Immotion Group (AIM:IMMO.L), the UK-based immersive virtual reality (“VR”) out-of-home entertainment business, is pleased to announce its preliminary results for the year ended 31 December 2019. The full announcement can be found here. A summary and highlights are detailed below.
26 June 2020
Financial Highlights – 2019
- Total revenue £3,624,000 (£3,606,000 of which from continuing operations)
- Revenue from VR Operations increased 221% to £2,932,000
- H2 VR revenue increased to £1,785,000 (H1: £1,147,000)
- Total underlying EBITDA loss from continuing operations £2,458,000 – in line with expectations
- Total underlying loss before tax £4,443,0001
- Total underlying loss per share 1.72p1
2019 Operational Highlights
- Focus on profitable Partner model driving growth
- Partner model gained significant traction
- Partnership deals with top quality high footfall sites including Merlin, Shedd Aquarium and Mandalay Bay
- Partner installed base increased four-fold to 185 headsets (2018: 46)
- Overall partner estate performed well (average revenue per Headset £303)
- Aquarium segment performed strongly (average revenue per headset £476)
- IVR estate traded well through the year
Post Period End Highlights
- Two placings raised an aggregate of £4.0m (net of expenses) completed on 10th February 2020 and 27th May 2020 respectively
- Landmark Partnership announced with MGM Resorts
- Aquarium performance remained strong
- Visibility to 454 headsets (based on installs and contracts concluded)
- Further product development to open up new target sectors
- Monthly EBITDA breakeven was in sight prior to COVID-19 lockdown
1 before impairment charges, restructuring costs and share based payments
Recent events have, of course, been dominated by COVID-19 and we, like many businesses, have been very heavily impacted. Whilst we are seeing some early signs of the economies in the USA and Europe re-opening, it will take some time to understand the impact of the new realities, including social distancing requirements, on our Partners’ operations in particular. We expect the disruption will continue well into 2021, with gradual improvement, and we have endeavoured to equip ourselves for this challenging period by strengthening our balance sheet, protecting cash, reducing costs and seeking all available Government support.
The totally unexpected pandemic should not overshadow the achievements of 2019, a year of considerable progress for Immotion. Our business had begun to develop scale and, having invested heavily in proprietary content, software development and installations into Partner sites, profitability and positive operating cashflow were in clear sight.
Having clarified our strategy for this new and exciting market, we were focused on execution. We saw considerable success in winning new high-quality aquarium partners in both the USA and Europe and saw a strong performance from this cohort. This was a major endorsement of our offering. There is still considerable opportunity for growth in this segment and the lessons learned will be applied to a number of new sectors which we believe share common features once normal trading conditions return.
Given the nascent nature of our market, it is likely that we will evolve and refine our offering further seeking to become a more integral part of our Partners’ offering where possible.
Despite the uncertainties being caused by COVID-19, we are confident that we have passed the ‘forming and storming’ phase of our development and, once normal trading conditions return, are set for profitable growth and establishing ourselves as a market leader in out of home immersive ‘edutainment’ solutions.
We have taken the steps as described above to help us navigate through this crisis so that we can then capitalise on the progress we have made to date when some degree of normality returns.
Chief Executive’s Report
2019 was a year of intense activity for the Group and our first full year as a listed company. It was only our second full year of trading, since the creation of the Group in December 2017.
As we have learned more about our nascent marketplace, we have adjusted our strategy accordingly. We have focused fully on growing our Partnership model, where we see significant opportunity for our immersive ‘edutainment’ experiences, that fit with high traffic destinations, operated by established sector participants. We believe there is a huge opportunity on a global basis across aquariums, zoos, science centres, museums and other selected high traffic entertainment destinations.
Our decision to focus was fully vindicated by progress up to the COVID-19 lockdown. Our Partner offering gained significant traction in the USA and Europe and revenue grew strongly. Our ImmotionVR sites also traded well, though we do not intend to grow this part of our business due to the significantly greater returns seen from our Partner estate.
We ended 2019 with 303 installed headsets, almost doubling our installed base year on year from 158. The growth was driven by Partner installations, which increased from 46 to 185 at year end. At the time of writing we have an installed base of 332 headsets (234 Partner and 98 ImmotionVR), with a further 122 Partner headsets contracted, giving visibility through to 454 headsets.
Based on expected performance in normal pre COVID-19 trading conditions, this portfolio would, fully installed, have delivered monthly EBITDA profit and positive operating cashflow based on our cash operating costs pre COVID-19.
We would expect that in the coming months we will install the contracted headsets (including 36 at Mandalay Bay) but much will depend on the rate of Partner site re-openings, footfall levels, social distancing requirements and the overall level of public confidence as lockdowns are lifted.
Our Partner estate has grown from 46 headsets at the close of 2018 to 185 at year end 2019 and would reach 356 with the benefit of contracted but not yet installed headsets.
We were pleased with the performance of our Partner estate in 2019 and in particular the aquarium sites. Aquariums have performed consistently strongly with average weekly gross revenue per headset of £476 in the full year, versus £303 average for the overall Partner estate in 2019.
Given the nature of our pipeline of new sites, we expect to see the overall representation of the aquarium sector grow strongly. These sites outperform other partner sites and we would expect that this in normal circumstances would boost significantly the overall average weekly revenue per headset for our Partner estate.
We have secured Partnerships with many top leisure groups and leading aquariums in both Europe and the USA with the following being particularly noteworthy: Merlin Entertainments, MGM Resorts and Shedd Aquarium. We believe this is a testament to the attraction of our Partner proposition.
Our initial offering to Partners was based on a small footprint, typically two to six headsets and we looked at a range of sectors, including more broadly-based entertainment venues. Led by results, we have focused on the sectors above and have aimed to develop VR experiences that are a good fit with Partners’ offerings (e.g. our Shark Dive and Swimming with Humpbacks experiences, targeted at aquariums). This has allowed us to narrow the range of content being produced and better focus our content creation team. We have also developed theming and branding alongside our hardware to better communicate with potential audiences and ultimately to drive revenues.
We believe that the evidence from the aquarium sector suggests that a focused offering for high traffic ‘edutainment’ verticals will provide superior performance to more general leisure entertainment sites for the following reasons:
– Natural fit with Partner core offering
– Lack of competing products at Partner venue
– Less “wear out” factor for content as visits to these types of venue are relatively infrequent
Accordingly, whilst we continue to seek further substantial growth opportunities in the aquarium sector, we are developing new products aimed at other global sectors which share similar characteristics with aquariums. For example, our new dinosaur experience will allow us to target zoos, science centres and museums.
With the larger installations, the aim is to become more of an integral part of the location rather than just a smaller ancillary offering. Sea Life London exemplifies a more integrated offering in a space constrained environment, with additional theming it is a more natural element of the visitor journey. Mandalay Bay is the exemplar of what can be done on a much larger scale, when space permits, allowing a full pre-show area, with interactive and immersive educational and fun exhibits.
We believe that these types of attractions will have much more impact on visitors and allow much larger numbers of visitors to enjoy the attraction, particularly during seasonal peaks, such as school and summer holidays. The focus will be on blue chip, high traffic Partners, where possible seeking longer deal terms and ‘share of gate’ revenues (akin to Mandalay Bay), which will drive quality of earnings and mitigate risk.
Post Period End Activity & Outlook
Following the equity fundraise of £2.85m in February 2020, the Company was extremely well poised, not only with its honed business model, but also with the imminent installation and expected April 2020 opening of its large format installation into MGM Resort’s Mandalay Bay aquarium in Las Vegas. Together with other contracted installs then on hand, we expected to reach EBITDA breakeven in April 2020 and achieve positive operating cash flow shortly thereafter.
However, during March 2020, and as a direct result of the COVID-19 pandemic, the vast majority of the Company’s Partner sites and all of our own ImmotionVR sites closed, following local and national government-imposed lockdowns. This has resulted in the Group having no revenue. At the time of writing, it appears that many sites will remain closed until at least 30 June 2020 and revenue through to 30 June will be zero or minimal.
In addition to the impact on existing Partner and ImmotionVR sites, the Company was unable to complete the major installation at Mandalay Bay (36 headsets) which was well underway before lockdown. Additionally, we were unable to install into a number of other contracted Partner sites (in addition to Mandalay Bay, the Company has a further 86 headsets contracted).
Beyond the contracted installs noted, we intend to invest very selectively for the remainder of 2020 unless a more rapid recovery emerges.
We remain optimistic about our growth prospects once more normal trading conditions return and we believe that potential Partners will continue to find our proposition compelling, particularly as many may be capital constrained and looking to re-build revenues. As we come out of lockdown and enter the recovery phase, we will continue marketing to prospective new Partners, particularly in the aquarium sector in both the USA and Europe. We will be cautious as to entering new Partnerships, being led by the extent of the wider recovery, as well as the quality of opportunity and commercial terms that can be struck.
Whilst in lockdown, we have taken the opportunity to review our recommended cleaning procedures and we are testing a new UV cleaning unit that could be used to achieve rapid sterilisation of headsets at Partner venues. Despite our view that family groups tend to go on our motion platforms together (as they are in clusters of 2-4 seats), we will also be working with Partners on any local social distancing requirements.
We have also undertaken a broad range of actions to manage the cost base and cash flow in light of the COVID-19 pandemic including pay cuts for the majority of staff, furloughing staff and applications for the various government subsidies available. As a result, total monthly central cash operating costs, including certain costs normally capitalised have been reduced to circa £200,000 from circa £310,000.
In the USA, the Company has received a loan of $161,000 under the Paycheck Protection Program, some or all of which should be forgiven, with any remainder subject to a nominal interest rate and repayable over two years. We have also applied for a loan under the USA’s Economic Injury Disaster Loan programme.
In the UK, we have been receiving the furlough grant in respect of those employees furloughed. We are also pursuing a loan through the government’s Coronavirus Business Interruption Loan Schemes.
We will continue to review all operating costs on an ongoing basis so that we can if necessary, flex the total operating costs to activity and revenue levels.
The Company also strengthened its balance sheet by undertaking a further equity fundraise, completed in late May, which raised £1.35m gross. This puts us in a stronger position to ride out the economic storm resulting from the COVID-19 pandemic.
The period since mid-March has been extremely challenging and we expect continued disruption for some time to come. We will remain focused on costs and working with key partners as the recovery takes hold. We believe we have built the foundations of a valuable business and we will do all we can to emerge from the other side of the current crisis.