Immotion Group Q&A: In a very good position for building growth (LON:IMMO)

Immotion Group

Immotion Group plc (LON:IMMO) Chief Executive Officer Martin Higginson caught up with DirectorsTalk for an exclusive interview to discuss reaching EBITDA profitability, moving to larger theatre-type installs, the appetite for new locations, expectation for revenues & profits and whether it’s good time to invest in the company.

Q1: I know the pre-pandemic, Immotion Group were poised to move into profitability but you must be very pleased to have done it so quickly now following the easing of lockdown restrictions?

A1
: Yes, we are extremely pleased to be in this position, it’s been a tough old 14/16 months for us and the business and everybody involved at the company. So, to actually reach EBITDA profitability is a key milestone for the business and something that we were on the brink of moving into last year.

I think, as I said in the statement, what the pandemic has taught us is a lot of different things, we’ve definitely come out of it leaner, meaner, and fitter as a business. I think moving into EBITDA profitability, both in May and significantly in June is, as I said, a key milestone and it just really starts setting the foundations for the way forward.

Q2: I see that you moved to larger theatre-type installs, can you talk us through the logic of this?

A2: Last year, we installed a big theatre installation at Mandalay Bay which is part of the MGM Resorts operation in Las Vegas and that has gone down really, really successfully. Even during the pandemic, as we’ve started to see things open, we’ve really started to see that blossom.

Recently, the last probably eight weeks, we installed a 22 seat theatre-style installation with pre-show at Clearwater Aquarium in Florida in the USA, and that’s performed exceptionally well, far better than I think we anticipated and even the partners anticipated.

So, that’s really given us the confidence to do what we always really intended to do, which was instal larger theatre-style immersive theatre, complete with pre-show. What I mean by the pre-show is, we have a number of interactive areas ranging from little booths where you can take selfies of yourself in a shark cage, to sounds of the sea, which is whale songs, to the anatomy of sharks and whales. So it gives people, while they’re waiting, something to interact with completely immersive and obviously, the pinnacle of the show is the VR movie in itself so you’ve got a 6 minute movie.

I think for our partners, it means we become an integral part of the faculty and I think that’s really helped us increase revenues, increase throughput, increase utilisation and I think we’re now starting to say that this is the way forward.

One of the things our team did last year is we actually worked out how to sync a whole bunch of headsets so 60/70 headsets together through one computer so that’s allowed us to remove computers from each motion platform and operate them through one centralised computer. So, that means we’ve reduced cost of the installation and therefore it’s much more economically viable for us to do these larger installs.

Q3: What’s the appetite for new locations for your offering? You gave a hint in your statement to new sign-ups so do you expect more this year?

A3: Yes, we certainly expect to do it a few more this year.

We’ve had a lot of inbound inquiries and I think it’s about being selective in the ones that we choose. We’re certainly looking for sites with good foot fall and I think the big difference with the larger installs is i) we need to look for space, ii) we need to look for partners that want to work with us on this and that have got plenty of football.

If we’ve got the footfall, then we know that a decent percentage of those will go and do the VR experience so it’ll be profitable for them and profitable for us. The 50/50 arrangement that we have in place with our partners really works, it means they’re committed, we’re committed, minimal staff levels for a large theatre so it’s highly profitable for them and for us and I think it really, really works.

Obviously, the pandemic has really focused the minds of a lot of aquariums and now, as we move into zoos too because they’ve had a real tough time over the last 14/16 months, they’ve had little or no revenue coming through the door. So, we can actually offer a great new revenue source, a great new source of entertainment, and a new attraction for some of these faculties as well really underpinning their revenues as we move forward.

Q4: Now, I see from the statement that the LBE business has bounced back with a vengeance. So, with summer holiday season upon, do you expect revenues and profits to grow further?

A4: We achieved over £700,000 group revenue, £600,000 of that has just come from the Location Based Entertainment division so you can really see how that’s increased since March, as we’ve opened up more sites, and we started opening up some of the larger theatre-type operations. All of this is without the benefit of the summer holidays.

As we go into this week, certainly in the US, we see the kids are off school, summer holidays, July 4th is really the start of their summer season so we’re expecting a nice tick-up, certainly in the US and I think that will be followed by a good tick-up in, in the UK as well.

I think this year is very much going to be a year of staycations, both in the US and the UK, so I think we’ll get the benefit of that and hopefully we’ll start seeing some US/UK travel corridors open, which we believe will give us a very good Q4 period because I think that will become the destination of UK families as we move towards Christmas for their holidays.

Q5: Just looking to the other side of your business, you sold a lot of Let’s Explore packs last Christmas, do you expect the pattern to be repeated this Christmas?

A5: Yes, last year was really about scrambling this thing together, we needed to produce something, we were in the middle of the pandemic, we used a lot of the assets that we had and we produced the Let’s Explore pack.

What we’ve managed to do this year is source product better, get it produced in China and make sure the supply chain is much smoother and that’s helped us significantly reduce the cost of goods and improve margin.

What we’re now looking forward to this Christmas is really planned and structured sale and obviously, the difference between this year and last year, last year we were only in the UK, we sold 11,000 units in the UK this year. This year, we’re in the US and Canada, Australia, South Africa, Singapore, and a number of other territories around the world and we’re in Amazon in the UK and the US and Canada.

So I think, yes, we’re looking forward with confidence to Q4 period and it’s very clear that that that is what drives intent. So, with a heightened intent, our cost of acquiring a customer reduces and therefore our margins increase so there’s a lot of focus on the Q4 period for Let’s Explore team.

Q6: You mentioned that you’ve got the CE certification for your clean room product from UVisan, what are your sales expectations for this product?

A6: Well, getting the CE certification is a key driver in actually us being able to sell Cleanroom so now we’ve got that we can start sort of offering it out to customers. We’ve got a number of interested parties, some large, some small, we’ve also got a number of distributors that are talking to us about wanting exclusivity in certain territories.

So, it’s still early days, but we’re very, very hopeful and the good thing with UVisan really is i) it’s solved a problem for us in terms of how do we cleanse headsets and ii) it actually allowed us to develop a business and start generating cash at a time when the generation of cash was important.

What we’ve also managed to end up with is an accidental business really, we’ve got something that customers outside of the company want this, it’s now generating solid contribution each month and we think that can increase over the coming months.

So, we’re very pleased with what we’ve ended up with and, as I said, it’s become an accidental hero but a very welcomed one all the same.

Q7: So all in all, you must be very pleased with the progress that you’ve made and with the move to EBITDA profitability. With the business now generating cash, do you think that it’s a good time to invest in Immotion Group?

A7: We’ve got cash in the bank, we’ve got machines that are bought and paid for, we’ve got headsets of which the vast majority of deposits are paid for and will be self-financing, we’ve got a good order book in front of us and we’re generating cash.

So, I think all in all, having been through, as I said, a torrid time through the pandemic, we’re now in a very, very good position and it’s now about building for growth rather than financing losses and things like that.

So, personally, I’m very pleased to have reached this milestone. I think from an investor point of view, I think now we can start developing the business and start building on those blocks to really create something that has great reach and depths of value.

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