I do like the bumper music. Love that. Like Midnight Oil. Good afternoon. thank you everyone for joining us, the Morgan Stanley TMT Conference. My name's Elizabeth Porter, I'm an analyst on the U.S. Software Equity Research team, and I am very pleased today to have with us Matterport CFO, J.D. Fay. Thank you, Elizabeth. Awesome. We are gonna take audience Q&A, so a mic will be going around towards the end of the session. Before we begin, for important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. With that, J.D., thank you so much. Just to kick it off, can we please walk through just Matterport's background? The company went public via a SPAC in the summer of 2021, it'd be great to just kind of run through the basic value proposition that you're delivering for customers. Sure. Yeah. Sounds great. Thanks again. Matterport's been in business about 11 years, and it started with this vision that, you know, all properties ought to have a digital representation of them, to help people better manage, operate, and promote those properties. We've kind of always had this view that the world needs to be digitized, and then once we can digitize all of the world's real estate, then, we can turn those buildings we call into data, and we can provide insights and analytics about those buildings. That's what we've been working on since the beginning, and we're now 9 million digital twins into it. Mm-hmm ... with 700,000 subscribers. As you mentioned, went public last year to really try to raise the awareness and drive growth, and it's been an excellent journey. I think, in terms of value proposition, we are actually helping anyone who's operating, promoting, marketing, ensuring, repairing, renovating a building make better decisions, using Matterport. Great. One of the primary use cases we often hear about is residential real estate. I think all of us have been on, you know, Zillow or Redfin and seen a 3D walkthrough and a Matterport logo. What are some of the other verticals that you serve, and how are you increasing, you know, penetration beyond real estate? Yeah, you're right. We got our start in residential real estate, primarily in the United States. Most folks do know Matterport from that first product, which was the 3D virtual tour you mentioned. Now, nearly half of our revenue comes from non-residential real estate applications. Some examples, we're heavily used in the facilities management space. These are typically factories that are looking for tools to help them with space planning, laying out their factories, training operators, those sorts of things. We're used in the construction space for progress documentation as buildings are being constructed, for documenting field changes, for auditing, completion of work, such as fitting drywall or plumbing, those sorts of things. In the insurance space, many companies use us for insurance adjusting. When there's a damaged property from a hurricane or a fire or something like that, Matterport is a quick, auditable, complete way to get information about the extent of that damage. The digital twin is used in collaboration with service providers to estimate and monitor and repair and document the repairs to put that property back into its former state. Those are some of the areas as well as, you know, more marketing type areas that are extensions of residential real estate, particularly in travel and hospitality. Hotels, cafes, restaurants, they use Matterport to show their customers what their space will look like, ensure that when you're booking a table or a short-term rental, you're actually getting what you expect. Most recently, we announced Airbnb is now using Matterport for their Adapted category, which is pretty exciting. It's a new category that ensures the property customers rent have the accessibility elements that they need to be able to use it. Our AI algorithms actually go through short-term rentals and find the ones that have the right width of hallways. They don't have steps. They have the right size or height of beds to help people find the properties they need. It's pretty cool. Great. In some of these other non-kind of traditional real estate areas, you know, how are people finding kind of Matterport? Is it word of mouth? Are you actually making changes around kind of the sales force to go after more of these customers, or anything you can do from a product perspective to help accelerate some of this? Yeah. Well, we've got sort of two inroads to finding out about Matterport and using the product. One is our free tier. Anyone online can go to download the Matterport app, and you can start capturing your space. It's really a try before you buy or try before you deploy option. We have nearly 700,000 people or companies using the free tier today. When we do monitor that activity in the free tier on our platform, and if we see some interesting digital twins being created, we will nurture that in different channels. Might go to our enterprise sales force, for example, if we see someone capturing pieces of a hotel. Mm-hmm. That's one way folks can learn about Matterport, try it out, and then, and kind of learn more. The other way is, we do marketing outreach. We have a number of campaigns in the marketing group. That group has grown quite a bit over the last year and very focused on, in particular, enterprise pipeline generation in some of these use cases that we just talked about. We're expanding that to include some of the strategies that are so successful in North America, into Europe, and to Asia this year. Great. you mentioned, you know, Matterport can be used for anything in the physical world, which it's huge. How do we start to cut that up? How should investors like really think about the, you know, the TAM for Matterport, especially as you go into some of these new use cases? The way that I think about the TAM is really every building or residence can use a digital twin. We see there being 4 billion unique buildings in the world and within buildings, sometimes there can be different spaces that might have different use cases for Matterport. Overall, total number of spaces that can be digitized and then analyzed with Matterport is 20 billion spaces. It's quite a lot. Historically, we've effectively charged about $1 per digital twin or space per month. You can kinda add that up to be about a $240 billion, you know, annual TAM. More recently with these non-residential real estate applications, we're starting to charge more on a kinda unit economics or price per space per month basis. We're starting to see customers paying $3, $4, $5 per space per month. We're actually also trying to grow the TAM up toward $1 trillion by focusing on these enterprises and their kinda higher value to the customer and then higher subscription pricing for us. Great. Wanna touch on a little bit of the competitive dynamic landscape. You're playing in different areas between kind of the residential where you have real estate and commercial. you know, AEC retail are some of the other areas you spoke about. Mm-hmm. What are some of the areas that you think that you face the greatest kind of competition? Who are you going up against, and why is Matterport positioned to take share? Yeah. In a lot of the use cases that are in enterprise non-residential real estate, the incumbent solution is kinda paper and pen traveling and photographs. Mm-hmm. That's where the ROI is pretty compelling because humans really can't capture the data and the volume and with the accuracy that a device can. So the ROI is pretty easy there, as well as any kind of travel avoidance. We see this a lot with companies with multiple sites. It could be factories, it can be retail locations. Again, it's a pretty compelling ROI to avoid all of that travel. If you have ESG goals at the same time, that's kind of a double bottom line. In the residential real estate space, we're pretty well known. I think competition in this case is more focused around kind of photographs and other ways to use digital marketing. We announced a new product a couple of weeks ago called Digital Pro, and that's important because, even while there's a slowdown in residential real estate in the United States, it, provides all the digital assets for marketing a property in one place. It's kind of the easy button for marketing. Mm-hmm ... your home. It's a $300 product, so it's a greater share of the marketing budget for each listing. It's designed to kind of bundle photos and floor plans and digital twins and videos all together in one easy transaction. I think that will help kind of improve our competitive position in the residential real estate space too. Great. Within, you know, partnerships, particularly on some of that AEC, you know, type of equation, you know, Matterport has an open ecosystem. That allows you to have these really unique strategic integrations with big companies like Autodesk, for example. Could you provide an overview of who you have these technical partnerships with, how you work with them, and what the pipeline? Yeah ... looks like for adding more partnerships and what that can mean for the financial model? Some of the partnerships, as you mentioned, are kind of technical integrations. We've given out over 1,000 keys or so to our APIs for integrations. Autodesk is one of them. We're inside their Construction Cloud. If you're using the dashboard in that application, Matterport is one of the windows in there. That's fantastic for, again, the sort of as-built progress of your project. We have a similar integration with Procore, with Multivista, a number of companies in the construction space. We also have the ability with a Matterport digital twin, if your building's already built, and you're doing, let's say, a deep renovation, you can take a digital twin, which is photorealistic, you know, looks like real life when we view it on the website or in the internet. It can be reverse converted back into CAD. That's very helpful. Mm-hmm ... because when redesigns are happening, historically, somebody had to go out and survey the property. Again, this takes a tremendous amount of time, it's very expensive, and a human cannot capture all the nuances of a space. You know, our devices and our technology will capture all the soffits, all the moldings, all the furniture, everything. Now, when you put that into CAD, you can do it in two dimensions or also with our BIM file service. Mm-hmm. Now, you've got every element of the building that you can use, and manipulate any way you like to create that renovation plan. Then from just like the go-to-market side, kind of what's the strategy for adding kind of new partnerships? On the go-to-market side, one of the recent partners that we added is TD SYNNEX. We're pretty excited about that. Some of you may know the firm. It's a very large reseller, technology products reseller. That's really one of the ways we're trying to get leverage on our sales force and become much more efficient in the overall cost of sales. That's just starting. It's about two quarters old, and we're in the process of doing the train up and the kind of back-end operations integrations. Finally, we have a network of resellers around the world that have historically focused on selling hardware, cameras. We're working on enabling those partners to sell our total solution, which are capture services as well as the subscription plans. We expect to have that rolled out sometime this year too. I think again, that will extend our reach in the countries in particular that we don't even have direct sales, and allow those partners to really sell the entire Matterport portfolio. Great. I do wanna get in, back into the, you know, cost of sales side and some of the efficiencies and leverage that you can get, from a cost perspective in just a moment. Before we go there, just looking at the subscription software side, that growth has lagged a bit. You know, at first it was the supply chain issues with the camera, where you really needed to kind of the camera out there in the market to help, drive more of the subscription sales. As you think kind of where we are now, you know, how much are those supply chains cleared up? You know, you've already started to see some of the strong demand for the Pro3 camera. Yeah. What needs to happen for subscription revenue growth to really start to meaningfully accelerate? Yeah. Yeah, we do have, I think, of the supply chain disruptions that impacted our Pro2 camera still rolling through the business. I do think that will continue to moderate this year. I expect to put that behind us by the end of this year. It will stay in COGS, largely in the product line, through this year as well as we roll off those sort of higher cost parts, you know, in the process. As we have supply, you're right. The customers who buy a Matterport Pro2 or now our Pro3 camera, these are commercial high-volume users, typically. It's why they're making the investment. We like to have them on the platform generating digital twins. Mm-hmm ... and then generating subscription fees. Consistent availability of the hardware is an enabler to higher subscription revenue. That's number one. Number two, we've spent a lot of time building an enterprise-targeted subscription feature set, and that just was released last quarter, or discussed last quarter. That has generally value-based pricing in it, where we're working with the customer on its use case and, we're putting together a package that best fits their needs, and that's how we're getting higher ASPs in general. Back to that unit economics discussion. Mm-hmm ... we had a minute ago. That's being very well received, particularly with new customers who are coming in. We've had a lot of feedback over the years that customers have said, "I can't believe how inexpensive Matterport is for what we get. Mm-hmm. We've taken that feedback and we've built in more value-oriented features for the customer, and now we're charging more. Feedback's been good. That will layer on to the existing recurring subscription revenue base over time, and that will help create more acceleration in subscription revenue growth. Great. Onto the cost side, your fiscal 2023 guidance implies operating margins still in the solidly kind of - 65% range with about high teens revenue growth. How should investors think about kind of your longer term path to profitability? You know, how soon could we see, like, a line of sight into nearing even break even margins? Yeah. What are the biggest levers we need to see to get kind of that confidence in line of sight? We talked about it on our call. It's pretty important for us to drive the best growth or the highest growth that we can while driving profitability, toward profitability. We're on that path to profitability. Our goals are to achieve break even or free cash flow break even by or in 2025. It has a bit of a timeline to it, but we wanna continue to keep our foot on the growth accelerator in the process. I think we have a first mover, first scaler advantage with us. I think we've got the best technology, we've got a great customer base, a great data set, I wanna continue to build on those moats so that when we come back into or out of the recessionary period or whatever this period we're in is called- Mm ... we continue to be the category leader and even at greater scale. While doing that, we are reducing spend. We cut $20 million out of the annualized OpEx beginning in the third quarter. You can see that in our quarterly numbers now. Mm-hmm. We reduced R&D by another $2 million sequentially, we reported recently. We're gonna continue to find efficiencies in OpEx to make sure we're going down this path toward profitability. It's gonna be both top line and OpEx improvements. The whole business is aligned around this, and we've all been fairly open with each other that to the extent that there's challenges in the top line, because let's say macro deteriorates further, then we all know that we need to take action potentially on the bottom. Mm-hmm half of the income statement to make sure we stay on that path. Yep. Are there any particular levers that you would, you know, point to first, you know, in that scenario where, you know, macro does deteriorate? We're gonna do that protection? Yeah. Well, one lever that is available to us is to take a hard look at whatever our investments are on the new products and features side. Mm-hmm. We feel like we've got a very compelling feature set now with our Enterprise Essentials package. We're gonna do some work to roll that out to the SMB customers as well. That's leveraging the work that we've already done. Yeah. You know, one of our big mantras for the sales conference this year was, "Sell what's on the truck." I feel like we do have the compelling offering. I think we understand where it's resonating in the different vertical markets. We can focus on selling what we have, and we could moderate investment further if we felt like the economy was deteriorating more. Great. I'm gonna ask a couple more questions, but we'll turn it off over to audience Q&A in just a minute. For net dollar expansion rate, you know, these to be, you know, north of 110%. With the macro situation and some of the pressure, particularly in the SMB side, you know, that has moderated to kind of more of the 103% range. Mm-hmm. You know, more recently. Just more specific to kind of the customer behaviors, you know, what's driving the dip? Kind of what are the key factors that you're looking for to see a re-acceleration? How should we think about a normalized. Yeah. -NRR? Yeah. I really would like to see the normalized NRR be around 110%. Mm-hmm. I mean, we've had periods as high as 132%, I think was our peak, 120s as well. You know, we've done it before, I think we can get back to that. We're in this dip period or the low period below the average because the small customer is not expanding the way they used to. We saw a divergence between the small customer and the large customer beginning a year ago this quarter. The first time we'd seen that in our history, and that divergence persisted through all of last year. I'm forecasting it will continue this year too. The enterprise customer is expanding at, you know, accelerated rates, at high growth rates. It's very strong. It's why we're doubling down on all of it, and the small customer is not. Again, I think that, you know, while the markets or the economy's in transition, that sort of hesitancy of the small customer is gonna continue. Do we have any questions from the audience? Good. I think I have plenty more questions. I'm sure you have more. Don't worry. Yeah. Here's one. Yeah. That's great. This is a great segment of the market you have. Any thoughts on reaching out to designers, which are interior designers, and they do this? Also to, I know in New York, I'm from there's a bunch of tailors which come from Thailand, from Hong Kong and stuff, and do that. There's any creating a twin, helping them create twins and doing that business more? Yeah. In terms of interior design is a good use case. We actually do have some experience with that in New York. There are a couple of customers there that will take an empty space. We've got a case study on our website about the new World Trade Center offices that they will actually put in virtually staged in your digital twin, all of the build-out of the furniture. If you wanna have a modern office building or you want a trading floor, you want private offices, they can just keep spinning the virtual staging to show exactly what you want. It's obviously much less expensive than actual stage furniture and it's much faster. We are seeing that happen in the commercial real estate space. Also in New York and in Philadelphia, for example, as well as in Texas, we're seeing high dollar apartment buildings that are empty and apartments being virtually staged. They might do three or four different design styles, traditional, mid-century, modern and contemporary. It's a great way to experience a property, particularly if you're a remote buyer, which a lot of folks are, particularly in these large, you know, high dollar apartments, to be able to see the apartment in the way that you would like it. This is all dimensionally accurate. It's got reflective lighting. It has all of the correct dimensions. The occlusions are correct. It's almost indistinguishable with real life. It goes all the way down to, you know, the underground garage and, you know, the cars and the Rovers and the Ferraris or whatever you want in there to see how your, you know, fleet of cars will fit in the garage. We can do all of that. I think there's more to do there. I think that the next wave will be around, how do I bring this to the mass market that wants to just pick out a better couch, chair, coffee table, side table lamp, and do that with retailers that they prefer. We're working with some of the very large retailers to find ways to bring their catalog into the Matterport digital twin in a really easy way so that the space is not just a shoppable catalog, but it's your space that's shoppable. Well, yeah. You make a good point, too. You actually don't have to buy our camera, which is great. Today, anyone can download the Matterport app on their phone and they can actually create a digital twin. We can create a dimensionally accurate digital twin from just photos from your phone. You don't have to have a lidar-based phone or anything. It's because our dataset is so large that we've trained our algorithms on ground truth information. We know the size of these chairs and tables in these rooms. We can now create dimensional accuracy inside of your two-dimensional photographs. You can do that from your phone today. Yep. I've done it from my phone, pretty fun to play around with. I wanted to hit on a little bit on M&A. You've done, you know, some small kind of acquisitions to help improve tech, whether that was with Enview or, you know, expand kind of the customer base and some of the solution portfolio that you could sell into with VHT. Yeah. Real estate and marketing. When you look at the broader portfolio, are there any areas that you are looking to fill or areas of M&A that could be next on the list? We do look at technologies and adjacent markets quite a bit. We wanna stay, of course, ahead and aware of what's being developed out there. We have set up a corporate development group to run transactions. In fact, they're here. Yeah. Which has been great to have them see companies. Our main focus is on listening to what the customer's telling us. Mm-hmm about where Matterport can be extended into. Yeah in terms of their workflows. I think deeper integrations into the steps of a customer's work to get it to completion, is where I think we'll find the most value. Those are the kinds of areas we're looking into is ways in which kinda Matterport delivers more value to the customer, and perhaps vertical specific applications. Gotcha. We're not, you know, finding any need to be urgent. Mm ... I think that the market in general, I think, is coming to us. We like to be very careful. Yeah ... about it. I think our first two acquisitions were, you know, quite successful. The first one, Enview, you mentioned, is technology acquisition, and that is now inside of the Adapted category algorithms that we use for Airbnb. The VHT business, as you mentioned, is delivering essentially marketing, digital marketing content for homes, being listed and sold in the United States. That's coming together with Matterport to make this complete package we talked about, the Digital Pro. Great. With just, you know, the minute or so we have left, you know, Matterport is still relatively new to the public market. What do you think are the main kind of one or two investor misconceptions about the company today? Yeah. I think that, there are probably three. One is that, we're a residential real estate company... Mm-hmm a virtual tour company exclusively. We got our start there, it's been great. I think a lot of us know Matterport that way, and I like to look at Zillow at night too. I love looking at the Matterport spaces. We're much more than that now. Half the business, as we've talked about a lot, is from non-residential real estate, and it's, there's a high ARPA customers, they're sticky, they've got big footprints and budgets to go along with it. That's one. The second is that we do have a high cash burn, but that we're driving toward profitability. I don't think investors have kind of fully appreciated that we are on that path now. I think this is a good opportunity to share that even more with your clients. We went public with the intention of investing that capital, some of it for growth, and we did that. The market, of course, has rotated in general in 2022. We're responding to that. That's the second one. The third one is that some investors will screen us out, I think, for stock-based compensation expense. It was a big number, but it was tied to our IPO transaction. About $430 million of SBC that is amortizing out. We'll finish in two and a half years. Today, the dilution is capped at 5%. The dollar equivalent of that is $45 million at today's prices, so it's down by 90%. Those are all behind us, and I think taking a look at some of those details, you know, might give folks some comfort that that's in the past. Great. Well, we are up on time. Thank you so much, J.D., for joining us and sharing your insights. Yeah, thank you. I appreciate it.