Engage XR Holdings (LSE:EXR) — Interim Results

0:01 Good morning, and welcome to the ENGAGE XR HOLDINGS PLC investor presentation. The 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 it's appropriate to do so. Before we begin, we'd like to submit the following poll. I'd now like to hand you over to the management team of ENGAGE XR. Good morning.

0:32 Welcome to these interim results for ENGAGE XR. My name is David Whelan, the CEO, and I'm joined here by Seamus. Say hi, Seamus. Hi, everyone. So what is ENGAGE? For those of you who don't know, we're a spatial computing metaverse platform that provides services for educational institutions and enterprise institutions globally. We're very much used in training and development, onboarding, virtual virtual events, events, and in education then, we're used for remote classrooms. What you're gonna see next is a short trailer about the ENGAGE platform, gives a quite a good overview of the types of services that we offer. ENGAGE is a business focused spatial computing platform designed for corporations, professionals, educational organizations, and event organizers.

1:30 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 and digital twins. ENGAGE is working hand in hand with over two plus enterprise organizations globally to help turn their virtual strategies into reality.

2:03 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. ENGAGE is not only a generational leap in communication, it's also a content creation tool and publishing platform.

2:28 Build and prototype content in simulations easily with our inbuilt editor and share them with your organization or the wider community. It's up to you. ENGAGE with the platform that does it all.

2:54 Okay. Welcome back. So why would people use ENGAGE? So, in some circumstances, there's a three times better improvement in retention of knowledge using VR for training as opposed to traditional methods. This is resulting in 20% better test results for people using, VR, especially in, educational settings.

3:16 So with that, I'm gonna pass over to James, and he's gonna talk about some of the successes we've had this year. Thanks, Dave. Yeah. I just want to discuss some of our key wins in the education space, OptimaEd and InspireEd, two of our biggest customers on that side. OptimaEd is a division of the Optima Group, a charter school in The United States, which uses ENGAGE extensively to deliver high quality virtual classes to its students. Within the OptimaEd group, we've seen 400% growth in their ENGAGE license usage between 2023 and 2024. And within those license numbers, we've seen 90% renewal rates by the schools using Optima's platform. InspiredEd is leveraging the ENGAGE platform to deliver remote classes as well across, a 111 premium schools in 24 countries.

4:09 We've seen even better growth within the Inspired Ed group with 500%

4:13 license increases between 2023 and 2024. And Opta and Inspired have reported 15% improvement in learning outcomes using the ENGAGE platform over traditional means.

4:29 Looking at the enterprise side of things then, as we announced at the start of the year, we signed a 7 figure deal in conjunction with PLC working with a Middle Eastern client to train and develop, hospitality staff. This is only initial proof of concept for a full five year project, so we're very excited with where this could lead to in the next, eighteen to twenty four months. Bank of America are one of our bigger clients as well on the enterprise side. They're using ENGAGE for a range of services, including corporate functions and internal events, recruitment drives, and employee onboarding. We've seen a 100% growth in revenue from Bank of America from 2023 into 2024. I'll hand you back to Dave now just to discuss our AI implementations.

5:20 So one of the hot topics right now was obviously AI and generative AI in many different applications. Here in the ENGAGE platform, we are implementing AI for use in training and development, scenarios. And what we're doing is we're actually providing the power to our customers to build their own AI chatbots and AI assistance within the ENGAGE platform. This is a very, very powerful feature, and it's very, very easy to use. What I'm gonna show here is a a quick video on how you create one of these characters. It's very simple and easy to do. Hello. It's nice to meet you. What brings you in today? What symptoms are you experiencing?

6:04 My vision is very blurry, and I have a very bad headache. I see. You mentioned having issues with your vision and a headache. Can you describe the headache for me? Is it consistent, or does it come and go? And how would you rate the pain on a scale from one to 10? Let's make our own AI powered avatar inside ENGAGE. Choose create and edit from the menu. Select character builder under creator tools. Choose to create a new character.

6:37 Provide a name to save the project. Choose a name to display above your character's head. Choose a voice from Google Voices or premium voices from Eleven Labs. You gotta be careful if you don't know where you're going because you might not get there. I believe that we are fundamentally the same and have the same basic potential. Save your selected voice and go to the next page. Type your character prompt in the selected area. In this example, we are creating a doctor character. Choose your preferred AI model. Go to the next page to choose your avatar look and feel.

7:31 Unlimited additional avatars can be created using our inbuilt avatar creator. You can even take a photo of your own face and upload it to ENGAGE for use on your character. Finally, choose an animation for your new character. That's it. Save and test your new AI powered character.

7:57 Or have you been under a lot of stress lately? Yes. I have been under a lot of stress, but I don't think that has anything to do with it. I appreciate your honesty based on the information you've shared, persistent severe headache, light sensitivity, and changes in vision. It could be indicative of a migraine or another type of headache disorder. However, I'll recommend that you see a health care professional for a thorough evaluation to rule out any serious conditions, especially since the headache is consistent and severe.

8:31 In the meantime, try to stay in a darker room and keep hydrated. Do you have any other questions or concerns?

8:40 No. Thank you. You've been most helpful. You're welcome. I'm glad I could help. If you have any more questions in the future or if your symptoms worsen, don't hesitate to reach out to a health care provider. Take care of yourself.

9:03 Okay. Welcome back. That video just scratches the surface of our AI implementations. What you can do with our AI characters is you can also ask them to create brand new environments within ENGAGE. You can get them to bring in three d models. So this is only really the beginning of our AI implementation inside ENGAGE, and it's something that's coming up time and time again in many of our sales meetings and actually with our clients requesting features. We're currently in testing with many of our clients right now, and we have our school of AI being released on the twenty seventh of this month where for the very first time globally, students can go in and talk to notable people of history and ask them questions to help them in their their learning needs. But, again, this is only the beginning. Students will also be able to build their own AI tutors, you know, to help them with mathematics, geography, or any subject that they wish. And these exact same features are being used within commercial environments for such things as hospitality training and many other areas. So you're gonna hear a lot more about our AI implementations later this year.

10:13 So just looking at some of our more our clients in a little bit more detail. As already discussed on the earlier slides, we're we're working very closely with Bank of America, PLC, and Inspired Ed, where we also have ongoing relationships with some of the largest corporates and educational bodies in the world. HSBC have been using this now for over two years and continue to grow on the platform. We're working closely with KPMG, Accenture, and PLC in the consulting space who are using the platforms both internally and bringing new customers to us. Other, other success stories on the platform on the education side of it would be Adtalem, a billion dollar education company based in The United States, Pearson's, and Stanford University, all of whom use the platform extensively.

11:08 Okay. I'm gonna do something a little bit different here. I have one of our AI characters standing in front of me, and I'm going to get her to read the screen and explain our growth strategy. Please introduce yourself.

11:28 I'm Athena, your virtual assistant. How can I assist you today? Athena, please look at the screen and tell me about our growth strategy. At ENGAGE XR, our growth strategy is centered around expanding key areas of our business to ensure sustainable success. For existing customers, we are focusing on retaining and growing those relationships by continually delivering value and fostering deeper engagement. This drives incremental revenue while reinforcing loyalty. When it comes to new customers, we're prioritizing quality over quantity, targeting those who will benefit most from our immersive solutions. This selective approach helps us build long term partnerships.

12:17 We are also zeroing in on specific sectors like education and training, where our technology can have the most impact. By focusing on these areas, we can tailor our offerings and become a leader in these industries. Innovation is a core part of our strategy. We're improving our product with AI driven, immersive education and training tools, making learning more personalized and engaging. Finally, our strong pipeline for the second half of twenty twenty four and into 2025 positions us well for continued growth. By converting these opportunities, we'll drive new business and scale our company further. In summary, ENGAGE XR's growth is driven by customer retention, targeted expansion, innovation and a healthy pipeline, all of which position us for long term success.

13:07 So just looking at some of our financial highlights for the first half of the year. Group revenue grew to $2,200,000 up from $2,100,000 in the prior period. Within that, the ENGAGE platform revenue was $2,100,000 up from $1,800,000 in the prior year. But most importantly, our recurring revenue grew period on period, up from 66% in the first half of twenty twenty three to 83% in the first half twenty twenty four, reflecting

13:36 increased license revenue and a reduction in one off revenue, which I'll discuss further in our 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 EUR 1,800,000, an improvement from our H1 twenty twenty three loss of EUR 2,100,000, 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 EUR 5,500,000 compared to EUR 9,400,000 in the same period 2023.

14:23 Just looking at our revenue breakdown within the ENGAGE platform, we're seeing quite a good spread across our three main markets. We've generated 35% of our revenue from the North American market, 30% within Ireland and The UK. 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 PLC. 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% 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.

15:15 Looking at our revenue by type for the first six 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 is 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.

16:03 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 semiannual 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 50 k and the balance then less than that, 54.

16:38 So just to wrap up with a current trading and outlook slide, our H1 revenue was $2,200,000 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 twelve months, primarily in the education and corporate training space. We've seen significant growth in some key education customers, which I mentioned earlier, Inspired Egg growing over 500% and Optima Ag growing over 400%.

17:08 As Dave already mentioned and shared a video, our School of AI has been released and our AI Bot Builder is 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. Fantastic. Thank you very much indeed for your presentation. Ladies and gentlemen, do please continue to submit your questions just using the Q and A tab situated in the right hand corner of your screen. Just want to take a few moments to review those questions already submitted today. I'd like to remind you the recording of the presentation along with a copy of the slides and the published Q and A can be accessed via your investor dashboard.

17:58 Dave Seamus, if you want to just pop your cameras and mics on. As you can see, we've received a number of questions both pre submitted throughout today's presentation. So could I just please ask you to click on that q and a tab and where appropriate to say, read out the question and give your response and I'll collect you at the end. Thanks very much. Thanks, everyone, for listening to the presentation. 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'm just gonna 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 the first query that was submitted is, does July and August financials make the board less and more confident delivering against expectations for the year? I can take that.

18:49 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 the key point here is that we, a company, know that the only thing 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 twenty twenty five. We still feel that we're on track to do so, and that is the thing that's gonna move the share price in the most meaningful way.

19:39 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 twenty twenty four. But we will continue to release news as appropriate, but our main focus is getting to profitability. Next one is one for you, Dave. What are ENGAGE doing to increase the visibility of the services that we offer? Yes. 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 OptimaDommy, Inspired Education, and 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 plat platform forward and selling licenses on our behalf, which is fantastic. It's it's a 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, by Charlie.

20:58 Thanks, Dave. That actually covers off the following on question, which is that the new low price meta headset has been 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 enterprise focus to the platform with a lower price point, obviously, bringing more people into the marketplace.

21:20 Yeah. Well, just add to that. I look. I'm pretty excited about what they 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.

21:49 A very a very frank question, but one that we're happy to answer. Are you willing to take a much smaller salary until you reach a cash generative position? The executive board, Dave, Sandra, and myself have taken a substantial pay cut 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 always 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.

22:20 Let's see. Sorry. There's some new questions after coming in, so just give me a moment to read through those. So somebody asked what's our current burn rate and runway. So our current burn rate is just shy of 300,000 per month based on cost savings that I mentioned with the executive board taking pay cuts. Any financing plan in the next three to six months, the company doesn't see a need to raise funding in the short term. As stated, we expect the funds that we have to bring us through to breakeven and profitability in the second half of next year. A lot of these are sharing similar similar comments. So So I think one of the last ones I can answer is what is the car I'm sorry. So I've jumped in there a minute.

23:27 What is the correlation between ENGAGE licensed users and revenues? So the correlation is that we have two main different types of licensed user, enterprise and education users. Enterprise licensed users are on a higher price point to our education licensed users. We've seen significant growth in our education side of the house and continued traction on the enterprise side too. And then the following follow-up question is given 6 figure renewals, what 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 per the deck. We would hope to see that getting closer to or if not, hitting about 20,000 by the year end all going well.

24:16 Okay. There's another couple of ones after coming in. What is happening what is happening with the platform platform partner with Meta and Lenovo? So with Meta, we are working closely with them, very closely with them on the their new headset release and being promoted heavily by them. They've brought us 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 us out to their customer base. Second question that's come in is what are the expectations and guidance for h two revenue for license renewals and new licenses from the pipeline?

25:01 So, obviously, I can only speak to what's out in the public domain and part of Cavendish note this morning, which obviously management team are in agreement with. We expect the the balance of our revenue for the year to reach our stated target to come from the preexisting contracted revenue noted in the RNS of 9,800,000, license renewals of around 1,000,000,800,000 from new customers, and the balance coming in from one off professional services and nonengaged services. There are no forecasts in the market beyond 2024. Will you put out will you or your broker put out these in the near future?

25:46 Yes. It is our expectation to put out a 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's role? So I leave that one to you, Dave. Yes. Kartik is, very, very experienced. He is US based. He's had, $2,000,000,000 exits, in the past as well. So he's helping us, you know, create a a better pipeline, introducing us to x lines of his as well, helping us grow that bottom line and and grow our revenue and get us to profitability as quickly as possible. So he's a really, really good guy, and I'm I'm delighted to have him on board.

26:37 Thanks, Dave. I think without reanswering questions I've already answered, I think that probably covers all the questions I can answer at this stage. Fantastic. Same to Dave. Thank you indeed for that. And of course, any further questions that do come in, the company will be able to review those. And we'll publish responses where appropriate to do so on the Investor Meet company platform. Before redirecting investors to provide you with their feedback, it's no particularly important to you and the company. David, if could just ask you for a few closing comments, please. Yeah. Look. We've had a really good first half of the year, booked in record revenue. We as Seamus said, we had another $800 to recognize later this year as well. So it's been a very, very strong start. We're quite positive and quite upbeat on what the remainder of this year, you know, has to has to offer for ENGAGE.

27:25 And as I said, the big metaconferences on next week, I'd recommend people to stay tuned to that, and you can kinda see the direction we're going in. So thanks very much for your time today. Fantastic. Thanks for updating investors today. Could 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 only takes a moment to complete and is greatly valued by the company. On behalf of the management team 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.