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

0:01 Good morning, and welcome to the ENGAGE XR HOLDINGS PLC full year results investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time by the q and a tab situated on the right hand corner of your screen. 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 your questions submitted today and publish responses where it is appropriate to do so. Before we begin, I'd like to submit the following poll.

0:29 And now I'd like to hand you over to CEO, David Whelan. Good morning. Hello, everyone, and welcome to this metaverse department. My name is Dave Whelan. I'm the CEO of ENGAGE XR, and I'm joined here today by Seamus, who is our CFO. Today, we're talking about our final results. So I'm gonna leave Seamus. Take it away.

0:49 Thanks, Dave. So 2021 was another year of significant growth for ENGAGE. There was continued acceleration in demand for our platform with numerous 6 figure deals signed during 2021. During the year, we also had an oversubscribed placing in June 2021, raising €9,000,000 before expenses. With the funding, we've grown the leadership team and continue to strengthen us. We've hired a new US based director of revenue and also a head of marketing in USA. They're tasked with growing the sales and marketing function of the group into 2022. Some of our major client wins include 6 figure dollar contracts with Optima Domi to provide the first ever VR based charter school, a 6 figure, euro contract with a Korean enterprise customer, and also significant contracts with three ms, BMW, Abbott, and the US Department of State to name a few.

1:44 Financially, our group revenue grew to two point just shy of 2,400,000, which is a 68% increase on the prior year. Within that figure, there's over 200% increase in ENGAGE revenue, growing from just shy of £600,000 in 2020 to £1,800,000 in 2021. ENGAGE now comprises over 70% of total group revenue, and our group gross margin grew to 79% from 72% in 2020. We've had a 258% increase in our ENGAGE user base year on year. And at the year end, we have a very strong cash balance of 7,800,000. Just looking a little into a little bit more detail into the numbers, you can see below, as I mentioned, total revenue has grown from 1.4 to 2,400,000 year on year.

2:33 ENGAGE revenue now comprises 75% of total group revenues. Our non ENGAGE revenue, which is our showcase experiences and museum work, has is down year on year, but that's purely due to the shift in focus to the ENGAGE platform where there are huge opportunities for the growth that exist. There's a 7% increase in our group gross profit margin from 72% to 79%. And as mentioned, we have a strong cash balance at the year end, and our current cash burn is running at about €250,000 per month. Our ENGAGE revenue, we can see we've had compound annual growth from f y nineteen to f y twenty twenty one of 464%. But within our revenue figure, it's important to break down what we view as recurring, professional services, nonrecurring.

3:24 So our recurring revenue during 2021 was 73% of total ENGAGE revenue. This would be license sales to enterprise and education customers. We had 19% of what we would consider nonrecurring revenue, which would be event revenue where we run one off events for key customers. And then the final portion, which is a small part of our business, but an important one nonetheless, is where we do professional services work for our customers, which might be where we create custom content for customers where required. Our total license numbers at the year end totals over 6,500, which is up from just shy of 3,000 at the end of twenty twenty and compound semi annual growth rate from the start of twenty nineteen of a 126%.

4:11 Customer wise, we view our customers as active customers if they're in excess of €3,000 in the average contract value to us. Anything below that's considered a trial customer. At the year end, we had 57 active customers in excess of €3,000, up from 23 at the end of twenty twenty.

4:32 Just looking at some of the clients, I think it's very clear to see that we're working with some of the biggest and brightest companies in the world. We're working with Facebook, HTC, Unilever, KPMG, three m, just to name a few. And you can see the depth and breadth of the clients that we're working with in the below slide. Last year, when we did our presentation for our annual results, we announced a medium term outlook and some KPIs that we're measuring ourselves against internally and also that we're happy to report externally to the our investors and shareholders on a yearly basis. Our first metric was to have growth in ENGAGE revenue in excess of 100% year on year. So we've delivered that. Our ENGAGE revenue is $1,800,000 in 2021 compared to $600,000 in 2020, an increase of almost 200%.

5:24 The second KPI was to have gross margin in excess of 80% once ENGAGE revenues between 5,000,000 to €10,000,000 year on year. Our 2021 gross margin, as previously mentioned, is 79%, so we're already very close to hitting that target.

5:40 Our next metric was to have 10% average month on month increase in customers to reach a target of 500 active customers. Our active enterprise and education customers at the year end was a 139 compared to 44 at the end of twenty twenty. We wanted to have forecast revenue retention within ENGAGE of at least 80%. That was quite a prudent figure, and our actual revenue retention rate was a 178% in 2021, showing that customers have remained with us and those that have remained with us have spent more with us year on year as they grow their license numbers. Our average contract value target was to reach an average contract value of in excess of €20,000 per contract. And during f y twenty twenty one, we had an average contract value of 16,000 compared to 15,000 in 2020.

6:32 I'll now hand you back to Dave, who's going to talk about our new exciting offering within the metaverse. Thanks, Seamus. So what we announced in the middle of last year is that we're working on a metaverse, and this was actually even before the the meta announcements or Facebook's announcement announcements, which is more focused on enterprise clients and education clients. So what I'm gonna show you here now is a short presentation video, which we did release last year talking about our vision, for the metaverse and the future of, spatial computing. In our short history, the ENGAGE platform has become a trusted partner to some of the world's biggest brands and organizations. Having recently signed its one hundredth commercial client, ENGAGE is rapidly becoming a leader in XR events and communications.

7:28 We are about to embark on a new journey, one where businesses connect directly with their employees, their customers, customers, and with one another. A journey where the impossible is made possible. A metaverse where business is mixed with pleasure and controlled by the professionals who utilize the platform.

7:59 Welcome to the evolution of ENGAGE. Welcome to ENGAGE Oasis. Explore vast persistent locations branded for your organization or communicate in more personal spaces. Host developer conferences or provide unique product launches. Build your own personal your space using in world items or in the marketplace. Utilize always on spatial locations for employee training and group meetings.

8:51 Register for your own virtual segment and connect with business businesses and professionals. Secure NFT support for unique digital assets and locations, providing a robust ecosystem for creatives to work directly with corporations.

9:20 All the collaboration tools you would expect. Import and build with your own three d models or use the built in editor to build something truly special. Okay. I hope you enjoyed that short presentation.

9:51 So just to dive a little bit deeper into what our offering is. So what we're offering is a framework for businesses and educational institutions to build their own meta worlds in their own vision, and they can control everything that happens within their own meta world. So a meta world is a unique location. It's just a singular location, like this, apartment which we're in today where it can be designed any way that you see fit. And then because you own the meta world, you can control everything that happens inside. So you can set a dress code, you can say that this is private just for employees or for students, and you can also mute free users if it is like a free public space. And some of the meta worlds that you can see up on the screen here, that's actually Facebook's Menelo Park. Facebook are a client of ours, and they use us for professional events and for their clients, you know, and I think it's very telling that Facebook, even though they have their own platform, which is very much tailored for kids and entertainment, they're using us for professional services. You can see Accenture there actually had an onboarding and an event inside ENGAGE earlier, late late last year. HTC

11:00 They host professional events in here as well for their own customers. And again, it is very telling that HTC use us for events, even though they've had their own platform for a while called WipeSync. And we've had events and with other premium brands such as BMW, Audi, Yahoo, and many, many others throughout the year. So really what these meta worlds, what are being used for today are product launches, immersive experiences, company events, private meetings, training and development, and education. But up until up until now, really ENGAGE has been very much software service where clients will come to us, they'll purchase maybe 500 or a thousand user accounts and they'll use it privately and internally. Whereas the metaverse, and James, if we go to the next slide there, the metaverse really is where we're going to interconnect all of these locations, through a series of bridges or portals.

11:52 So you can actually see there on the small image in the middle of the screen just down here, that's a portal. So when you walk through one of these portals, it will bring you to another location, another virtual world, you know, and it's it's a really kind of cool and strange experience. And on the on the, bottom there, you can actually see that's a render. It's a work in progress of our Central Plaza. So the way that our metaverse is is connected is that we have a Central Plaza where any new user who comes into the platform, they'll start at Central Plaza and then there'll be a series of portals to different locations. And the locations we're going to have in the beginning are Enterprise Plaza, Creative Plaza, and Education Plaza. So in Enterprise Plaza, we're going to have clients. We have an announced launch partnership, but that's coming quite soon.

12:37 So when you get in there, and let's say HTC is an example. When you get to Enterprise Plaza, you can see HTC world and you could walk straight in there. And then it's a complete world designed and developed by HTC and they can provide services and product launches on whatever they want to do inside there. And say when you go to Education Plaza, we don't have brands like Stanford University as an example where you can go into virtual Stanford University, attend classes,

13:01 talk to students, you know. So it's really an open world for businesses and professionals to connect and actually build new business models through the platform. So quite soon, you'll be you'll be seeing people offering services and subscription services to these different types of meta worlds. And you can actually see the structure in the very top there. So it's a very much node structure and that can be built out to infinity. So If we go to next slide.

13:29 So why would people use us instead of other platforms?

13:33 So security is a massive thing for our clients. We went through ISO certification last year, and we're the only social VR platform that actually has that security certification. But also because we're in Europe, we subscribe to GDPR compliance, and it's one of the big things why clients come to us, you know, and why Facebook uses for their client, services, you know, why HTC uses as well is because the security is key. Anytime that we sign up with BlueJeans company, we get a document with about 250 questions that we need to fill in or we have done, in the past.

14:04 Now what we do is we just show them our our certification and that actually negates a lot of the red tape to get that client signed on with us. And, we also have a system called Meta Traversal and currently, we're the only platform that does this where any business that builds within the ENGAGE metaverse, which is codenamed Oasis for the moment, if they build a world and they wanna connect to another world, which is off on a different platform, we have a system where if you walk through a portal, it can actually open up any of those other platforms. And the example I wanna talk about here is Ready Player Golf. So McKinsey and Co, they have a space inside ENGAGE, which is a social space where they invite many of the world's top tech executives into into the the social golf house is what we have. And they would hang around for about half an hour to an hour just all communicating and networking. And then when you wanna play around the golf, they walk through a portal inside ENGAGE and it opens up another application called ProPush, and then they can play 18 holes of

15:07 golf and then they'll come back into ENGAGE. So this is meta traverse and really how we see the metaverse in the future is it's not going to be just one dominant platform where everything is on it. There's going to be different platforms which will cater to different different use cases and different clients. So say Facebook with Facebook Horizons, they're very much, catering for a younger audience, you know, for entertainment and social gatherings. And then you have other platforms which are going to be good for, say, dating, other platforms are going to be good for, say, video games, kind of like Fortnite as an example, which call themselves a metaverse, but really it's a video game. And really, what we're aiming for ENGAGE to be is definitely the platform of choice for enterprise and education clients, you know, and it is a framework. Build whatever you want on the ENGAGE framework.

15:55 You can host it on your own and webs on your own web services if you want or you can host it on the cloud with us, but you can interlink it with any RS. And really think of this

16:03 like the evolution of the Internet. So if you go back to the late nineties, AOL tried to dominate the Internet, and everybody needed to be on AOL. And then look what happened there. People and companies wanted their own hosting. They wanted their own services. They needed to use different technologies. They made their own websites and they hosted them externally. The metaverse is going to be the very same way. You're going to have different platforms using different services. So kind of think of ENGAGE as the next generation of HTML or JavaScript where people are going to be building their own metaverses using our framework and then using them, you know, or publishing them wherever they like and having their own business models. Okay. If you go to the next one. So just as an example, and these are three different examples from three different industries. So we have three ms who've been on the platform, a really, really fantastic client of ours, you know, and they're really really going headlong into the metaverse.

17:00 They're using ENGAGE privately at the moment for company onboarding and training and development, but they definitely have an eye on the metaverse. Optimum Domi then, they're a charter school in The US, funded by the US government. They have a thousand students who are being taught inside the platform every day, and then HTC are using this for events. So I'm just gonna play one of these videos first. I'm gonna play the the three m video just to show you that example of how people are using ENGAGE today.

17:34 Physical connection is essential. Smiles are essential. Hugs are essential. This is the human touch. In the real world, not everything is possible. With three m Home, anything is possible.

18:01 This is a journey in the past and in the future. Imagine the infinite possibilities taking you exactly where you need to be. Because continue to meet in person, and we'll enter this new world together. Today, the possibilities are endless. This is three m home. Okay. I hope you enjoyed that video. So we are working very, very hard here at ENGAGE XR to bring this metaverse, to life. So expect the launch of our version of the metaverse, the business version of the metaverse in the second half of this year, and we're going to be announcing launch partners quite soon.

19:04 So I'll just pass back over to Seamus. Thanks, Dave. So just in terms of the team, obviously, you know myself and Dave, we've been in front of you many times at this stage. And we've already spoken about a number of the team on this slide. But two key hires that we've mentioned earlier in the deck, Richard Allen has come on board as our chief revenue officer, and Kyle Horner has come on board as our head of marketing. They've both started at the back end of, of q one of this year, and we're looking forward to seeing them grow the marketing and sales function within the organization. We took some time to hire the right people for these roles, but we're very confident that they are the two people to to lead us forward. So just in terms of building out the organization, you can see on the left hand side, we are now we feel that we are fully staffed up from a product engineering and operations management perspective.

19:57 We do still have some active hires in the marketing sales and customer success side of things. Kyle will obviously have to have the opportunity to take on some people in marketing, and we have already tasked Richard with taking on six sales six salespeople to to help grow out the sales function. On the customer success side, since we last spoke, we've added we've got six on the customer sec success side of the house, and we've there's more been added in different time zones as we speak. And we will soon have twenty four hour, around the globe coverage to support all of our customers. I'll just hand you back to Dave now just to wrap up with an outlook slide. Yeah. So we are very excited about our vision for the metaverse. We're we're still generating revenue as it is today, selling ENGAGE as a service as we always have, you know, and we are seeing revenues accelerate.

20:49 But when the metaverse offering, becomes available, ENGAGE Oasis, becomes available, there's going to be new sources of revenue. So our clients are actually building new services on top of the platform and selling those services, and we're going to be taking a percentage of everything that's made through the platform. So we're very excited about that opportunity. ENGAGE is being used by two of the most prominent VR companies today. As I said, look, Facebook, our client of ours, HTC, our client of ours. They are leading the way in the technology front for building VR and immersive headsets. But the thing great thing about ENGAGE is it's not just in VR, you know. I'm wearing a VR headset today. Seamus is on his mobile phone using ENGAGE. We also have Chromebook support and desktop support. It doesn't matter what computing device you're on. ENGAGE will be available to everybody, so it really is opening out the market.

21:36 And we have a significant user base, and it's growing really quickly. So at the tail end of last year, we had a 100,000 professional users on the platform. It actually grew to a 150,000 users within the last three months, so we're seeing a huge adoption of Engage services. And as Seamus mentioned as well, we hired our chief revenue officer who's based in The USA. He's got a wealth of experience, and I definitely see him really pushing us forward and getting some of those big line contracts on the platform. Two years ago, it would have been fair to say we were signing deals in the tens of thousands. Last year, we started signing deals in the hundreds of thousands. This year, we will sign deals in the millions of dollars. That's where we're going. And we have hired a marketing director as well for the first time. So we've been very light on marketing up until now. And this this guy coming in, Kyle, he's very, very experienced, especially in the digital front. You know, so you're gonna see and hear a lot more about ENGAGE platform in the coming months. And we've also hired one of the largest PR companies in The US called five WPR, you know. So we are starting to spend now big on marketing and the sales push now that we have the tech pretty much sewn up. So yep. Look. I wanna thank everybody for watching this presentation today, and I'm sure I'll be talking to, many of you, throughout the year. Thank you. Bye.

22:54 David, Seamus, thank you very much for your presentation. Ladies and gentlemen, please do continue to submit your questions using the q and a tab situated in the top right hand corner of your screen. Just while the company take a few moments to review those questions submitted today, I'd like to remind you that recording of this presentation along with a copy of the slides and the published q and a can be accessed by your investor dashboard. As you can see, we've received an a number of questions throughout today's presentation, and thank you to those investors for submitting their questions. Could ask you to read out the questions and give response to it if appropriate for you to do so, and I'll pick up from you guys in the end. Thanks very much. Dave, I'll as per previous, I'll read out the questions, and we can answer them between us. Yeah. No worries. So the first question I have here is from Simon who notes that it's a it's a great client list. And have you seen revenue growth and expansion from each client the longer they've been on the platform, and are they expanding spend? I can take that one.

23:48 So we have seen revenue growth from our existing client base. Our our revenue retention for from our clients is over a 170%, which means that the clients that we had in 2020, of which it was a lower number at that stage, they've increased their spend almost twofold year on year. So we've seen a number of clients come back in, more than doubled their license numbers. Perhaps they've added on event licenses in 2021, and some of them have built custom locations, which were undelighted to the to service because if they are committing to building a location just for their own employees or for their own use, it means they're more than likely going to add more employee and user numbers to the platform. So the next question, this one's for you, Dave. How do you see the Facebook relationship expanding?

24:36 As you mentioned, they are in the space themselves. Yeah. So with Facebook, who've changed our name to Meta, they're really focused on getting a billion people into the metaverse in the next three to five years. And their focus is definitely on the social aspects of the metaverse where it's really appealing for younger kids to go in and socialize, play games. Now the metaverse, if you ask 10 different, supposed experts what the metaverse is, they'll give you 10 different answers. The metaverse is not gonna be one single dominant platform that everybody's on. It's gonna be a collection of different platforms linked together, the very same as the Internet. So history has, a tendency to repeat itself. So if you look back at the early days of the Internet, in the late nineties, actually, AOL tried to dominate the space, and for anybody to be found, you needed to be on the AOL platform.

25:26 But the Internet evolved where people wanted to have their own private hosting and their own private services, and they built on a range of different, platforms, technologies such as HTML and Java and.net. The, metaverse is gonna be exactly the same way where you're gonna have metaverse platforms, which are very suitable for video games, very suitable for, socializing and dating. And then you're gonna have a platform, such as ENGAGE, which is very suitable for enterprise clients to build services on top of. You know, we see ENGAGE as a framework more than anything else and which could be linked then to other metaverses in the future. So, yes, Facebook are a client of ours, and they use us for professional events because a lot of their clients are advertising clients, which will use Facebook for advertising. No problem.

26:11 But when it comes to, private hosting and data sharing and services, they do seek a platform, you know, which has, a security certification. We are GDPR compliant as well, so it's easier to work with a company like ours to do professional events on. Thanks, Dave. Next one's for me. This is from Anton. First half ENGAGE revenues were €900,000, and the second half ENGAGE revenues were the same, which suggests growth in ENGAGE revenue has stopped. Can you explain why this is? So what happened there is that we had some additional ENGAGE revenue booked at the end of twenty twenty one, which we had to defer into 2022 as we hadn't delivered on that. We also had a number of big wins in early twenty twenty two, which were in the works during the end of twenty twenty one, but didn't get signed off until 2022.

27:05 So we've had some a couple of 6 figure deals signed in January. We've had a very good start to the year. So we do expect to continue further growth in ENGAGE revenues in 2022. We don't have any concerns that our the projections we put out are aren't going to be met in that regard. So the next one then is for you, Dave. What role do you think launch partners will play in the release of the ENGAGE Oasis? Launch partners, they want, obviously, advertising. They want their companies and brands to be associated as, you know, companies that are looking forward, you know, and embracing new technologies. So as we sign up launch partners, they're gonna help cross promote the platform, but they're also going to want to sell services and host events in the platform as well. So I'd expect that some of these metaverse locations will be subscription based for people to access them, but they'll also have public front facing locations.

28:02 So it's a it really is wide open. You know, it's it's say, if we were creating dot net technology, you know, the person who wrote the initial code, know, couldn't have imagined all the different use cases that it would have, had in the future. We're really at the beginning of that as well where ENGAGE is is a really robust, framework, you know, a very well tested and robust, framework that people can pretty much build whatever they like on us and build new unique business models. We already have people working full time in the metaverse ourselves, which, their support partners logged in, twenty four hours a day, but there's gonna be loads of jobs and loads of opportunities in this new metaverse, which is really an evolution of the Internet. Thanks, Dave. Another one for you.

28:48 Just, it's been noted that the ENGAGE Oasis has been delayed from our original projection of h one twenty two to h two twenty two, and what's been the cause of that? The well, it needs to be right, and it needs to be it needs to be perfect once it's released. You know? So we've been working in the background, and we've been super busy as well, actually. It's kind of our own success has kinda held us back a little bit with actually getting the development done because we've been so busy with onboarding clients and getting client requests in the door. It's actually slowed down the actual delivery of the ENGAGE Oasis, which is actually a good it's a good problem, to have. But now that we've scaled up, the the company so this time last year, I think we had maybe about 45 staff. At the moment, we're about 85, 90 staff. You know? So it's taken us a little while to to hire good people as well, but it's it's definitely because we've been so busy with actually onboarding the clients that we have and and increasing their services.

29:49 Thanks, Dave. So the next one is one for me. They're they're swapping either side. That's handy. Have you got any evidence that clients using Oasis will be happy to pay a share of their revenues as a business model? We already have a similar business model in place within the ENGAGE platform. It's a commercial license agreement whereby clients can sell or host events on the platform. And if they charge them, we take a revenue share. That's been in existence now for about two years, and we've our clients have been happy to use that model. We've also in our early and advanced stage talks with a number of partners to use the Oasis when it launches, and those revenue share models are part of the contracts that we're sharing and haven't we haven't had any significant pushback on them.

30:39 So that's all the questions that I see right now. If there's any further questions that pop up, we'll happily respond to them separately, which we've done in the past, any questions that haven't been answered on the during the presentation. Seamus, thank you. Thank you very much. I think you actually have addressed all those questions from investors, of course, the company will review any further questions submitted, as Seamus has just said, and we'll publish those responses on the investment company platform. But just before redirecting investors to provide you with their feedback, which I know is particularly important to the company, David, could I just ask you for a few closing comments? Yeah. I look. I would close with saying, we are growing. We're delivering on our promise, you know, our medium term outlook, which is really selling ENGAGE, as a service. You know, the metaverse is very much wide open. You know, it it's an unknown of what that would generate for us in the future, but we are very excited about it. And when we talk about online communications today, you know, we're talking about, hey. I'll Zoom you later or Skype you later. Really, in the next three to five years, what we want people to say is we're we'll engage with you. That's really where we're heading.

31:47 And we're starting to spend now on marketing, you know, and we've hired a chief revenue officer. So things are looking very, very bright. And as Seamus said, we've had a very, very, strong start to the year. Perfect, David. Seamus, thank you once again for updating investors today. Could I please ask investors not to close the session as you'll now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations? This will only take a few moments to complete, but I'm sure it'll be 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, and good morning to you.