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

0:01 Good morning, ladies and gentlemen, and welcome to the ENGAGE XR HOLDINGS PLC Interim Results Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged. They can be submitted at any time via the Q and A tab that's just situated on the right hand corner of your screen. Please just simply type in your questions and press send. 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's appropriate to do so, and these will be available via your investor meet company dashboard.

0:34 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. And 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 Seamus, the CFO here at ENGAGE. So what is ENGAGE? ENGAGE is a business focused spatial computing platform, a metaverse platform designed for corporations and organizations to hold meetings, events, group participation, training development, and educational services.

1:17 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.

1:47 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.

2:18 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.

2:41 ENGAGE with the platform that does it all. 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, the metaverse is a three d spatial computing way of interacting with each other. So you're in these virtual environments with other users, and you communicate more naturally.

3:29 So if you're in a a large group, say, for a stand up daily stand up, 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 with a whiteboard. You can a Kanban board. So as a remote communications platform, the

3:43 metaverse can be a very, very powerful tool. It can also be used for sales training, education, events. And one of the very successful events we actually held earlier this year was a fat by slim concert, which I'll be talking about later in the presentation. What I'm gonna do now is I'm gonna pass over to Seamus to talk about the financial overview for 2023. Thanks, Dave. I'm just going to quickly run through some of our h one twenty twenty three highlights. ENGAGE revenue totaled 2,100,000 in the first half of the year, up 18% from the same period last year. We're broadly in line with h 02/2022, where we've seen very positive two months since the period end with over €1,000,000 in revenue generated in July and August of this year.

4:30 Our cash position at the June 30 was 9,400,000, following our oversubscribed equity raise of 10,500,000 before expenses in the first quarter of this year. We've had 17 deals in excess of 50,000 in the first half of this year, up from seven in the prior year, and our average deal size has grown to 21,000 from 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 semi annual growth rate in license numbers since we launched the platform. We've in excess of 12,000 active licenses at the thirtieth of June this year, and in July this year, we signed a 5,000 license deal, bringing our total license users to in excess of 17,000 as we stand here today.

5:21 Our average contract size, 24% of our contracts won this year have been in excess of €50,000, with 13% between 25 and 50,000 and sixty three percent less than 25,000. This feeds in nicely into this slide. Moving straight down to customer retention point four 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.

6:07 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 license 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 of post period end for more than 5,000 annual license users. So just looking at the opportunity that is presented to us for ENGAGE, We see that we're targeting three key markets, the global team collaboration software market, the global elearning 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 9.521.4% compound annual growth over the next seven to eight years.

7:02 Management feel that we can address between 10 to 44,000,000,000 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 a distinct advantage to target those markets. We expect 2023, the rest of the 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.

7:54 Later well, earlier this year, they released their ThinkReality VRX headset, which is an enterprise focused

8:01 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 a short overview of that device. Ready or not, the metaverse is coming. A digital layer on our physical world. But what does that even mean? You've got real work to get done and people to connect. We get it. That's why for us, the metaverse is not a game, which is why we created the Lenovo ThinkReality VRX, your gateway to the enterprise metaverse.

8:47 So you can train your team, letting them get hands on literally, gaining real experience for lasting results. Bring your hybrid workforces together to keep them collaborating and creativity flowing. Engineer that next big thing or learn in safe, repeatable, and exciting new ways. Whatever your business, the think reality VRX was built with you in mind. Privacy, security, supports, yeah, those are our top priorities too. But you need to think ahead, which means advanced optics and color mixed reality pass through so the real world can meet the virtual one. And versatility, giving you control over how your experiences get powered and how they're developed.

9:38 All backed by Lenovo, a true enterprise partner ready to support your needs and scale your solution into the metaverse. The Lenovo ThinkReality VRX. You don't play games with your business, neither do we. 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 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, events, 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, 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.

10:44 Now Athena is running on ChatGPT. It's a it's a very smart system, so it's embodied in an avatar where you can go and communicate with her verbally. But she can also create training on the fly, and she interacts with core ENGAGE systems. So she can actually create environments. 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. Can be training development officers. They can also be used in education as well. So I'm just gonna play this video, which was created with one of our business developers in The US. Hey, Chris.

11:27 Hey, Dave. Good to see you. I'm stoked to do a video today. Cool. Excellent. Why are you here to show me? Well, today, we're gonna show you our AI assistant Athena in conjunction with our mixed reality capabilities. Hi, Athena. It's a pleasure to meet you. Please introduce yourself to my good friend, David Whelan.

11:52 Hi, David. My name is Athena and it's nice to meet you. So super stoked to get started. I like to start with a blank slate, Dave. So I'm gonna let you pick the topic today. Okay. What about Disneyland? Perfect. Let's start out to see what she can do with a video. Hi, Athena. How are you doing today? I'm looking forward to seeing you play a video of Star Wars in Disney World.

12:40 Spirits Star Wars attractions at Disneyland. Alright. Let's try this one. Let's have her bring in an image. This should be fun. Athena, create an image of Darth Vader standing in front of the Disneyland Castle.

13:00 Should be interesting. I never know what this is going to look like. She's going to build this from scratch. So this takes probably about twenty seconds for her to create a novel image. Let's see how she does. Always a surprise. Alright, here comes something. Let's bring it in right here next to me. Loading. I can see there Chris if you turn it. There you go. We go. Darth Vader in front of the Disneyland Castle. Perfect. Nice job Athena. Exciting where all of this is going. Skyboxes usually take about thirty five, forty seconds I find to create them. God dang One sec. This used to take forever back in the day to create a Skybox from scratch. And here we are speak

13:45 all of these things to existence now. Alright. Here it comes. Always curious what these are going to look like. Oh, nice. Now that's cool. Check that out. I'm going to share this with you Dave so you can poke your head in there. Show the audience. Okay. Alright. I'm just gonna bring it in front of me. This is the skybox. What I'm gonna do is I'm gonna make it a bit bigger. Nice. Yes. That looks super cool. Alright. Athena, go ahead and play the role of a customer at Disney World, and I'm going to resolve your concerns as a customer representative. Go ahead and start.

14:35 Hi there. I had such a bad experience at Disney World. I'm not sure if I want to visit again. Can you please tell me what you can do to make it up to me?

14:47 Hi, Athena. I'm really sorry you had such a negative experience. Would you mind telling me about your experience so I can better help you?

15:03 Definitely. I visited Disney World and expected to have a fantastic experience, but the attractions were overcrowded, the staff wasn't friendly, and the food was overpriced. I'm really disappointed and don't think I want to go back. I'm so sorry you had such a frustrating experience, Athena. Let's tackle these issues one by one. I understand that the lines were very long. Is that correct? Yes. The lines were extremely long. It took forever just to get onto an attraction, and when I finally made it to the front, it felt like I had wasted a lot of my time. Alright, Dave. You know, we could have gone very very deep down this role playing experience.

15:52 She always throws curveballs. In fact, she saw she just came to me with three negative experiences that she had. We could have spent some time but you get the general idea. I've spent a lot of time with Athena and it's really amazing the types of scenarios she can throw out and the curveballs that she can throw at you and the fact that she does the critiques is pretty awesome straight out of the box with focused information and data that we can feed her that changes the experience even more. So yeah, we're looking very much forward to where all of this goes.

16:32 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 with Kia offer. But we have many, many other clients in our Metaverse offering. So we have clients such as Atalem, Stanford University, HSBC, KPMG. So we have quite a broad range of different clients and services within

17:03 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, go, hey. Look. We have a budget of, you know, could be $50 or a $100, and we wanna hold a virtual event. What can you guys do for us? Because we don't wanna hold events on video platforms anymore. They're not not very immersive or not very engaging. But one of the events that we did hold very well, in q one of this year was the Fat by Slim concert. And, really, we wanted to produce this this event as a showcase of ENGAGE where, you know, it can be more than just standing on a stage and presenting doing a PowerPoint presentation. It can be a very immersive and fun event. So we were working with FAPE Iceland, and he said, look, I want you guys to go wild. I want people to really feel like they're going on a trip. I think we we certainly achieved that. So this is

18:01 very unlike any other metaverse concert you would have attended, which were pretty much glorified music videos that were only ten 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 it has opened up quite a few doors for us in in in many other areas. This is just a short snippet of that concert.

20:06 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 the presentation. We've strong ties for a number of years with HTC 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 one of a a number of the big four that we work with from a a consulting point of view. So just, just as 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 €1,000,000, which was in line with our expectation, but does show that the trajectory for the second half of the year is upwards.

21:11 We've seen continued growth in the customers for ENGAGE. Our most significant win post period end includes a 5,400 license deal with the US State Department of Education. Just prior to the end of August, we had a significant three year renewal with another US educational body work 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 the our platform tech slides. And finally, ENGAGE is leading the way for AI integration with immersive technologies via via our Athena AI, which Dave demoed earlier through video, with use

22:03 cases centered around enterprise training, sales services, and content development. Thank you for your time today, and we'll happily take any call questions that you may have. David, Seamus, thank you very much indeed for your presentation this morning. If I may, I will just bring back up your cameras there. Ladies and gentlemen, please do continue to submit your questions just by using the q and a tab that's situated on the top right hand corner of your screen. 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 and A can be accessed via your investor dashboard. David Seamus, as you can see in the Q and 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.

22:51 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. Thanks very much.

23:02 Thanks, everyone, for joining us today. So I'm just gonna run through the questions. I'm going to read them out as we've done in the past, and then either myself or David will answer as appropriate. So the first question that came in, which was presubmitted, was what's happening with the share price at the moment? We both feel very strongly about this, but I'm gonna let Dave, speak on this one. Yeah. It's kind of it's a tough one to call. We are well funded. We've a long runway. I think at the half end of the year, we had 9,500,000 in the bank. Revenues are growing, you know, so just general positivity in the company. And I think, you know, when you look at the share price, think I we're at around valued around 15,000,000. You know, it's kinda hard to see why the price is at that that stage at the moment. But maybe it's just, you know, generally, markets are are pretty depressed, and maybe they don't like the term metaverse anymore.

23:59 And I think one of the other questions, people are asking about Apple. So Apple announced their headset, which will be, releasing next year. And, you know, how will that affect us? It'll affect us very favorably. So when Apple had their announcements, they used the term spatial computing. They didn't use the term metaverse, but they're very interchangeable. So this would bring a lot of renewed interest with a lot of corporations coming back into the space and absolutely ENGAGE will be supporting that device, and we'll be looking to be available on the Apple, device at launch. Thanks, Dave. You've you've actually answered the second question there because there was a question about Apple. So, just moving on to the next one then, which I'll take, is how confident are you to achieve your end of year revenue and other targets?

24:49 So, the I understand that there's been new analyst reports gone out today from both FinCap and Progressive via Shard, and management are confident that we are still on track to hit the the stated targets that are within those analyst reports. We can't really go into any more significant detail in relation to that, but we feel that the analyst reports are are a fair reflection.

25:15 Gavin has asked what our monthly cash burn is. Our monthly cash burn is in the region of 300,000. It does vary month to month, and we, like, do some simple maths. We have significant runway, as Dave mentioned. And as we had mentioned in our, interim results, we have 9,400,000 in the bank at the end of June. So we're in a very strong position to move towards cash flow profitability in due course as outlined in the analyst reports. So there's a couple of questions about the July and August revenue, which I'll answer as best as possible. Does the 1,000,000 of July August revenue include the 300,000 from The US k 12 education contract? It does. That closed in July of this year.

26:03 Do we see the current run rate for July and August continuing? Are they multiyear deals typically or annual repeat? So we are hopeful and in line with the projections that are out in the marketplace that that runway will continue and increase even to achieve the targets that we've, that are in the marketplace. We have a various, various types of deals. Most are annual repeat, the the 300 and €300,000, 5,400 license deal that, we refer to in the deck. That's a single year deal, but automatically renews unless canceled. But we also have multiyear renewals as well. So we've just had a three year renewal with a separate US educational body as mentioned for $250,000.

26:49 Then another question. PR one, is it? Yeah. The PR one. So there's been a question got in here around the company's plans to improve improve PR. Dave, I'll leave that to you. I know we've we've just joined up for joined forces with a new new PR wing, so I'll let you mention that. Yeah. So we are increasing spend on marketing and PR. One of the big issues we have is many of our new clients who we're signing up are actually Fortune 500 companies or Fortune 100 companies, and a lot of them actually don't want to publicize what they're doing in this space. I think you'd be very surprised with the client base that we have that we're not allowed to talk about. So that's one of the the big challenges.

27:34 However, what I would say is Lenovo and Meta, especially in the last few months, have really, took a a renewed interest in enterprise, use cases. So we are working hand in hand with Meta. They brought us some really fantastic leads, which we hope to publicize in the future as well. So, hopefully, you'll see more from an RNS point of view, but it is a challenge when a lot of these corporations just by default don't allow us to talk about the work that we're doing. As an example, we worked with a with a massive bank, one of the leading banks in the world, and we weren't allowed to talk about it. And yet they can do press themselves. So it is a challenge, but it is something that we're working on. Thanks, Dave. Sam mentions that we are limiting cost spend on how do we decide what to prioritize and what to not do. So in terms of limiting cost spend, we're very been very cost conscious around headcount, which is obviously our most significant cost.

28:30 In terms of prioritizing what we do and what we don't do, ensuring the platform is stable and has the highest level of security is always our number one priority because that's what our main customers want. They want to see that we're ISO compliant. They want to see that the platform is stable. So that's what we focus on. We're also still delivering new features. Athena AI is obviously a very exciting new feature for the platform. So we're whilst the the costs are under control, we aren't, not developing the platform. We're still moving forward in a significant way in that regard. But cost containment is obviously very important to the company to ensure that the funds will be raised in quarter one of this year, get us through to breakeven and cash flow profitability. Then the final question is just around the analyst note. Will that be added to the website? Yes.

29:17 After this call, the there'll be a copy of this presentation available on the website once uploaded, and also the will be added as well. So that's all the questions we're able to answer that we've gone through now. So I'll hand back to Jake for a minute. Perfect. Seamus, David, thank you very much indeed for being so generous of your time and addressing all of those questions that came in from investors this morning. And of course, as usual, if there are any further questions that do come through, we'll make these available to you immediately after the presentation has ended just for you to review to then add any additional responses, of course, where it's appropriate to do so. And we'll publish all those responses out on the platform. But David, perhaps before really just looking to redirect those on the call to provide you with 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 to wrap up with, that'd be great.

30:10 Yeah. I would say, look, generally, trends are up. You know, we're seeing increased business, which is fantastic, especially in this current climate. We have new companies coming into this space. Apple, you know, obviously, is the big one coming in early next year. So we're pretty positive, you know, about our outlook. You know, we've cash in the bank as well. So I think things in general, you know, are are are pretty good. Yes. The share price is low, but we are gonna work on our PR. So, yeah, I think in the next, you know, twelve to eighteen months, I I think are gonna be transformative for the company. As Seamus has said, our focus is getting to profitability, you know, as soon as possible. There's only two ways to do that. You know, it's either decrease costs or increase revenues, you know, and, we're hoping to do both.

30:56 So, yep, thank you for your time today. David, that's great. And Seamus as well, thank you once again for updating investors this morning. 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 may take a few moments to complete, but I'm sure 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 morning to you all.