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

0:01 Good morning, ladies and gentlemen, and welcome to the ENGAGE XR HOLDINGS PLC Half Year Results Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and could be submitted at any time via the Q and A tab that's situated on the right hand corner of your screen. Please just simply type in your questions at any time and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, all questions submitted today will be reviewed with responses published on the Investor Meet company platform where it is appropriate to

0:32 do so. Before we begin, I would like to submit the following poll. And as usual, if you could give that your kind attention, I'm sure the company would be most grateful. I'd now like to hand you over to CEO, David Whelan. Good morning, sir. Hello, and welcome to ENGAGE. My name is David, I'm the CEO, and I'm joined here today by Seamus, our CFO. And today, we are talking about our interim results for 2022.

0:56 Thanks, Dave. Hi, everyone. It's good to see you all again. Just want to quickly run through some of our operational and financial highlights for the first six months of the year. Once again, we had a period of strong progress with revenue for the group up 41% to 1,760,000 Within that, ENGAGE revenue grew 61 to 1,500,000. We've also seen some excellent new client wins and also client upsells, including META, KIA, Kuna Nagel and Nataxis.

1:26 Development of our new ENGAGE LINQ, which is where we're present today, is progressing as planned and is expected to launch in q four as previously announced. We've had launch partners already announced publicly, including HCC and Stanford University, and we've also recently had three new launch partners confirmed that we've not yet announced. We've increased engagement with potential customers too with our strongest ever pipeline at the moment, And we're looking forward with optimism and remain confident into expectations for the year. So just a bit of a platform overview, what is ENGAGE and what is ENGAGE Link? So ENGAGE, has been used primarily for education, business meetings, and events, and immersive events in the metaverse. So we have some really strong clients, which we'll be talking about later on. And Meta themselves are actually a client of ours.

2:17 And we also have a lot of security in the back end. We're actually the only metaverse platform with ISO security certification. And we run on a range of different devices. So the metaverse is not just VR, you know, you can run it on a mobile phone, you can run this on a tablet. So it's pretty accessible to everybody. So you might be asking yourself, what is the metaverse? The metaverse in reality is an evolution of the Internet. So the Internet today is a very two d flat experience where you're reading web pages and you're looking at video, and you're sitting by yourself in your house. So it feels like a very solo experience. And the metaverse is turning the Internet into a three d shared experience where you're walking around virtual worlds with other people, you know, interacting in a very, very natural way. So it opens up a lot of possibilities for events, remote collaboration, work, and product launches.

3:11 And this is where we see ENGAGE very keenly placed. And the possibilities that we're seeing and and use cases that we're seeing at the moment is we're seeing virtual schools in here, virtual events, you know, virtual training, onboarding, and those types of use cases are happening every day within the platform, which we'll be talking about later on. So I'm just going to play a short video now just outlining the ENGAGE metaverse offering which again will be coming out later this year. Hello and welcome to ENGAGE. I am so excited today to introduce you to the culmination of eight years of development and the most spectacular thing ENGAGE has ever created on the platform. Welcome to ENGAGE LINK, a collection of linked persistent spaces designed specifically for enterprise, educational, and creative entities to have their presence on the metaverse.

4:14 This particular location is known as Central Plaza, which serves as a jumping off point to the rest of our meta worlds. It's here that you can meet up with friends to begin your exploration, hang out with business associates, or even attend events. To go from here to any of our other meta worlds is as simple as walking through one of our many portals.

4:44 You may have guessed by the live stock ticker above my head that we are now in the Enterprise Plaza, designed for forward thinking businesses and enterprises ready to make that leap into the metaverse. Users can have direct access to your business meta world by simply walking through the portals located here or via our direct deep link system, which can be shared via your own company website. Working with our development team, we can create fantastic environments for your company that reflect your company culture, values, products, and services. We know having worked with multiple enterprise clients over the years that security is of utmost important.

5:30 You will be glad to know that we are ISO twenty seven zero zero one secondurity certified and in full GDPR compliance.

5:42 MetaWorlds can be used for customer outreach, product launches, training and development, and so much more. If your business needs a metaverse strategy, please come and talk to us, and we'll be happy to get you set up.

6:03 Here we are in Education Plaza. It's here that we are working with some of the world's leading educational institutions and businesses. This is one of my favorite hubs because I know these institutions have been building educational content over this last year that is fantastic to interact with. With multiple metaversities being set up on the ENGAGE platform, ENGAGE Plaza is a great way to get that information and request access to courses from clients directly. Imagine live educational presentations being given in this plaza or visiting the educational content of each of these entities by entering their private portals to visit their meta worlds.

6:50 This is a fantastic gateway to explore great educational content.

7:01 Welcome to the Apartment Plaza. ENGAGE Link is not just for businesses. You can register for an account and receive your own personal Metaverse apartment. And because we're in VR, everybody gets that penthouse apartment on the Top Floor of these buildings behind me. This is an opportunity to have friends and family over to socialize, hang out, watch movies, and have a great time. Let's head on up and see what that looks like. Welcome to your penthouse apartment in the sky. You can see the apartment plaza that we just came from down below. And in here, we have a very open space that allows users to design the apartment as they see fit for various use cases.

7:50 In my case, I've decided to bring in palm trees, lighting effects, special effects up in the ceiling. You can also control the video screen by simply clicking the button on the wall over here, which takes the video screen up and down, and we can change the aesthetic of the apartment from a lighter color to a darker marble as desired. We will have other options moving into the future. We also have a back area here in which we can set up your own personal portals to take you to your favorite spots in the metaverse. In this case, I have portals that take us to the apart back down to the apartment plaza or to the central plaza. We have a second level up above in which we can hang various types of art and place sculptures. Over here, you can see that we've got an elevator.

8:38 I'm gonna go ahead and press this. This elevator takes us up to the simulation room in which we can launch various activities. And here we are.

8:53 In this space on the 2nd Floor is our simulation room in which we can launch various activities. And as you can see, we have many exciting places for you all to explore. To learn more about ENGAGE LINK, please visit us at www.engagevr.io. We look forward to seeing you all soon.

9:27 Thanks, Dave. So just looking at a little bit more detail of our financial performance for the first half the year. As I mentioned, revenue has grown at 1,760,000, up 41% on the prior period. Within that, ENGAGE revenue has grown over 60%, and it now accounts for more than 80% of group revenues, highlighting our continued progress within the platform. $500,000 in ENGAGE revenue has been generated to the end of the first half of the year, and our gross profit margin is showing a slight increase to 81%, up from 80% in the prior period. Our cash balance at the end of June was £4,900,000 with our net monthly cash burn running at approximately £450,000 per month, but that is declining as revenue continues to grow.

10:17 Looking at a little bit more detail at the income statement. As I've mentioned, our revenue was up to €1,760,000 and our growth gross profit is up from just shy of €1,000,000 last year to €1,400,000 this year, a 43% increase. Obviously, there's been a big increase in administrative expenses growing from 2,300,000 to 4,200,000 period on period. That's due to the continued expansion of the team, specifically the expansion of the sales team, which have grown from two to 10 since the start of 2022. And that was one of the stated goals of our fundraise in June of last year that we would expand the sales team significantly, and which referenced to the very strong pipeline I discussed earlier. This is testament to what the new sales team are putting in place.

11:03 The increase in the EBITDA loss from just shy of €1,000,000 to €2,500,000 is obviously driven by this increase in administrative expenses but has been offset by the increase in gross profit also. So just briefly looking at our balance sheet. Our fixed and intangible assets fell from 744,000 to 312,000. That's solely driven by the amortization of our intangible assets, which is the ENGAGE platform and also some of our showcase experiences that we developed in years past. Trade and other receivables has grown from 610,000 to just shy of 1,100,000. That's driven by increased activity. We've never had any bad debts within the company, and we hope that is that trend continues.

11:51 Cash and cash equivalents fell from 9,200,000 at the end of June last year, which was just after the raise, to 4,900,000 at the end of June this year. Down in the liabilities section, we can see

12:04 the trade and other payables has grown from 300,000 to 600,000 period on period, which just reflects increased activity within the group. And our total equity and reserves and total assets is $6,300,000 compared to $10,500,000 at the end of last period, the end of June. Just briefly looking at our cash flow situation, just walking through the 2022 figures. Moving from our adjusted loss from continuing operations of $2,800,000 We acquired just shy of $40,000 in property, plant and equipment in the first six months of the year, which is mainly developer machines for our team. We've had no proceeds, obviously, from issuance of shares this year. We've had a working capital movement of 310,000, bringing us down to a net cash outflow in the period of just shy of 3,000,000, bringing from our opening cash position at the start of this calendar year of 7,800,000 down to our closing cash position of 4,900,000.

13:06 So a question I'm I'm quite often asked is why now? Why the metaverse? So we've seen a lot of, news in the industry recently. And, obviously, with Facebook changing our company from a social media company to a metaverse company and renaming their business meta has obviously put a lot of eyes in this area. PLC just recently, released a survey where they interviewed 5,000 US consumers and over a thousand, businesses, and they asked them a lot of different questions about the metaverse.

13:36 And then the results they got back actually were quite surprising where 67% of the businesses they interviewed said they're actively engaged in looking at metaverse services. And 20% said they are currently looking into it. And they asked when did they expect it to be used in their everyday business. 44% of those who responded said that within two to three years, they expect that many of our services will be part of their everyday offering. And 38% actually said that they expect it to be in there by next year. So it is a very, very active market, and we're certainly in the right place at the right time. We performed an exercise, consider what our total addressable market was for the ENGAGE platform and for ENGAGE Link. We consider our total addressable market between be between $10,000,000,000 to $25,000,000,000 within the overall markets that are shown there, global team collaboration, globally learn, and global virtual events.

14:33 We feel that VR and AR compound annual growth rate has the opportunity to grow far in excess of the standard traditional mediums. As we've already said, we have cross platform support across desktop, phone, tablet, any sort of hardware that runs VR and AR. So we expect that 2022, the rest of 2222 and into 2023 will be a formative year, especially with the launch of ENGAGE Link at the end of this year.

15:02 Now the way ENGAGE is is used today is we would get a client come to us, and and they would pay a license fee, you know, so they would say, okay, we want a thousand user accounts that pays a license fee for that, which is renewed each year. They would use it internally for meetings and events. Sometimes then we do get clients that come to us and they want to hold an immersive event or some kind of product launch, and they will pay us a set fee, and then we will help them run that event. So as you can see, our current business model is yearly licenses to the platform for access to all its features and also, services revenue coming in for bespoke pieces of content or events. With the release of ENGAGE LINK, which is an always on persistent world, we actually have a lot more possibilities for the monetization of the platform. So we are gonna be charging hosting fees for these always on locations to be available twenty four hours a day. There's also gonna be a marketplace where with the content tools available inside ENGAGE, users can create very compelling content or training content and sell that to businesses or individuals within the wider, metaverse or within the ENGAGE platform.

16:12 We're also gonna have a revenue share for events held on on the platform. So users will be able to go in, set up their own private event. They can charge a fee to access that event, and we'll take a revenue share from that. We're also gonna have a professional services area where professionals within the wider metaverse, be be that animators, you know, three d model makers, environment artists, or even professional services, metaverse services people, they can go in and sell their time within the ENGAGE platform to businesses and organizations. Because quite often, the people that we deal with and a lot of these larger corporations do not have the expertise in house to build out their own meta worlds, our locations, our services. And quite often, they're they try either to lean on us or else, you know, get a third party provider to do that. So we're gonna have a whole ecosystem

17:02 within this platform to ensure that it can scale very efficiently, you know, instead of relying on ourselves to build out our content team extensively. So this is just some of the client list and that we have on the platform, and you can see some really, really strong names there. So Meta themselves actually use us for a lot of their professional events. And they have their own platform, obviously, and they're building their metaverse, which is very much aimed at a broad spectrum of of younger audience. You know, so it's a social platform, you know, very much full of full of kids, whereas we're very much focused on the the business applications. You see there Unilever, Kia, having a car launch with us, you know, KPMG PLC, Accenture. These are some of the world's biggest names, you know, and and and biggest accountancy firms using the platform on a daily basis.

17:51 So just to go into one of these use cases, you can see here of a range of different use cases, which you can view on the presentation after this after this call. But one that I wanna make special mention here is three ms. So three ms started with us on a very small contract to host an internal event. And when they came in and we hosted the internal event, we were actually upselling them on user accounts and different services. And they started we were asking them about what issues they had from remote work. One of the real issues they had was when they employed new people remotely, they never felt like they were part of the organization. So they were going on Zoom calls, they train them in, and six months later, those newer people quite often will go off and find another job. Whereas when they were working in a physical office, they felt like they were part of a family, you know, because we're making connections and friends, they'd stay in the organization longer, and they needed a way to, you know, help, you know, retain staff. And one of the ways was to use virtual reality for their daily stand ups and onboarding.

18:52 So this short video actually is is actually created by three m themselves, gives a high level overview of what they were doing within the platform, but did increase their engagement with our new employees and it stopped a lot of turnover of new employees. So I'm just gonna play that video now. 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 ms Home, anything is possible. This is a journey in the past and in the future.

19:47 Imagine the infinite possibilities taking you exactly where you need to be. Because we'll continue to meet in person, and we'll enter this new world together. Today, the possibilities are endless. This is three m home. Okay. Welcome back. So one of the, pieces that makes ENGAGE stand out above everything else is the quick and easy way to create content. So, with customers like three m and Meta and other customers, they can go in very quickly, they can record content and produce stuff very very easily at very little expense.

20:44 So if you were wanting to create, say, a piece of training content as an example, and you went to another metaverse supplier, you would have to go and pay them to produce something which could cost like a $100,000 to produce something very, very easily. Whereas we're providing the tools for these corporations to build our own training content. And where we make the money back then obviously is in the licensing and the hosting of the content. So this is one of the things that makes ENGAGE stand out above all others. Also, the security and scalability of the platform. So again, we are the only platform with ISO security certification. We are GDPR compliant as well. And this is why people who you would perceive as as, say, competition to us, are actually in fact clients, because they're bringing people into the platform because we're very ahead from that point of view, because we didn't start as a video game, we started as an education platform, and security was was first and foremost in everything that we were doing in creating the platform.

21:43 You can bring in your own three d models. You can bring in videos, animations. You know, you can bring in documents as I am today with this OneDrive document. It's very easy and intuitive, to use. Okay. So I'll pass back over to Seamus for the conclusion. Thanks, Dave. So just in conclusion, it's been an excellent period of growth for the company with our 41% increase in revenue. As Dave has just highlighted and shown shown us, we're launching Link at the end of q during q four of this current financial year. We have our strongest sales pipeline to date, which is testament to our new sales team, and we're seeing a significant increase in customer engagement. The market is increasingly recognizing the opportunities created by Metaverse, and our client list is increasing with more and more Fortune 500 companies coming onto our books.

22:37 The ENGAGE platform now comprises 83% of total group revenue, and our perceived competition use are using our services to provide professional events and meetings within the metaverse. So we think we're in a great position to further capitalize on our successes to date. And thank you for your time. We'll take any questions you might have now. David, Seamus, that's great. And if I may just bring back up your cameras. 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 recording of this presentation along with a copy of the slides and the published q and a can be accessed via your investor dashboard.

23:23 David, James, we did receive a number of presubmitted questions ahead of today's event as well as as you can see in the q and a tab, a number of questions that have been submitted throughout today's presentation. So thank you to all of those on the call for taking the time to submit their questions. And David, James, if I could just hand back to you to run through that q and a tab and where appropriate to do so. If you could please just read out the questions and give your response, and then I'll pick up from you at the end. Thank you. Thanks, Jake. So I'll read out the questions, and myself and Dave will answer them. So the first question here, which is a presubmitted one. In a recent LinkedIn post, David said ENGAGE has been extensively used today by many Fortune 500 companies. And the question is, how many are we actually actively working with? So I actually went through our customer list yesterday compared to the Fortune 500 companies, and we are currently working with 20 Fortune 500 companies.

24:17 So in varying capacities, obviously, three m are well known. They're we work extensively with them, and there's other Fortune 500 companies that we haven't aren't allowed to disclose their names, we are working closely with. The next question then is, can you please provide increased clarity on your ENGAGE pipeline and your path to your medium term revenue targets? So, again, I can take this. We have recently, as mentioned in the presentation, significantly increased our sales team. We've gone from two at the start of the year to 10 as we stand here today. There's been a huge increase in engagement with the company. The the sales team really hit the ground running, and our pipeline is the strongest it's ever been. At the moment, we foresee no change to the forecast targets that are out in the marketplace, which show our path to medium our medium term revenue targets hitting sometime in '20 between 2023 and 2024.

25:19 So the next question then is this one I'll leave to you, Dave. How many launch partners do you expect to have signed up for ENGAGE LINK? Yeah. So we think we'll we're gonna have about 10 launch partners. I think some of the names that you're gonna hear about are gonna be quite surprising. Now we haven't released these names yet because a lot of these launch partners are waiting for the release of their metaverse, and they wanna put out all their publicity then. So we're kind of our hands are tied behind our backs sometimes when we do sign up some of these partners, but it is all coming quite soon before the end of this year. Thanks, Dave. The next one's probably one for you as well. How connected are you to Meta directly or indirectly? Yeah. We work very closely, with Meta.

26:05 I think you can probably tell from the presentation, we're doing a lot of work, with the Meta guys. They're using us for pretty much a lot of their business applications for the Metaverse and showing their clients around what business metaverse will look like. Now their focus with their own platform has been they wanna get a billion people into VR, you know, into their metaverse. And it's very much a younger audience in the social aspect of it. But when it comes to business applications, obviously, you know, with our security certification and our GDPR compliance, we're very attractive for companies. So we are working very closely with Meta on on this and other projects. Thanks, Dave. Another one for you. They're all for you. Can you talk us through how a typical sales partnership works?

26:51 Yeah. So maybe with three m as an example, they came to us originally for a small private internal events, and, you know, it wasn't like a a massive PO. And then that partnership grew. So when we were inside, you know, helping them host the events and they had, like, c level executives standing on stage. We were then upselling them on, okay. How many remote teams have you got? What are the issues you have within your organization? Here's how we can help. And then we started selling them licenses. You know, they were looking for content, onboarding content. So that grew and grew and grew. So from their initial PO, it grew, by a factor of 10 within 12 months. And we see the same process with a lot of these corporations where they'll start off kinda small. You know, it might be a $50 PO here, and then it will quite quickly progress then into much larger, POs. And I think you can you can tell from the the client list that we've shared, like, that's only a small fraction of who we're working with. So it's turning these, you know, blue chip companies in from, you know, the deals that are maybe 100 or $200 into, you know, multimillion deals. That's the the stage that we're trying to progress to.

28:05 Thanks, Dave. And then the last one is for myself. With your 2023 revenue model, where do you expect most of your revenue to come from? As we transition into LINK, we do expect to see a significant portion of our revenue coming through that. License sales will be you know, you can use ENGAGE and ENGAGE LINK interchangeably. If you get a license for one, you'll be able to use both. But we do see significant opportunities, as Dave outlined in the presentation, for other revenue models that are going to come on stream during 2023, such as subscription models and things like that, where we would take a percentage of revenue generated through the metaverse. Oh, actually, sorry. There's another question after coming through. What I would what I would say just in adding to that, our projections are based on licenses that we didn't push anything about Medevar sales or revenue in our projections, you know. So the opportunity here is is still unknown, but we do think it's it's it's very wide and broad.

29:07 There's two questions after coming in coincidentally that are both asking the same thing. I look after these ones, Dave. So this one covers off both points. Is there a plan for share dilution to raise more money soon? And are we are we looking like we're running out of money? Is there other point raised there? So, no, there isn't any active plan to raise money at the moment. The projections that are out in the marketplace, which are still a fair representation, show us getting to a cash generative position before we need would need to raise funds. So as it stands, no, there's no update there. But if they were, we'll obviously update the market at the right time in relation to that. Then there's another question just come in. Just reading through it here.

29:53 Average size of client or revenue from client. It's more than 10 k. Yeah. So I'll just read it out. It's I think it's fine to answer. You mentioned you're working with a number of Fortune 500 companies and a 180 in total since ENGAGE's launch. Not a 180 Fortune 500, just a 180 companies. This suggests the average revenue per client is around 10 k. Assuming meta revenues are running higher than this average, it suggests the average value of nonmeta contracts is quite modest. Would it be better to focus on larger opportunities and cut the long tail? So I suppose in in relation to that, because it's a new technology, we would have had a lot of trial customers, especially in the early days. Trial customer to us is anything up to about €3,000 in revenue. A lot of those have converted into full customers at this stage, but it would distort the overall average where you've come up with the the £10,000 figure.

30:48 Our average contract size, excluding trial customers, is approaching 20,000 as mentioned in the presentation. And our focus is on the bigger customers now. It is on the the measures and the three m's of the world. Anyone else who comes in, they do get our attention, but it's certainly not our main focus. And I think at that stage now, I think that's the last question that's after coming in. Absolutely. Seamus, David, thank you very much indeed for addressing all those questions that came in from investors today. Of course, if there are any further questions that are submitted today, we'll make these available to you immediately after the presentation has ended for you to review and then add any additional responses where it's appropriate to do so. David, perhaps before redirecting those on the call to provide you 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.

31:38 Yeah. I think, right place, right time would be, you know, something that would describe our business. We're getting set for a major a major release before the end of the year, which I think will surprise a lot of people with who we have coming on board and the quality, you know, compared to some other metaverse platforms out there. As I said, when we talk about metaverse, you know, what we're talking about is the evolution of the Internet. So if you believe that the Internet is gonna remain the same, maybe we're not the company for you. But if you do believe the Internet is gonna be a three d shared virtual world in the future, certainly, you know, we're learning a lot. You know, we don't, you know, don't have all the answers. Nobody does. But we're certainly learning a lot now, we're getting, ahead of the game. So we have a strong client list. We have a good pipeline. You know, we're we're very bullish about, you know, what's coming down the track in the next twelve to two twelve months to two years.

32:29 David, that's great. And as well, thank you once again for taking the time to update investors today. 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 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 would like to thank you for attending today's presentation. That now concludes today's session, so good morning to you all. Thank you, everyone.