Engage XR Holdings (LSE:EXR) — Interim results for the six months ended 30 June 2021

0:01 Good morning, ladies and gentlemen, and welcome to the VR Education Holdings PLC Interim Results for the Six Months Ended 06/30/2021. Throughout this presentation, investors will be in listen only mode. Questions are encouraged and be submitted anytime via the Q and A tab situated on the right hand corner of the screen. Just click Q and A, scroll to the bottom, type your question and press send. The company may not be in a position to answer every question it received during the meeting itself. However, the company review all questions submitted today and publish responses where it's appropriate to do so. These will be available via your Investor Meet

0:32 company dashboard, and they'll be notified once they're ready for your review. I'd also like to remind you this presentation is being recorded. Before we begin, we'd like to submit the following poll. I'd now like to hand you over to David CEO and Seamus Larracy, CFO. And if you hear any crackling, that's from a fireplace in the background of the room that you're just about to enter. Hello, everybody. Welcome to this recording of our investor company meeting. I'm David Whelan, the CEO of VR Education Holdings, and I'm joined here by Seamus. Say hello, Seamus. Hi, everyone. Nice to meet you. So what we're going to start with, obviously, this is going to be a little bit different. We're in the White House. This is our digital recreation of the White House. I thought we'd do something a little bit different instead of just being the standard meeting room. So just to give people an overview of ENGAGE, I'm going play a short trailer first, and then we're going go into the presentation.

1:21 And this is all about our interims that we've just released earlier this week. We all experience the world in unique ways. Hey. You. Through our senses, we gather information and build cognitive process to understand concepts. Hey. This is how we learn. But what if we could push these boundaries past our physical world? Fire. Fire. What if you could communicate with anyone in the world yet feel like you were in the same room? If you could meet and learn Why do need people to it up behind are you telling me teammates globally, sharing media, and ideas that's a good news. Or jump into a simulated training. But the real test is being able to do the right thing in a stressful situation.

2:11 To gain a deeper understanding of the task at hand. Warm and dry. And then just squeeze the trigger to squeeze the bird. You have ventilated the baby, and now it's time to reassess. Please

2:22 fasten your seatbelts, sir. Creating real world scenarios, improving employee knowledge and skills. Exactly. Plant another tree. And this time, we put it up the top. Imagine if quality education was accessible to all regardless of geographical location. Large hazard and increase the risk to these big cities.

2:42 What if no field trip is too far or impossible?

2:52 Okay. Welcome back. So that was just a short overview of how we're setting ENGAGE today and some of the services that we offer our current clients. So I'm gonna pass over to Seamus who's gonna talk a little bit deeper about some of the numbers. Thanks, Dave. So just a quick overview of our figures for the first six months of the year. I think the key highlight that is that ENGAGE revenue has grown in the first six months of the year to €900,000.

3:19 We've also seen significant growth in with over a 130 commercial customers after using the ENGAGE platform at this stage. Since we launched the platform, we've signed €3,000,000 in contract value on in ENGAGE subscriptions up to the end of August of this year. We're very excited about our relationship with HTC and launch of the new VIVE Focus three headset, which bundles ENGAGE on it as a preinstall, and also HTC and ourselves partnered with HP to roll out ENGAGE on new HP laptops in China. We hope to see significant traction from that at the back end of this year and into 2022. Some of the key metrics that we measure ourselves on include our total active clients, and that's grown 11% month on month since the end of twenty twenty. And we've also seen a 49% increase in active licenses in the first half of the year, which I'll discuss now on the next slide.

4:16 So just looking at some of our key metrics. So we've seen a significant increase in our total license number since the year end. At the year end, we were just shy of 3,000 licenses. But as it stands at the end of June, we are four and a half thousand, which is significant growth in a six month period. Looking at the nature of our revenue, you can see here that 61% of our revenue we consider to be recurring. That would be license sales through either our virtual office or virtual campus offerings. 20% would be through our virtual events, which we which is a third strand to ENGAGE at the moment, whereby we run large scale events for customers who are looking to offer something far more interactive and far more beneficial than a video meeting. And then the balance would be professional services, where we create custom content or custom location for customers. It's not something we actively seek, but if a key customer needs something created, we do have the in house capabilities to do this. So then finally, just looking at our annual contract size, 22% of our contracts are in excess of $2,525,000 euros, and that's growing.

5:21 Our average contract value at the end of the period was just shy of €23,000. Okay. So on this slide here, this talks a little bit more about how ENGAGE is sold today. So we're selling ENGAGE as a business to business tool in a wide range of different areas. So we have ENGAGE Virtual Campus, which goes back to our roots in education, where ENGAGE was originally developed as an online education tool where it was a digital classroom where students can come in with an avatar kinda

5:49 like this, and they can attend classes, you know, with educators from all over the world. So we still have that use case, and some of the clients that we're working with are Stanford University and Oxford University. Then we have our virtual office. So with the onset of COVID and a lot of the shutdowns over the past year and a half to two years, all the tools that we've created on ENGAGE over the past few years lend themselves very well into virtual meetings and virtual conferences. And this is a a type of virtual meeting we're having today where we have, like, a PowerPoint presentations, and we can play videos, and we can do all sorts of things, the same as what you would do in in a real virtual meeting. And in fact, in my own organization, we use virtual reality ENGAGE every day for our daily stand ups and our Kanban board meetings. Then the final offering there is virtual events.

6:35 So with virtual events, a lot of people, a lot of companies have used Zoom in the past where you have lots of people logged in and all watching video, not very interactive. You're just watching PowerPoint after PowerPoint. The real reason people attend virtual events is that they want to talk to maybe some salespeople at a stall or that off chance meeting with somebody, that hallway conversation, and that's something that ENGAGE can offer uniquely that these video platforms like Zoom and Microsoft Teams can offer. Some of the reference clients we have in virtual office would be Facebook, Fidelity Investments, and then in events, then we have Huawei and HTC using us as well. So these are some really premium names.

7:15 So just looking at how we generate revenue and how we enter the marketplace. So as Dave already outlined, we have three distinct offerings, virtual campus, virtual office, and virtual events. And we bring those to the market in two distinct ways. One is a tour direct b to b sales organization. We currently have seven business developers spread across North America, Europe, and Asia. And then we also have our indirect method through our channel partners. HTC is obviously our most significant channel partner, but we also have other channel partners focused on North America and The Middle East who are generating good revenue for us at the moment. And that flows down into software license sales from our direct b to b and then revenue share from our indirect channel partner sales. So talk a little bit about one of our partners, which would be HTC. So HTC were so impressed with the event that we held for them, not this March, but the March previous.

8:11 They wanted to invest in the company. They took a a quite significant stake. They took a 20% stakeholding in the business, and they also asked us to sign up commercial terms for the release of ENGAGE Insight China. We released ENGAGE Insight China at the tail end of last year, the start of start of this year, and we've been waiting for, HTC to put a big marketing and sales push on it. That's only just beginning now

8:32 with the release of their new headset, the VIVE Focus three, which is totally focused on enterprise and education, sales. But they also announced quite recently a partnership with HP where ENGAGE will be a preinstall on HP laptops sold within the China region. So there's a lot of excitement, obviously, and we hope to see revenues building from this partnership at the end of this year and very much early into next year.

8:58 So just to talk a little bit more about the growth opportunity. So ENGAGE and what we've been selling up to now has been again, it's it's been a tool for businesses to communicate internally or maybe to have some sales training insights. So it really is within their own corporation where they'll buy multiple user accounts and use that internally. What we're talking about next is an evolution of ENGAGE. We're calling it ENGAGE OASIS, where we're gonna be selling these meta worlds, these always on locations, which businesses can brand to their own needs and use it any way that they see fit. So I'm gonna play a short video first, and and then we'll get more into presentation. In our short history, the ENGAGE platform has become a trusted partner to some of the world's biggest brands and organizations.

9:48 Having recently signed its one hundredth commercial client, ENGAGE is rapidly becoming a leader in XR events and communications. We are about to embark on a new journey, one where businesses connect directly with their employees, their customers, and with one another. A journey where the impossible is made possible.

10:18 A metaverse where business is mixed with pleasure and controlled by the professionals who utilize the platform.

10:29 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 space and invite work colleagues and friends over. Furnish your space using in world items or upload your own three d objects or purchase new items via the marketplace.

11:14 Utilize always on spatial locations for employee training and group meetings. Register for your own virtual segment and connect with businesses, educational institutions, and professionals from all around the world. Secure NFT support for unique digital assets and locations, providing a robust ecosystem for creatives to work directly with corporations. 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.

12:11 Okay. Welcome back. I hope you liked that short video presentation. ENGAGE, really, with this metaverse is gonna be a tool for corporations and businesses and brands to have their own version of the metaverse, and meta world is what we're gonna be selling. They can control everything that happens inside this meta world. They can sell products directly to their customers. They can sell tickets for events. And each time a transaction happens in this ENGAGE Oasis, we will be taking a short commission on all those transactions. So is now the right time for a metaverse? So you can see actually, on this slide here, these are just four examples that we've seen. So we've seen a lot of news about metaverse, whereas over the past few weeks from Facebook and other companies. But the very top one there you can see, which is Rec Room, that's the first VR software company to get a billion dollar valuation.

12:57 Now they are, designed for kids where kids go in, and they can go and they can have paintball sessions against each other. They can go and do tasks as well. And then the kids inside will go and they'll buy digital items like T shirts and items that they can use with their avatar. Roblox, you might have heard of that one, listed on the stock exchange over in The US quite recently with a $41,000,000,000 valuation. Again, started off as a as a place

13:22 for kids to go in and do tasks and go explore and buy small digital items, and each of the kids might spend maybe 5 or $10 a year inside. Minecraft, which has been around quite a while, they generate 200,000,000 a year, again, designed for kids. You can see a team here. And then Fortnite is a is a shoot them up game on many different platforms. And the company behind Fortnite, Epic Games, they had a billion dollar funding round quite recently. But, again, all of these platforms, they're all designed for kids seven to 17 years old going in, having a a mess or play around. So if these platforms are the TikTok and the Twitter of the metaverse, we're aiming ENGAGE to be the LinkedIn of the metaverse where we've designed a platform for professionals, you know, for educators, for corporations to come in, for people to do business inside the metaverse, you know, selling services to each other, having training events, having keynote talks. That's what the ENGAGE Oasis is primarily designed for.

14:17 So how much of this we built already? So as you can tell, we're quite far advanced. We're already inside here. We're having a virtual meeting, and we already have a strong client base using the platform for Facebook and HTC and others. We reckon we're about 80% there, maybe a little bit over with all the features that we've built up already. But some of the key things that we're currently working on right now is the development of the marketplace so people can sell their own items inside the platform and a friend system as well. And we are going to support NFTs as well. So you've seen a lot of news about NFTs being sold for for crazy amounts of money. We are gonna support that within the platform, but we have some ideas as well where we can really expand the NFT creation base using not just art creations, but actually using digital recordings and animations as well.

15:02 Now I'm gonna pass over to Seamus. Thanks, Dave.

15:08 So just looking at our interim results in a little bit more detail. So as you can see, revenue, which I already highlighted, has grown significantly period on period. Revenue at is 1,250,000 to the end of June compared to just shy of $700,000 in the prior year, which is 83% growth year on year. But I think the most important point to highlight is our ENGAGE revenue growth. ENGAGE revenue has grown from just over 200,000 to in excess of 900,000 period on period, in excess of 300 percent growth. That's fed down into our gross margin percentage, which has grown from 70% to 80%, that we have a higher gross margin on our ENGAGE revenue. Then finally, just our cash and cash equivalents has grown from just over 3,000,000 at this end of June last year to in excess of 9,000,000 at the end of June this year. And that reflects our oversubscribed placing, which happened at the back end of the period.

16:07 So just looking at the income statement in a little bit more detail, I won't recap on what I've already discussed. But just looking at our operating expenditure, you can see our admin expenses have grown period on period, just shy of $2,300,000 in the first six months of the year. That reflects the continued expansion of the team and the expenses related to that. Our EBITDA loss has to

16:30 just over $950,000 period on period, and that leaves us with a total loss for the period of 1.2 compared to 1,100,000 in the prior period. Just looking briefly at the balance sheet, there's nothing hugely exciting to cash labor and asset intensive company. Our developers only require developer laptop and a headset. So all nearly all of our assets

17:02 our fixed assets are intangible assets in relation to the development of the ENGAGE platform and our showcase experience previously. The decline in that reflects the amortization of those assets in the period. Trade and other debtors have grown, have doubled period on period, which reflects obviously an increase in activity. All of our trade debtors have been fully received post period end, and we've actually never to date had a bad debt, which I hope continues. We've already touched on cash. And on the bottom half of the balance sheet and the equity and liability stage,

17:32 we can see that trade and other payables have grown from just shy of 200,000 to in excess of 300,000, which just purely reflects increased activity within the company. So then just to wrap up on the finances, just a quick walk through the cash flow statement. The total loss coming forward from the income statement of EUR 1,300,000. As I mentioned, we don't spend a huge amount on fixed assets, so 35,000 of of laptop spend and developer headset spend in the period. The net proceeds from the from our fundraise was 8,500,000. Other noncash items, which is mainly amortization of the intangible, was 333,000, and we've working capital movement of 297,000 in the period, bringing us to a total cash balance at the end of the period of 9,200,000.

18:22 So that's primarily an overview of the interim results and an overview of the metaverse from Dave. So right now, we'd be happy to take any questions that you may have, and we'll go through them in the Zoom platform. Thank you. Thanks, Jeff.

18:37 That's fantastic. David Seamus, thank you indeed for the presentation. Ladies and gentlemen, do please continue to submit your questions using the q and a tab situated in the top right hand corner of your screen. But just while the company take a few moments to review those questions submitted already, I'd like to remind you that a recording of the presentation along with a copy of the slides will be available on the Investor Meet company platform. I'd also like to remind you that your feedback is important to the company. And immediately after the presentation has ended, you'll be redirected to the opportunity to provide your feedback in order that the team can better understand your views and expectations. David Seamus, perhaps before we go into the live Q and A, we have a number of pre submitted questions. If I may just read the first one, and it reads as follows. There have been reports of the Chinese Communist Party's move to ban companies from making profits from education.

19:23 Does this impact directly or indirectly any of the income you anticipate to receive from your partnership with HTC? It it doesn't really engage. It's actually classed as a communications platform, and we're we're very much gone past just the education stage. So everybody knows us as the ENGAGE team. So the majority of our revenue that come in are actually from corporate events, corporate communications. We do have some education revenue coming in, but we haven't had education revenue coming from China, but we have in the rest of the world. So it won't affect us greatly because we haven't had those revenues in the past from China. Fantastic. Thank you. Next one really just follows. There's been quite a bit of reporting on Facebook working to produce a VR metaverse that presumes you'd be a direct competition to the planned ENGAGE Oasis.

20:10 Facebook can obviously lay their hands on more resources. Do you feel you can compete against them? Or is this

20:15 something that's distinctly different? This is very distinctly different. It's very telling that Facebook are an actual client of ours, and they use ENGAGE for their client facing professional events. They don't use their own platform. The platform that they've created, which is called Facebook Horizons, is really aimed at kids, you know, kids between the ages of seven to 17. They go in in a very cartoon y style, and it's a fantastic platform. But very, very quickly, when you're inside, you're gonna be standing next to a 12 year old and probably screaming abuse at you. It's the same as Fortnite, Minecraft, Oddspace, VR chat. They're all really designed for kids, and some brands do engage with those platforms. But, really, we're building a platform where the brands and the corporations control what happens inside.

21:00 So it's a safe environment. You know? So you're not gonna be standing there next to a bunch of kids. You're actually gonna be in there with professionals, and it's very, very conducive to business. And they can have a full branded experience where those other platforms are really a a free for all. Fantastic. Thank you very much indeed. And the final pre submitted question we have here is, should FIO Education set off its peripheral activities to concentrate and engage and change its name by dropping education? So just in terms of that, our peripheral activities, we still generate revenue from our showcase experiences, Apollo 11, Titanic Shuttle Commander. They don't require any any maintenance from us or any input from us, so I don't think it would be, you know, wise for us to to sell off that aspect of it. It isn't our core focus.

21:45 We aren't planning on developing new new releases in that regard because the significant growth of the platform is all within ENGAGE. In terms of the name change, it is actually something that's on our radar, and we should expect to see an RNS in relation to that in the coming weeks. That's fantastic. That concludes the presubmitted questions. Perhaps I could just hand back to you, Seamus, if there's anything from the live q and a that you could take. Yeah. Of course. Yeah. So I have a question from Simon here. How competitive is the sales process into corporates, and why are they choosing you? I might leave that to you, Dave. Yeah. So it's I think we're kinda unique in especially early stage companies in getting access to decision makers.

22:33 So quite often what happens is a lot of these corporations are looking to host events, and they want to use something a bit different to video. So they're they're finding us as one of the premium virtual events platforms. And when we go inside and when we're training up the organizations, it's their CEOs, CTOs, their c level executives are the people who are standing up on these virtual stages, give them talks, and we have to go in and train them. So post successful events, we then have a unique opportunity because we're we're talking to the c level executives to actually upsell them on different services within the platform. You know? So they're using it for remote team collaboration. They're using it for sales training. They're using it for onboarding as well. So we very much cut through a lot of red tape, and that's why we have so many quality triple a companies working with us. You know, we have named a few in the past. Like, I've said, HCC and Huawei as an example, but we have some very large Bluetooth companies working with with us, which is fantastic.

23:34 And then just a a second part to that question that I can look after is just can you break down the revenue you make per event and from the different sales lines? So from the event side of the house, you could see in the split of our revenue, we made 20% of our ENGAGE revenue from events in the first half of the year. Events are very bespoke in their nature, and they're priced on a on a sort of an event by event basis. Like, they they range anywhere from €10,000 up to over a €100,000 depending on nature of the event. So it's very hard to give an you know, a definite indication on that. And then from on the license side of things, our enterprise and higher education licenses are €300 per person per year. So that's how that feeds through. Then so Andy has asked what industries are you seeing the most reaction in? So initially, Andy, we were seeing probably the most traction in sort of professional services and other sort of technology companies. But in the last six months, we've seen a growing interest from from other nontechnological areas. We're seeing large pull in the manufacturing area in the last six months. We've had an announcement that we've obviously done some significant work with a huge manufacturing company.

24:53 Unfortunately, we're not allowed to name them under NDA and also another large conglomerate based in The UK. So then James is just asking, is the market getting harder to attract high caliber developers? How are you managing? So I think the the great thing about our industry, it's a it's a very sexy industry that developers want to work in. It is very difficult for a lot of companies to get developers, you know, especially in financial processing and standard stuff that people would have seen in the past where it's for virtual and augmented reality. There's a lot of draw to that industry. And because we have all our workers working inside virtual reality remotely, you know, we're not limited then by, you know, location either. So we've been pretty lucky. We've hired about 25 people in the last in the last four months. You know, we're gonna be about a 100 staff before the end of the year.

25:50 So the hiring has been pretty, pretty good for us. We are going to be announcing some senior commercial hires as well quite soon that I think people will be surprised about. Thanks, Dave. So then Michael asks, does the company have enough cash to fund our growth plans over the next few years, or will further capital raises be required? Michael, in relation to that, we our oversubscribed funding in the latter part of the first half of the year, that we do view that as sufficient to bring us to cash breakeven in the forecast that were released via our brokers and that I'll be adding to our website later today. They do predict, breakeven and return to profitability in late twenty twenty three, early twenty twenty four.

26:37 Obviously, if a significant opportunity arises over the short or medium term, it's not to say that we wouldn't consider it. But from an operation perspective, as things stand, we are sufficiently funded for the foreseeable future. So then Whale is just asking, with the recent focus on ENGAGE Oasis, do you anticipate any significant costs on the current ENGAGE triple play? So in relation to that, the OASIS is more an evolution of the existing ENGAGE offering of virtual office, virtual campus, and virtual events. There is obviously development costs in there, you know, around making the marketplace, around the NFTs that Dave mentioned in the presentation.

27:23 But the marketplace was already on a road map for the standard Engage offering, so it's just an evolution of what's already there. So I don't foresee significant additional costs. We've a very strong technical team at the moment already hired, and it will be that team that will deliver on the Oasis. Graham is just asking, when can we expect to have a detailed update on the ENGAGE China launch? So in relation to that, we already like, we've already provided the the full Chinese version of ENGAGE to HTC. They recently, in the last couple of months, launched their VIVE Focus three headset, and we are bundled on that as we mentioned in the in the presentation. We would hope that we are currently talking with a number of large corporate and telco customers in China with HTC, and we'd hope to have an announcement that we can make on that in the near future when those deals come to fruition.

28:27 So with the whale, just a follow on question. With the increase in publicity in virtual reality and metaverses, would you expect a significant uplift in your medium term revenue goals? So, as I mentioned, we've just released revised projections via our brokers, and those projections are factored on our three main offerings as it stands. They don't have any significant uplift in for the the metaverse that is coming. So there is a possibility for uplift, but we're being prudent in our expectations and what we've put out to the marketplace. So, David, I think you've pretty much covered all the questions you can. Just if there's anything else that does fall through, please do chat just to pick that up.

29:14 Otherwise, all the questions are submitted today. You will be able to review and post responses where appropriate to do so. Perhaps if there isn't anything further, David, if I may just ask you just for a few final words or if are there any questions you want to pick up, please let me know. Yeah. I think things are starting to get really exciting now. I know when we listed on the stock exchange three years ago, we're probably a little bit early, but the market is certainly starting to come to us. And a lot of companies are talking about the metaverse, but in reality, we've been building a metaverse over the last four years, and and it's only now that investors start to see their promise in it and companies start to see the promise in it. Nearly every startup that I see popping up is metaverse this and metaverse that, whereas we already have had a foothold in this industry for a few years with over a 130 blue chip companies using us.

30:03 Expect to see news coming out rapidly with launch partners on the ENGAGE Oasis. And I think there's a massive opportunity, especially as we're the only virtual reality social platform available in China. There's a massive opportunity there. You know? I think I think it's it's certainly an exciting time for the business, and we're way past just education now. The majority, as I said, of our of our revenue is coming in from from enterprise clients and events, you know, so it's it's gonna be an interesting six months to say at least. Fantastic note to end on. David, Seamus, thanks very much indeed for updating investors today. Can I please ask investors not to close the session as you'll be automatically redirected for the opportunity to provide your feedback in order that the management team can better understand your views and expectations?

30:52 This will only take a few moments to complete and is greatly valued by the company. So on behalf of the management team of VR Education Holdings PLC, we'd like to thank you very much for attending today's presentation. That concludes today's session. Thank you, and good morning. Thank you.