Earnings Call: Q1 2021

Apr 28, 2021

Quarterly report

Hi, and welcome everyone to join us here at XM Reality, where we will go through our latest interim report. I'm here with Jorgen Emmelg, CEO of XM Reality. Good morning and welcome. And I'm here with Karleen Palm. Karleen is our newest addition to the marketing department at XM Reality. So normally, you see Johanna Edepiel. She is on the turnkey. She will come back early next year. And until then, Karleen will be her stand in. So a day to day basis, you're mainly working our marketing inbound campaigns, right? So tell us just a few words where you come from. Yes, previously I worked at renewable energy company at the marketing department, and I'm very excited to be joining XM Reality's marketing department. As mentioned in our newly released Q1 report, we see that ARR increased by 95%, our net sales increase by 68% and costs only increased by 16%. How do you feel about these numbers? Well, I'm happy with the annual recurring revenue growth of 95%. I think that's a strong number. But here, I'm not only satisfied with the numbers itself, but also the content because it's a mix of new customers and also old customers or existing customers that is scaling up, Which I think is important for us. If we move to the net sales 6% to 8%, well, I would have expected a bit more here or wanted a bit more. It's still within the reasonable range, I believe. We have the quarterly variance. If we move to the cost side, well, 16% follows roughly our plan. We have a good scalability situation. However, we still need to add headcount on the marketing and sales Obviously, to push the top line. So that's as per expectations, I would say. Order intake. Well, I would like to see more than the 26% growth. However, we have some quarterly variances that we have difficulties to control fully on our side. It's about the customers as well. We have a couple of big ones here that was push to the right. So hopefully they will arrive in Q2. What I would like to say though on the order intake is We have quite some proof of concepts, more than a dozen that we talked about in the quarterly report, but at least a dozen which are reasonably sized companies, which have the obvious and clear possibility To turn this now into a healthy software subscription model or contracts for us With automatic renewal. So I think although the order intake could have been higher, I do think that we have a very healthy number of proof of concepts that were started within the quarter. As mentioned in the report, we are happy to add another business to the the Well, I can say a few words about the vertical in general first. So this is a prioritized vertical for us. It's strong in terms of significantly sustainable number of big customers. At least the food side is also a vertical that does not suffer as much from the COVID-nineteen situation. And it's also strongly linked to another Sister vertical where we are strong, which is the packaging one. So this becomes an ecosystem for us and the prioritized area. So now having 4th big company in our customer pool here is really good for us and follows clearly our strategic direction. And you mentioned that some of our larger customers add licenses to their subscriptions, such as Nestlea, ABB, IMI and Cytiva. Does this increase the stickiness of XM Reality within those companies? Yes, I guess in general, it does, right. The more they buy, the more the stickiness increases. And we also have a branding bought By ABB this time, that's also increasing the stickiness more for us. And for sure, as you read In the interim report, we will focus more on, we call it, net retention, but that entails also the up sales, cross sales, minimize contraction and minimize churn of the existing customer base. So it's good to see that these big customers are actually increasing their usage and increasing the number of licenses. So that's good for us. If we touch a little bit on business development and the evolution, are there any partners or new verticals that you would like to share with us? Sure, sure. I mean on the partnership side, we have struggled with some of the partners in the past. I would say if we look on the ones we do have at the moment, there is one shining example that really works well, which is NTT in Japan, where we do multiply our sales channels into additional sales channels. In this case, it's also hitting or targeting bigger customers. So We are in discussion with a couple of similar companies, 1 in Asia and 1 in North America, with a similar taste, if you would like, as entity. I think that's good. Okay, new vertical or new verticals. I think we are Continuously getting stronger on the medtech side, on the medical side. I mean, we have Alpha Sigma, okay, that's Alpha Sigma is pharmaceutical production. Then we have Baxter as a big customer, Cytiva as well, which It's all GE Healthcare and some additional ones in discussion. So I think, yes, MedTech is an example a vertical or a semi new vertical for us, which we will target going forward. We continue to see strong growth within the AR market. Is there anything in the surrounding environment worth mentioning? I mean, this is a market in continuous evolution, right? We're seeing the general usage all over the globe, I should say, increasing and its consolidations ongoing also all the time. What has happened in the last quarter? Well, I come to think about 2 events. The first one being TeamViewer acquiring Upskill. Upskill may not be a direct competitor to us, but it's, let's say, in the closed marketplace, I would say, so consolidation. And I think the other one that stands out is the U. S. Army buying 120,000 pair of HoloLens Smart Glasses from Microsoft. So it's also I think a trend of our technology being employed in different areas. So I think Two strong examples from Q1 2021. The new share issue is now done, and we took in SEK 56 SEK 1,000,000 to the company aiming to increase the top line. Have we put this money to good use yet? Yes, we have at least some of it. So I mean, what have we done? Well, we have launched a customer experience team with a purpose To increase usage of our existing customer base. If we increase usage, we will soon sell new licenses and also minimize the risk of or any churn. So that's one thing. It will soon be formally launched, but internally, we have it up and running at the moment. So that's good. We have also increased the resources on the sales side, so meaning more enterprise sales. We have lots of inquiries and so we need and have the ability to increase the manpower here. And that in turn means also that we need a little bit more marketing power. So that is in place. And we are also looking at certifying our development up to a bit higher standards because that's also something we see our bigger customers requiring. So that is also ongoing. And we're also looking into 20 fourseven support, which we believe that the market or at least the big customers, which would like to see us and are moving us now into business critical operations would not require, but would like to see. So that's so far. So if I understand you correctly, we are really focusing on the customer here with the expansion of the sales team and the launch of a customer experience team. Is that correct? Yes, it's correct. So I mean, we have a good situation at the moment. We have lots of inquiries. We have a global market, which is moving in a good direction. We have a strong cash position to act on the good ideas. So I think It's looking good for us and we will just push forward now. Yes. We have a lot of exciting things to look forward to. And with that said, we would like to thank you for watching, and we'll be back with you after next interim report. Yeah. So thank you, and bye. Thank you.