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spk02: Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Marbella's first quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To answer the question during the session, you will need to press star 11 on your telephone. You will then hear an automatic message advising your hand is raised. Please be advised that today's conference is being recorded. I will now hand the conference over to your speaker host for today, Lana Adair. Please go ahead.
spk01: Good afternoon and welcome to Movela's first quarter 2023 earnings conference call. Today's discussion will contain forward-looking statements based on the environment as currently seen by the company's management and as such are subject to various risks and uncertainties. Actual results may differ materially. It also contains references to non-GAAP financial measures that the company believes provide useful information to its investors. The Orange released most recent annual report on the Form 10-K, and under filings with the SEC, each of which are posted on the Bella Dyer website, provide more information on the specific risk factors that could cause actual results to differ materially from management's expectations. They also provide additional information on non-GAAP financial measures, including reconciliations where appropriate to the corresponding GAAP financial measures. Guidance provided today incorporates the order trends that management has seen to date and what they believe today to be appropriate assumptions. Results are inherently unpredictable and may be materially affected by many factors, including fluctuations in foreign exchange rates, changes in global economic and geopolitical conditions, and cuts in demand and spending, including the impact of recessionary fears, world events, the rate of growth of our core markets, including the live streaming community, and other various factors detailed in the earnings relief and the company's filings with the SEC. It's not possible to accurately predict demand for goods and services, and therefore, the company's actual results could differ materially from guidance. And now, I'll turn the call over to Novello CEO, Ben Lee.
spk03: Thanks, Lana. And thank you all for joining our Q1 2023 earnings call and our first earnings call as a public company. I'm excited to update you on Mobella's progress. To begin, I'd like to touch upon a few financial highlights before our CFO, Steve Smith, walks through additional details of our first quarter financial performance. I'm pleased to share that we achieved $9.2 million revenue in Q1 of 2023, which is historically our seasonal low quarter. While first quarter revenue was 4% lower year over year, our GAAP gross margins improved by approximately 1,000 basis points, from 51% to 61% year over year. And we are expecting continued gross margin improvement throughout the fiscal year. Importantly, we have a very strong cash position. We have $62.1 million in cash and cash equivalents at the end of March. We do not anticipate a need to raise additional cash for operations ahead of turning profitable as we expect to reach break-even in Q3 of this year, and we anticipate becoming operating cash flow positive in Q4 this year. Our strong cash position allows us to provide full attention to executing the launch of new products and expanding customer use cases, which I'll discuss in more detail later. Before we share details of our most recent initiatives, I would like to provide an overview of our business for those who are newer to the Movala story. I will then highlight a few case studies and discuss our current operating environment. Movala is a global leader in digitizing movement of the human body and of automatons that mimic human movement. We digitize movement with a highly differentiated, full-stack solution that integrates sensors, visualization software, and AI cloud analytics. Movala is best known for our XSense technology. Our XSense products integrate sensors, advanced algorithms, and user-friendly software that digitize non-verbal movements of humans and automatons. We serve three core markets, entertainment, health and sports, and automation and mobility. This diversity of end markets highlights the broad application of our technology. Modala is a well-established company. with over 2,000 customers and 125 channel partners around the world and growing. Our customers include well-known brands such as Electronic Arts, Ubisoft, Marvel Studios, Netflix, Siemens, Honeywell, and the United States Olympic team. Our channel partners include global leaders such as Mouser, Digikey, and Aeroelectronics, serving the automation and mobility market, as well as our growing network of focused regional distributors, system integrators, and value added resellers that extend our sales coverage globally, particularly in the entertainment and health and sports end markets. In the entertainment market, we believe Movala is the gold standard for Hollywood quality motion capture, In the film and video game industry, Morales Xsense motion capture technology has been used to create highly realistic and immersive experiences by digitizing the movements of actors and animating them in real time. Our technology enables the lifelike movements of CGI characters and avatars that transport viewers to new and exciting worlds. Our products and technology have enabled recent blockbuster movies such as Black Panther, Avatar, and Lao Lao Crocodile, and continue to be the go-to solution for AAA video games. For example, leading game developer Ubisoft utilizes Movala's XSense motion capture suits to improve time-to-market and reduce cost of production by digitizing movements of actors during takes of live scenes and providing precise movement data for real-time recording and pre-visualization of character movement. This was highlighted by Nick Dobrovich, pre-visualization artist at Ubisoft. who provided the following quote for us. The addition of Xtend suits to our pipeline has fundamentally changed how we at Ubisoft prototype new features and pre-visualized scenes. Every week, teams from our studio are in the suits and recording data for quick integration into the engine. The Extend Suite has saved us time and money while helping us to get stronger ideas executed faster. I want to thank Nick for this great customer testimonial. In Q1, we opened the early access application window for Obscure, Mozilla's new all-in-one platform product that provides creators with user-friendly tools to deliver interactive experiences, including real-time human movements for digital avatars during live streaming sessions on well-known streaming sites such as Twitch. We are encouraged by the strong response to our obscure early access window, resulting in oversubscription by popular live streamers prior to production launch this summer. In the health and sports market, hundreds of collegiate and professional sports teams are leveraging our data analytics systems and software. Our human performance platform powers top athletes, including the U.S. Olympic team. For example, Olympians competing in indoor wall climbing at Tokyo 2020 used our XSENS body suits for training. which allow them to see their animated climb with precise data analytics that help the athletes to make adjustments to their form and improve performance time. Another use case example in health and sports is Toyota. We are proud to be a long-term partner of Toyota to improve the health, well-being, and safety of industrial athletes in automotive production lines. Movala is an integral part of Toyota's ergonomic process improvement strategy, supporting Toyota's internal health and well-being approach of maintaining and improving the physical and mental health of their staff across Toyota manufacturing divisions. Additionally, the same advanced technology used for movies and video games We are creating motion IP for top athletes. This is an exciting new frontier, enabling them to monetize their signature moves. Steve Young is a perfect example of a veteran elite athlete excited about technology. We reenacted with Steve his football career highlights in our X-Sense motion capture suit and essentially immortalized his actual movements by digitizing them. We have also recently digitized basketball all-star Jason Tatum, and other athletes have expressed strong interest. In the automation and mobility market, our sensor fusion tools are used today by top companies to sense movements of robots and automatons on land, sea, and in the air. We recently introduced the MTI320 high performance active heading tracker to the market for robots and autonomous vehicle applications. Our MTI family of high precision sensors enable more efficient movement of automatons by providing real-time orientation and stabilization data. For example, our customer Great Orange in India which supplies warehouse robots to customers over 30 countries, uses Movala MTI sensors to enable more efficient and more accurate movement of their robots in warehouse environments. Movala's technology is based on our proprietary inertial sensors, which are small, lightweight devices that can be attached to the body or to objects to capture movements in three dimensions. Movela sensors are incredibly accurate with a high sampling rate that captures even the most subtle movements. But what really sets Movela apart is our software. Movela's software is designed to be user-friendly and intuitive, allowing developers and creators to capture and analyze movement data quickly and easily. And with our powerful analytics tools, Movalis software makes it easy to turn raw movement data into actionable insights, helping users to optimize performance and improve results. Movalis full-stack product portfolio is protected by over 160 granted patents, which provides a strong competitive moat. We continue to invest in the advancement of our products and extending our technology leadership. To drive greater adoption across a variety of use case applications, we developed a mobile dot product, which is a consumerized version of our integrated system of sensors and software. We launched it at CES a few years ago with a tagline, five dots, a million dream applications. Mobile Adopt Sensors and our software development kit save developers the engineering effort of making their own sensors so that they can focus their resources on creating amazing apps. So far, our third-party developer count has grown to over 800, many of which are starting to announce exciting products. serving the health and sports market primarily. For example, Euleria has gamified physical therapy and rehab using the mobile laptop. Euleria's advanced in-clinic and in-home user-friendly products represent the significant opportunity we see for our technology to improve the quality and availability of physical therapy In addition to our existing business, we found ourselves at the epicenter of explosive new markets for digital movement applications. This includes next-gen entertainment, gaming, and live streaming markets. In addition to professional studios, a growing number of individual influencers are using our products to drive movements of the avatars for live streaming on platforms such as Twitch. We are further enabling this emerging growth market with the recent announcement of our new obscure platform for live streamers. We believe the growth of individual influencers on our obscure platform will accelerate in 2024 and beyond. As mentioned earlier, Our cash position is strong, and this gives us the flexibility to relentlessly drive innovation. We recently announced Obscure Early Access is an example of our execution. We also recently launched Movala's online shop for our homepage. We believe this offering addresses the growing new customer demand to buy online. and will lead to additional revenue growth for Movala, complementing our growing direct sales team and channel partners network. Finally, before turning to Steve, I'd like to comment on artificial intelligence and the macro environment. We see AI as an enormous growth acceleration opportunity for Movala's existing and new offerings, This is the reason we hired Vijay Nekarni, our CTO, over two years ago. Vijay was the head of AI in his two prior companies. For entertainment applications, Movela is already leveraging AI to improve our products and user experience with new features, such as dynamic calibration, which improves accuracy as the user moves. Factory calibration optimization is another example of our AI implementation, which reduces cost and increases capacity. And with additional AI enabled product enhancements in development. In health and sports, generative AI will accelerate our ability to develop and offer predictive analytics for performance, injury prevention, and recovery for both professional athletes and the everyday person. For example, ScaleFit, a Movela partner, is working on a more advanced version of ergonomics measurement system for industrial athletes. using ChatGPT to provide assessment and recommendations for workplace design and injury prevention. The AI product extension now automatically generates highly sophisticated assessment reports as well as individually adapted measures for ergonomic place design and injury prevention based on the data generated by Movela sensors. with a roadmap for identifying real-time correction for repetitive stress on the body. In this example, generative AI is used in conjunction with mobile's existing XSense integrated sensor and software systems for providing new insights and therefore bringing meaning to movement. At the end of the day, AI is a set of algorithms for data pattern recognition. And the rich data generated and aggregated by mobile sensors and software will benefit from such AI advancements. This is exactly what we originally envisioned with our company tagline, bringing meaning to movement. In terms of the economic and geopolitical backdrop, we are not isolated from challenges in recent operating environment. Our customers' rationalization of operating expenses as well as shifts in consumer spending behavior driven by inflationary pressures and ongoing layoffs are impacting our near-term forecasts. The bright spot is that we have achieved our NASDAQ listing objective of establishing a solid cash balance in our treasury. This allows us to continue to mindfully invest in new products and technologies during the current period of macro uncertainty. To summarize, Movala is a global leader in the digitization of movement and has a highly differentiated full stack platform. We are an established company with over $40 million of revenue, over 2000 customers in 2022, and an experienced management team with a track record of scaling global companies. The company has a strong cash balance and is uniquely positioned to power multiple fast-growing end markets and applications with the same foundational technology and products, leveraging our patent-rich IP portfolio. And while this is certainly a growth story, I'm most excited about our strong financial model. The business as it stands is a very capital efficient with strong high growth margins. And it's expected to reach breakeven in Q3 this year and profitability in Q4. With that, I'll turn it over to Steve now to provide an overview of our first quarter 2023 financial results.
spk06: Thanks, Ben, and thanks, everyone, for joining us for Novello's very first quarterly earnings call. I'll begin with a review of our first quarter, 2023 results, and then provide limited guidance. Throughout my remarks, I will refer to various non-GAAP measures. The reconciliation between GAAP and non-GAAP is available on our earnings press release and on our investor relations website. Because this is our Our first earnings call is a public company. Throughout my remarks, I'll share additional details of the business and walk you through how we calculate non-GAAP measures. I want to remind everyone that we went public in February of 2023. Accordingly, there are charges associated with the gold public transaction that skews some of the figures. I'll provide additional color on that as I walk through the results. First, let's begin with a high-level review of our business model. We serve three distinct markets, entertainment, health and sports, and automation and mobility. In the entertainment market, we derive our revenues from the sale of an integrated suite of sensors or hardware and right-to-use software licenses. Keep in mind that our software only operates with our sensors, and our sensors must use our software. In the health and sports market and market, we sell a very similar integrated suite of sensors and software. Plus, we have a SaaS-based athlete management system or AMS. In the automation and mobility end market, we sell sensor modules with integrated firmware embedded on the devices. In other words, there are no separate software sales currently within this market. Our global customer base is diversified. with a balanced regional and end market exposure. Our revenue includes no customers accounting for more than 5% of revenue. The geographic split for our revenue was 34% from EMEA or EMEA, 30% from the Americas, and 36% from the Asia Pacific region in the first quarter of 2023 as compared to 38% from EMEA, 27% from the Americas, and 35% from the Asia Pacific region for 2022. The entertainment end market accounted for 41% of revenue in the first quarter of 2023 and 40% of revenues in 2022. With our motion capture technology being used by top film and gaming companies such as Electronic Arts or EA, Netflix, and 20th Century Studios. Mobella's health and sports end market accounted for 33% of revenues in Q1 and 32% of revenues in 2022, with over 500 professional, semi-professional, and Division I NCAA teams using our athlete management and or movement analytics systems and software. Finally, our automation and mobility customers drove 26% of revenues in Q1 versus 28% of revenues in 2022, using our proprietary sensors in various warehouse robotics, autonomous off-road vehicles, such as smart farming equipment, and other applications. Note that the same underlying sensor fusion technology and hardware design is used across all of these industry verticals. Now we'll dig a bit deeper into the details of the first quarter 2023 results, beginning with the revenue. Net revenue for the quarter was $9.2 million, a 4% decrease compared to the same period last year and 24% sequentially. Revenue profile typically includes an element of seasonality, generally lower in the first quarter, highest in the second half of the year. The drop was mainly a result of the seasonality component plus the ongoing macro environmental dynamics Ben mentioned. earlier we generated gap gross profit of 5.6 million representing gross margin of 61 percent this compares to gap gross profit of 40.8 million in and gross margin of 51 percent in the first quarter of 2022. the increase in gross margins due to our continued focus on product cost favorable foreign exchange and generally lower post-pandemic material and component As Ben mentioned, we anticipate continued growth margin improvement throughout 2023. Non-GAAP growth margin for the quarter was 64% compared to 63% in the first quarter of last year, the change due to the same reasons mentioned in the GAAP number. Turning to the operating expenses, we remain keenly focused on investing in new products and technologies to drive top-line growth, ROI, and shareholder value. Gap operating expenses this quarter totaled $15 million, inclusive of a $4.7 million impairment of intangibles. This compares to $10.3 million in Q1-22 and $16.5 million in Q4-22. Q4 included a $7.2 million intangibles impairment charge. The Q1-20-23 impairment charge was recorded due to the share price drop experienced immediately after our NASDAQ listing, resulting in our market capitalization being less than our book value. This drop occurred on a small float for reasons that are frankly unclear. We continue working with various institutions to create an efficient market for our stock as trading restrictions lapse. Note these impairment charges are non-cash accounting entries. Sales and marketing expenses in Q1 totaled $3.5 million. essentially even with the same quarter last year and up about a million sequentially due to international employee costs. We sell our products through our direct global sales force to regional channel partners around the world. These channel partners are a network of bars, distributors, and other value-added resellers, the number of whom has more than doubled over the past 24 months and accordingly are in various stages of growth. In 22 approximately, 39% of Mobella's revenues were from channel partners, and the balance was from our internal or direct sales force. In Q1 2022 and Q1 2023, the channel partners generated 36% and 35% of revenues respectively, and our direct sales team generated the balance. R&D expenses were $2.9 million versus $3.5 million in the same period last year, consistent with our ongoing actions to contain operating expenses and drive the highest value initiatives. As Ben articulated earlier, our engineering focuses on developing new movement digitization technologies, including hardware, software, and artificial intelligence, and to bring the obscure platform market. G&A expenses total $4 million in Q1, inclusive of $500,000 of expenses associated with our NASDAQ listing in February 23 versus $3.3 million for the same period last year and $4.5 million last quarter, which included $400,000 of GoPublic expenses during that quarter. Our GAF loss from operations for the quarter was $9.4 million, including $4.7 million non-cash intangibles charge I mentioned earlier. compared to a loss of $5.5 million in the same period last year. These results were in line with our expectations as we continue to invest in our business and drive long-term growth. Gap net income attributable to common shareholders for the quarter was positive $15.5 million, or earnings of $0.51 per share. This compares to a net loss of $6.3 million, or a loss of $1.38 per share in Q1-22, and a gap net loss of $15 million or $2.41 per share in Q4 2022. The Q1 2023 GAAP NAND income includes an additional $7.9 million of expense associated with the GoPublic transaction costs, including banking, legal, accounting, and consulting fees, and also includes a non-cash Revaluation gain on the VentureLink notes and Pathfinder warrants of $31.9 million and $1.4 million, respectively. Due to the derivative nature of the VentureLink note for VLN with Francisco Partners and the Pathfinder outstanding warrants on our balance sheet, ASC 825 requires that we revalue the instruments each quarter. These revaluations are non-cash and are a result of Mobella's stock price and volatility, our market cap, and prevailing interest rates. At the risk of sounding redundant, it is important to remember that these are simply non-cash accounting entries. They do not really imply very much relative to the underlying strength of the business. Adjusted EBITDA, which excludes certain expenses such as stock compensation, amortization, depreciation, and certain one-time costs or gains like the BLN valuation adjustment was negative $3 million for the quarter compared to negative $3.1 million in the same period last year and negative 1.2 million in Q4 of 22. The Q1 2023 adjusted EBITDA amount includes approximately $500,000 of incremental public company costs that were not included in Q1 of 22. Please refer to our press release for a full description of items excluded for the purposes of adjusted EBITDA. Turning to the balance sheet, we ended the quarter with $62.1 million in cash and equivalents compared to $14.3 million at the end of last year. We are in a strong cash position due to our February 2023 NASDAQ listing, which, through a series of transactions raised $60.3 million in net proceeds, providing an ample cash runway to support our sales and marketing initiatives and R&D investments well beyond the expected Q3 2023 adjusted EBITDA break-even. Now I'd like to share a broader outlook and guidance, beginning with some color on our operating environment. While we remain excited about the traction we have across our business, we are taking what we believe is a prudently cautious stance with regards to the macro environment. Given current multiple challenges that can impact our revenue pipeline, including rising interest rates, escalations in the Ukraine conflict, high inflation, bank failures, and unprecedented layoffs in the tech sector, causing our customer project delays, we are positioning ourselves to manage continued pressure on our top line this year. Fortunately, as both Ben and I have articulated, we are in a strong cash position, which we expect will allow us to navigate this environment, maintain focus on new product introductions, and expand our global markets. Each quarter, we will provide revenue guidance for both the current quarter and full year. For clarity, we are on a calendar year basis. For the second quarter of 2023, we expect revenue in the range of $9 million plus or minus $200,000. And for the full year 2023, we expect revenue in the range of $44 to $47 million. Additionally, we are reiterating our expectations to achieve adjusted EBITDA breakeven in Q3 2023, which we view as an immutable imperative. In summary, while the challenging macro environment weighed on our first quarter top line performance, we remain on track to achieve a near-term adjusted EBITDA breakeven, then profitability driven by our continued gross margin expansion prudent expense management, and focus on the expected highest ROI projects. We believe our results combined with our expectations reflect the strength of our business and our ability to execute on our strategy amidst an uncertain macroeconomic environment. Looking ahead, we remain focused on driving growth and delivering value for our shareholders. With that, I'll turn back to Ben for his closing comments, and then we'll open up the call to take questions from the analyst community.
spk03: Thank you all again for joining us today on our first earnings call as a public company. In summary, Mogolla remains very capital efficient with high gross margins. I'm proud of our team's execution this quarter. Our strong cash position will allow us to continue to provide full attention to executing the launch of new products and expanding customer use cases globally going forward. And with that, we'll open the line for questions.
spk02: Thank you. Ladies and gentlemen, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, press star 11 again. Please stand by while we compile the Q&A roster. And our first question coming from the lineup, Tory Sandberg with Steve Floh, Elon is open.
spk00: Hi, yes, good afternoon. This is Jeremy calling for Tory. Congratulations on a nice first quarter. I guess a question in terms of the end market breakout. Can you provide us with maybe what you expect the next quarter to look like as well as the full year, maybe which segments you're expecting to drive most of the growth in the second half.
spk03: Yeah, Jeremy, this is Ben. Let me take this question. So our end market breakout is consistent with previous year, and it's pretty consistent with our expectations as well. Generally, We see over time the entertainment segment to be growing slightly faster than the other segments. But overall, we expect the breakout will roughly to be relatively consistent.
spk00: Great. And then I guess next, if we could look at the gross margin expansion you expect for the next couple quarters or in the near term, can you give us maybe more granularity in terms of what kind of range you're targeting near term and what the key drivers of this may be. I would assume maybe it's more software sales or coupled with, you know, the cost reductions that you talked about earlier.
spk06: Yeah, great question, Jeremy. This is Steve. Look, I'd expect a couple of points per quarter improvement in our gross margin. As far as the drivers, they're going to be, you know, we're continuing to focus on getting better costs from our suppliers. as well as, you know, as we grow, we will experience slightly better manufacturing costs. So those are the keys that will improve that as we move forward.
spk00: Great. And maybe one last question, you know, with the new obscure platform, you mentioned, you know, oversubscription. Is there some way to quantify this? And maybe are there applications for this platform that you see beyond live streaming? and also any kind of competitive landscape update that you can provide, whether for this platform or the XSense as well. Thank you.
spk03: Yeah, so we're very pleased with the obscure initial traction during this early SS period, which saw more users sign up than we anticipated by a lot. I'm not at liberty to talk about numbers yet, but it's a lot more than we anticipated. In terms of So application beyond live streaming. First of all, we're very focused on live streaming. We believe this will be the first of its kind in terms of a one-stop shop total solution. with a sensor system, which we're essentially the only game in town, combined with the marketplace that enabled real-time movements of avatars initially on Twitch. So we're very focused on that initially, and we believe that it's going to have a lot of momentum going into 24 and beyond. Now, beyond this application, Certainly, we see the potential of literally anybody that has an avatar that want to have real-time human communications of their nonverbal body language. via their anime or avatars. So you can imagine beyond live streaming, anybody who want to be, you know, interacting on a video call or in any type of virtual world could be a user of this new system.
spk00: Great. Did that answer your question? Yes, that was very helpful. Thank you. Yeah, that's it. Thank you.
spk03: Okay, thank you.
spk02: Thank you. And our next question coming from the line of Mike Lattimore with Northland Capital. Your line is open.
spk05: Great. Thanks. Yeah, congrats on the first earnings call here. Thanks, Mike. In terms of the sales force and channels, how do you think about the growth of each of those this year? I know I think you ramped them up a fair amount last year, but how are you thinking about just kind of growth of sales headcount and channels this year?
spk06: You're asking how we expect to see the sales growth by the channel partners? Is that the question?
spk05: No, just sales headcount growth and then separately channel partner growth.
spk06: Okay, yeah, we'll continue to grow our channel partners. We more than doubled it over the last 24 months, and they're becoming more productive as we go along. Remember, they'll be going through a certain period of gestation or growth as the newer ones will sell less than the The ones that have been around a long time. Now, as far as our sales staff itself, we'll continue to grow that throughout the year. And that's one of our areas of focus is to continue to grow our sales staff. But I will couch that with saying it's not going to get in the way of us breaking even in the third quarter.
spk03: Yeah, let me add to that. Don't forget that we have just hired a new VP of marketing. It's a new role, Bill Pestelli. He just started on Monday. So one of the reasons we hired him, of course, We have this exciting launch of a brand new platform into an emerging market, which we needed his background in influencer and creator marketing. But we also launched just a couple of months ago, soft launched our mobile online shop for the first time, customers are able to buy online. And with the newer generation and with the new hybrid model, we see more and more requests to just buy online. So we have not promoted a web shop yet. We're in the still soft launch space so that The reason I mentioned that is in addition to our existing growing network of channel partners and our direct sales force, now we just added a third avenue for revenue growth.
spk05: Yeah, that makes sense. Great. On the product-service mix, how do you think about that this year and then I guess longer term too? Comment on that?
spk06: Yeah, what's included in that, Mike? The In the services part, you're going to have the SAS software as well as any kind of NRE or services we sell. I would expect to see that creeping up over time as we move more towards a SAS-based model with our MBM software. But again, as we talked about before, that will take some time to gestate.
spk05: Got it. And I guess just last on the DOT product and the developer community, How do you think about the kind of revenue potential there? You know, when does that start to emerge in a more material way? It seems like there's a lot going on there.
spk03: Yeah, so we have two developer communities. One is the one that are on top of our full-body suits, you know, that's linked in a window. And I mentioned, you know, in the press release or in the talk earlier that we have ScaleFit, who's a company in Germany developing a lot of AI products on top of it. So that's one community that's, you know, we group them within our channel partners category, their value adding, reselling our full body products. The other developed community, I think the one that you're referring to, is a mobile.dot community. So while we have not and don't plan to break our revenue for this specific product yet, what I can tell you is that this third-party developed community is growing every quarter. The number we mentioned, the most recent number is that it's more than 800 now. Now keep in mind that most of them are still in the product and or market development phase, right? So since the time we announced, especially the ones that signed on in the last couple of years, it takes an average of two years for these third parties to develop their complete product. So guys like Euleria in Italy, which is focused on rehab, is more mature, I would say, in the funnel of developers. And they are very much in the POC, the proof of concept stage, in several countries for their product. We're very excited about it. Others are less mature. So, net-net, we expect our developers, as they announce product, to start ramping up meaningful revenue next year.
spk05: Okay, very good. Thanks. Best of luck.
spk03: Thank you.
spk02: Thank you. And our next question, coming from the line-off, Rajvindra Rajagil from Needham, Ilan is open.
spk04: Yes, thanks for taking my questions and congrats on the recent IPO in the first quarter as a publicly traded company. Just a question on the annual guidance for 2023 and then more of a kind of a long-term question on 2024 and beyond. So with the guidance, you'll still grow year over year. But it does imply a fairly significant ramp in the second half relative to the first half. So I guess my first question is, can you maybe elaborate a little bit specifically on what's happening with spending patterns, not only at the consumer, but maybe with some of your larger customers in the entertainment or sports area, besides just interest rates and things of nature? What's been going on in terms of the spending patterns? And then how do we think about what will drive the second half ramp?
spk03: Yeah, maybe let me address that first. And I think Steve maybe can have a few numbers to chime in. So our typical seasonality reflects stronger revenue during the latter half of the year. And that's been very consistent historically for us. So, you know, the way we are, the way we set our guidance, by the way, it's our first public company guidance for the year in this very uncertain macro is, you know, we take an assessment of what the macro headwind is. And, you know, what Steve and I and our management team is lying is we've factored in about a 20% headwind of the macro. So that's the top end of the guidance. Then we looked at our pipeline, bottoms up, and our final analysis suggests that we are on track to see similar seasonal patterns this year. And of course, we're continuing to grow the pipeline in the coming quarters. Steve, you want to talk about what was our last year numbers?
spk06: Yeah, if you just look at last year relative to seasonality, we did about 24% higher in the second half of the year. And as Ben alluded to, we've been fairly consistent with the second half of the year being higher than the first half of the year in approximately the same range.
spk03: Yeah, so now we talked about the macro headwind that we've factored in about 20%, and we talked about our pipeline is right now on track and sufficient to get us to the top end of our guidance. However, the macro is uncertain. However, in addition to that, we do have the benefit of some potential tailwinds. One, we see the benefit of additional channels for growth, including the launch of our nascent online store. the launch of our new obscure platform in the summer, and the continued ramp up in our developer and channel network, which doubled in the past year. They're all in gestation. Now, keep in mind that although we have these tailwinds, we have not assumed any real meaningful contribution from these new initiatives this year. which could provide upside if any of them gain traction sooner than our expectation. But even after factoring in the potential for more delays and more macro, we believe there is a clear path to our 23 revenue targets.
spk06: Yeah, and just to add to that, throughout Q1, we saw growth through the quarter. in our funnel. That's through Q1. And we do have a win rate that's approaching 50% that we've seen for quite a while now. Combining seasonality with our current run rate in the funnel and the growth we've seen in the funnel, and then our win rate, again, approaching 50%, we feel very confident that we can achieve these projections.
spk04: Appreciate all those details. When we're kind of looking into 2024, where hopefully we get some stabilization in the macro, what would you describe as the major growth drivers across those kind of three end markets? And are there other kind of new revenue opportunities? In the past, you talked about Metaverse or Mobella Health. Can you talk about how you're looking at 2024 and do you have visibility into the pipeline for those projects?
spk03: Yeah, so we have visibility into projects that we're working on. You know, if you think about the metaverse, you know, obscure is part of that. Metaverse is many things. Metaverse is anything that you have an avatar into a virtual world and you're interacting with others. So not only that we are powering it with full force ahead on the obscure platform ourselves and see additional multiple new revenue streams contributing in 24, but keep in mind that anybody that has an avatar in whatever metaverse outside of obscure would need our system to drive real-time human movement. We position ourselves as the picks and shuffles of human body movement in the metaverse. However that develops, I think would be helpful. In terms of digital health, There are a couple of things that we're doing and some of them we're doing with our partners. We're still in the beta phase of what we call Motion Cloud Reports. which gives you more meaning to visualization for agility reports, for new reports. So that serves the digital health market and we're seeing some fairly positive feedback and we'll see meaningful growth next year on that part of digital health on our own. In addition to that, recently I mentioned a number of partners, including Euleria in Italy, which we're partnering with them to expand their solution. That gamified rehab, we're seeing good traction, particularly with populous countries, and we're helping them to introducing it to new markets. So I think that's going to have some good traction next year. The other one I mentioned that I'm allowed to mention is ScaleFit. which is focused very much similar to our recent press release with Toyota in the field of ergonomics, which focuses on repetitive stress on the body to prevent that kind of injury, and for the welfare of both health and mental health. what both Toyota and ScaleFit called industrial athletes. So I think those things are in the digital health, and particularly with the advent of artificial intelligence, I think it will accelerate the area of predictive analytics, because at the end of the day, people are more interested in how do I prevent an injury or a health issue than to treat it in rehab. So I think AI will really help us accelerate that.
spk04: And this last question for me, Steve. I appreciate the details on the gross margins improving a couple points a quarter. Can you talk a little bit about the OPEX? How do you see the OPEX trending kind of now post the IPO?
spk06: Yeah. We're hiring additional people and we're making sure we keep that as efficient as possible. I don't expect OpEx to grow meaningfully throughout the year. We did have a big chunk of OpEx in the first quarter associated with going public. You had to pay a lot of accountants, a lot of lawyers, et cetera, as part of that transaction. That should largely, if not disappear, we should see a lot of it going away as we move forward. So on the G&A side, I should see that go down or at least be contained. Sales and marketing should creep up a bit as we hire additional people, but we'll be building the channel as well as the internal sales force. And then on the R&D side, there we're focused on the highest ROI projects, and I don't anticipate that we'll add a lot of OPEX to R&D.
spk04: Appreciate it. Thank you.
spk02: Thank you. And I'm showing no further questions in the queue at this time. I would now like to send a call back over to Mr. Bentley for any closing remarks.
spk03: Yeah, thank you everyone for joining Movala's first earnings call as a public company. I think together we just made history. We have a very exciting quarter ahead of us as we prepare for the production launch this summer of our brand new Obscura platform. With our strong cash position and expanding gross margin, we will continue to focus on execution of our highest ROI products and customer growth.
spk02: Ladies and gentlemen, that's the conference for today. Thank you for your participation. You may now disconnect.
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