Pro, which is a fantastic, device, it has challenges in control schemes. So anybody who's used this, you look at what you want to interact with and you tap your fingers.

19:06 Now ENGAGE is a very interactive virtual reality experience, and it's it's used primarily for training and development. So that headset has challenges. Now we do have multiple, VisionPRO headsets, and we will support it in the future, but it does require a lot of refactoring on the ENGAGE side. Also, if we, put a lot of, development resources into the AppleVisionPRO, It's a very low, installed base currently right now. It's a lot of developers on the headsets. It's not our customers. Like, a corporation might only have two or three of those devices, whereas they'll have thousands of Oculus Quest devices. So we're more focused on revenue generators for now, but it is something that we will have support for later this year. So next one, I can take myself.

19:53 What additional news flow do you expect to release for the remainder of FY twenty four? So we hope to release regular updates with regard to new client wins, hopefully similar in nature to the one earlier this year in The Middle East. We also plan to release product update announcements such as the School of AI and other product enhancements throughout 2024. We'll also, of course, do our normal trading updates as and when appropriate. We have a couple of questions on the next one, which is around the Lenovo piece. So I was just wondering about why have there been delays in the Lenovo situation, and how is revenue generated from that? Yeah. So the Lenovo headset was rereleased at CES this year. So any revenues you see reported from us doesn't include any upside from Lenovo, as yet. There was challenges in getting, the software running, on on both sides, getting it up up to an acceptable level. So expect to see upside from that in the second half of this year.

20:56 Thanks, Dave. Next one I can look after myself. Does the group have adequate funding to reach breakeven in the next twelve to twenty four months from the published research that's out there either via Progressive and Shar or via Cavendish, the forecast is only out there for 2024, which does still see us considering to be loss making. But we do we have stated previously that we do expect that the funding that we have will take us breakeven in late twenty twenty five or early twenty twenty six. The next one, how would you describe your current relationship with Meta, and do you see any new revenue opportunities arising from us? I'll leave that one to you, Dave. Yeah. We've been very engaged with Meta, especially in the last, six months, and they do now see education training development as a key focus area.

21:46 They've been selling their headsets up to now similar to a gaming device like a PlayStation where they sell the device as, well, not a loss, but, you know, they're not making a huge amount of money off each device. And then they were hoping to make money off this the sale of video games on the device. But now they're really pushing, Meta for business services, which is a subscription MDM where you pay a yearly subscription to lock down the devices, and this is definitely for business and education use cases. So that's why they're actively engaged with us, and we only see that partnership growing and evolving over the coming months. Thanks, Dave. So next one, I can look after that. Most of our posts are successful posts on social media or on LinkedIn, but why are we not using other channels, especially x for engaging with investors?

22:39 So it was primarily our focus has been where our customer base is, which is on LinkedIn. We've, obtained a lot of very successful leads and converted into revenue from our posts on LinkedIn. But it is something we take on board, and we will cross post with x and other platforms going forward. The next one then, when we look at some of the videos, the graphics can look a little bit dated. Is that because of the meta platform's limitations, whereas the VisionPRO graphics look amazing in comparison? So Yeah. So with the Vision Pro, that's a $4,000 headset. The Oculus Quest is a $200 headset, so there is a bit of a difference. However, in saying that, a lot of the Vision Pro videos that you see only have two avatars in it. So it's probably FaceTime. It's what you're looking at the avatar system.

23:27 It's very easy to render two people in in huge high quality, definition. What we do on ENGAGE is we have 70 people in the room at the same time, all interacting, and this is very, very useful, especially in education settings, but also training scenarios. So there is trade offs on different devices. But, yeah, certainly, our avatar system and you can see the image in front of you. That's our new avatar system, which is coming on stream later this year. Thanks, Dave. So there's obviously a couple of questions, and I'll look after this one, around market capitalization. And, obviously, we are as concerned as any of the investors about the the current market cap and the current share price. We're valued at barely above our cash balance. It is something we're actively working out with our brokers. We will be doing and with our PR, we'll be putting that news flow as of when during the year and hopefully, success and winning more contracts of a sizable manner, we'll see the market capitalization grow throughout the year.

24:33 So the next one then is just around the new product around School of AI, how it will generate revenue. So School of AI will be an add on license fee for either education or enterprise customers. We'll charge a fee for access to the AI. And based on the number of AI that the school may want, it'll be a power usage play. Are you finding your largest shareholders are continuing to be supportive? Yes. We are indeed. Our largest shareholders within the London markets are Canaccord and Octopus, and they continue to be very supportive. We'll be talking to them both on a one to one basis this week, and we keep regular communication ongoing with them. Sorry. These are just some new ones, so I'm just gonna take a minute to read them.

25:24 So we have what is your current cash burn post your record q one revenue? So I suppose just for clarification on our q one revenue, the the deal in The Middle East is obviously contracted revenue. We haven't actually completed that project just yet. So we have had a fantastic q one, but it's not all recognized at this stage. Our current cash burn as outlined in our report today is about between 300 and 350 k per month, and we do expect that to continue to decline until we hopefully reach breakeven the back end of next year. So that's another one on share price, which we spoke about. We spoke about Lenovo. With the ongoing partnerships with large industry players, could you give some insights into the strategic objectives they and you have? Dave has already outlined some of that around the meta side, but we're you you can jump in a bit if not. Yeah. So the biggest thing with these strategic partnerships is recurring revenue. So quite often, a lot of the headset manufacturers will sell the headsets either at cost or just below cost.

26:32 And as it did stage with Meta, they were they are looking to make revenue previously from the sale of video games and make their revenue in that way where they get 30% cost. But they're certainly more interested now in recurring revenue from MDM services where you lock down the headsets. And it's platforms like ENGAGE where you have recurring revenue coming in from license fees, especially in education, training, and development. Those kind of licenses are extremely sticky, and those clients are always looking for ways to ensure that only, authorized software is available on those headsets. So that's why platforms like ENGAGE are are are, very key, to those partnerships and and making sure that they get, recurring revenue. What we're also seeing as well, this year is with return to work, there's quite a few players out there who are in competition with us just on the collaboration side.

27:25 And we're actually seeing some of those competition drop away, and we're actually starting to grab their clients and bring them on the ENGAGE platform as well. So at the moment, you might see maybe, you know, 15 people who all provide services for collaboration, you wanna see that drop drastically, and ENGAGE would be one of the the the bigger players then soaking up a lot of those clients from those platforms. Thanks, Dave. You've actually answered another question around that. We somebody has asked about our commentary this morning that we're planning to be a large large provider of space to building services with a global client base. They've covered that by saying, we do expect the landscape that we will grow as others may fall away.

28:10 And then the last question that's here is just why don't we break down the revenue by, Lenovo, HTC, etcetera? We in our annual report this year, in my financial country and in the segmented report note, we have given more granularity to our revenue, whether it's coming from education, enterprise or professional services. We haven't gone down the route of calling out specifically what we generate from key partners as that would invalidate some of the terms and conditions in those agreements. But we will continue to provide as much granularity as possible on our revenue going forward. So that's all the questions that we have. So cheers. Thank you very much indeed, James. Thank you very much indeed for covering off those questions. Of course, any further questions come through, we'll be able to review all of those, and we'll publish a response where appropriate to do so on the Investor Meet company platform.

29:00 Before redirecting investors to provide you their feedback, which is particularly important to you, Dave, I could challenge you for a few closing comments, please. Yes. I think, look, this year is quite exciting. Last year was certainly transformative. There was a lot of change happened in the tech industry in general, post COVID when a lot of tech companies, you know, went back to office, and, they actually laid off a lot of people as well. Because a lot of those people, they were looking to go back to the office and weren't living anywhere close to offices anymore. So it's it's it's it it's, you know, was disappointing. And the year results last year, we were sitting in September, you know, pretty happy. You know, we had a pretty stellar year up to that point, but then a lot of our, enterprise renewals, didn't kick in in the in the last quarter. But, thankfully, you know, all of, those nonrenewing clients are now out of our system.

29:50 We're seeing very, very strong partnerships and strong large renewing yearly renewing deals come on board this year. So I'm very excited for what the rest of this year holds. As Seamus said, we had a a stellar first quarter. We we, you know, booked in more than half of our total revenue for the previous year. So things are very exciting in this space. And, yeah, hopefully, we we we can report much better results at the end of this year. Fantastic. Dave Seamus, thanks indeed for updating investors today. Can I please ask investors not to close the session? It should be automatically redirected to provide your feedback in order the team can better understand your views and expectations. This will only take a few moments to complete, and it's greatly valued by the company. On behalf of the management team, 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.