The Glimpse Group, Inc. (VRAR) Earnings Call Transcript & Summary

Welcome to the Glimpse Group First Quarter Fiscal Year 2023 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. The earnings press release that accompanies this call was issued at the close of the market today and is available on the Investors section of the company's website at ir.theglimpsegroup.com. Before we begin the formal presentation, I'd like to remind everyone that statements made on today's call and webcast, including those regarding future financial results and industry prospects are forward-looking and may be subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in the call. Please refer to the company's regulatory filings for a list of associated risks, and we would also refer you to the company's website for more supporting industry information. The replay of this call will be available on the company's IR website under the Events and Presentations section. I would now like to hand the call over to Lyron Bentovim Laurent Bintuven, President and CEO of The Glimpse Group. Lyron, the floor is yours.

Thank you, and thank you everyone for joining us. I'm pleased to welcome you to The Glimpse Group's Fiscal First Quarter 2023 Financial Results Investor Call for our quarter ended September 30, 2022. Glimpse's first quarter was highlighted by record revenue and continued momentum driven by organic growth and several recent acquisitions. -- revenue. We had record revenue for fiscal first quarter 2023 of approximately $4 million, representing 287% growth or almost 4x compared to first quarter 2022 revenues of approximately $1 million and a 58% increase quarter-over-quarter compared to Q4 financial year fiscal year 2022, in which we had our prior record quarterly revenue of approximately $2.5 million. The quarter's financials included 2 months of our acquisition of Brightline Interactive, which closed on August 1, 2022. As mentioned previously, Brightline generated over $5 million of revenue in 2021 with 65% gross margins and positive net income. As a reminder, we IPO-ed in July 1, 2021, with approximately $3.4 million annual revenues for financial year '21, a number we significantly surpassed in just this quarter alone. Balance sheet, as may down will detail later in his prepared remarks, we remain well capitalized and have a clean capital structure. With the core S5D and Brightline acquisition is complete, we do not expect to utilize our current cash balance as part of the purchase price of any acquisition we may make in the foreseeable future. We also remain steadfast in our $7 share IPO price minimum for any equity issuance, whether it be acquisition-related or employee stock options or other. Operating cost structure remains predominantly variable. Through continued revenue growth, combined with expense controls, we are committed to reaching cash flow neutrality from our operations in calendar year 2023. Just as booms has achieved critical scale in aggregate, we believe that there are key strategic advantages in creating more scale with our subsidiary companies. As such, we have begun the process of consolidating some of our subsidiary companies into larger core entities, a process which we expect will be concluded by year-end 2022. At the end of this process, we expect to have 6 to 8 larger remaining subsidiary companies, which will allow us to maximize go-to-market and branding synergies, optimize operations and reduce overlaps. -- operational highlights. We successfully completed the integration process of Sector 5 digital, Brightline Interactive and PulpoAR our most recent acquisitions. We continue to see traction and growth across industries, and we have an impressive roster of Tier 1 customers, which has significantly expanded with the addition of S5D and Brightline. Recent examples include our subsidiary, S5D completed a mid-6-figure contract for the development of a 3D interactive gamified experience and NFTs for our partner events held by a Fortune 50 global technology companies. S5D also entered into a mid-6-figure agreement with a global pharmaceutical company to continue development of its award-winning interactive Enavame training platform. Our subsidiary company, XR Tera, entered into a 6-figure agreement with one of the largest telecommunications companies for the training in VR skills of 700 K-12 teachers. Curative is partnering with AT&T for collaborative immersive technologies 5G demonstration to be deployed at [ ASIC ], the largest training and simulation trade show in the U.S. [Audio Gap] To our organic growth, we continue to explore acquisitions and are in discussions with several potential targets that would lead to accretive acquisitions, subject to the caveat I mentioned before, no cash consideration and equity with a $7 per share floor. During the quarter, [ Licenses ]. [Audio Gap] U.S. patents were transferred at the close of the Brightline Interactive transaction and they are for an immersive ecosystem and system and method for generating an [ augmented ] reality experience. Both are fundamental patents in our view. We have several more patents in process and view our patents as a forward-looking strategically positioned with significant potential and importance when the immersive industry matures. With that, I will now turn it over to Maydan Rothblum, Glimpse’s CFO and COO, to review the financial results. Maydan?

Thanks, Lyron. I will limit my portion to a similar review of our financial results. A full breakdown is available in our 10-K and in the press release that were filed after market close today. Please note that I will refer to adjusted EBITDA and other non-GAAP measures. The calculation of adjusted EBITDA and other non-GAAP measures, please refer to the MD&A section of our 10-Q filings, which you can find on our website under SEC filings. Total revenue for the 3 months ended September 30, 2022, or approximately $4 million compared to approximately $1 million for the 3 months ended September 30, 2021, an increase of approximately 287%. The increase reflects the addition of several subsidiary companies after September 30, 2021, organic growth and new customers. For the 3 months ended September 30, 2022, software service revenue were -- was approximately $3.9 million compared to approximately $0.8 million for the 3 months ended September 30, 2021, an increase of approximately 383%. The increase reflects the addition of several subsidiary companies after September 30, 2021, organic growth and new customers. For the 3 months ended September 30, 2022, software license revenue was approximately $0.09 million compared to approximately $0.22 million for the 3 months ended September 30, 2021, reflecting a difference in timing of renewals. For the 3 months ended September 30, 2022, core software and services revenue, i.e., [ VR & AR ], software and services revenue, excluding projects, was approximately $1.3 million compared to approximately $0.86 million for the 3 months ended September 30, 2021, an increase of approximately 49%. For the 3 months ended September 30, 2022, core software and services revenue accounted for approximately 32% of total revenues compared to approximately 84% for the 3 months ended September 30, 2021, reflecting the additions of Brightline and Sector 5. For the 3 months ended September 30, 2022, gross profit margin was approximately 69% compared to a gross profit margin of approximately 85% for the 3 months ended September 30, 2021. The decrease was driven by the additions of Brightline and Sector 5, which have lower-margin project revenue. On a go-forward basis, we expect overall gross profit to remain in the 60% to 70% range, again, due to the additions of BLI, Brightline and Sector 5. Operating expenses for the 3 months ended September 30, 2022, approximately $8.2 million compared to $2.3 million for the 3 months ended September 30, 2021, an increase of approximately 250%. The increase was driven by employee headcount additions to support growth, the addition of several new subsidiaries, which includes headcount, amortization of intangibles and professional fees related to the acquisitions and the change in fair value acquisition contingent consideration due to fluctuations in our stock price. We sustained a net loss for the 3 months ended September 30, 2022, of $5.4 million compared to a net loss of approximately $1.7 million for the 3 months ended September 30, 2021, a loss increase of $3.72 million or 224%. $2.41 million of this loss increase is driven by non-cash change in fair value consideration of contingent acquisition consideration. The balance primarily represents operating expense growth outpacing revenue and related gross profit. This reflects credit expense outlays in all areas of the company to propel future growth, including the acquisition of several new subsidiaries and related costs. Net cash used in operating activities for the 3 months ended September 30, 2022, was approximately $3.1 million compared to approximately $1.1 million for the 3 months ended September 30, 2021. This was impacted by the addition of Brightline, which had a high component of deferred revenue and cash collected prior to the closing of the transaction. For the 3 months ended September 30, 2022, adjusted EBITDA loss, a non-GAAP measure, was approximately $1.1 million compared to $0.6 million adjusted EBITDA loss for the 3 months ended September 30, 2021. To recap, we ended the quarter with a strong balance sheet of approximately $13 million in cash, including $2 million cash held in escrow for potential future performance payments relating to the Sector 5 acquisition. A cash decrease in Q1 of fiscal year 2023 was primarily to account for the cash portion of the Brightline acquisition, approximately $3.5 million in cash, including fees and expenses, which closed on August 1, 2022. As Lyron mentioned, with the core sector 5 and Brightline acquisitions complete, we do not expect to utilize our current cash balance as part of the purchase price for any acquisition we make in the foreseeable future. We have no material cash liabilities, no preferred equity outstanding, no convertible debt or any debt obligations. And again, as their own stated, getting to cash flow breakeven and beyond from our operations in calendar year 2023 is a key strategic objective. I'd now like to pass it back to Lyron for some closing remarks, after which we will begin our question-and-answer session.

Thank you, Maydan. In a challenging environment, we maintained strong momentum, finalized the integration of our 3 recent acquisitions, and achieved a record revenue result well above our previous records. Instantly proven our ability to rapidly scale and are solidifying our position as a premier player in the immersive technology, software, and services space. With that, the immersive technology industry is still in early stages of development, and we are cognizant of the macro trends. Therefore, as a strategic goal, we are determined and committed to reach cash flow neutrality from operations of our business in 2023. We remain well positioned to capitalize on the many industry opportunities and further strengthen our leading market position. I thank you all for your interest in and support of The Glimpse Group. And now I'll turn the call back over to the operator to take some questions.

[Operator Instructions] Your first question for today is coming from Ignacio Bernaldez at EF Hutton.

Congratulations on the quarter. A lot of really good stuff here. Just to start, and I know that the team is really great at finding these accretive acquisitions. Maybe some more color on your current M&A strategy and funnel, if there are any new developments in the recent months?

Thank you. And as we look at acquisitions, we're looking for a few things. First of all, we're looking for best-in-class companies that have technology that is best at what they are doing. Then we're looking to see how they can really fit into the Glimpse portfolio. So we know what our companies can do, and we're looking for companies that either open up a new opportunity for us or that fit in very well within an existing company. And as our existing subsidiary companies grow, we look more and more towards companies that would fit in that would add some technology or some IP or some exposure that will really make our existing subsidiaries stronger. So we've got a pretty large portfolio of opportunities, and we're getting constantly incoming opportunities into us, and we start the process. We talk to them. We see their fit, we see the culture of it. And if we find something that is accretive to our shareholders, that makes a lot of sense, we will proceed and do it.

I just want to add to that, just to put things in perspective, like over the last year, we've acquired several companies, but specifically Brightline and sector 5, which were basically our size. It's not a bit large relative to Glimpse at its IPO. And so the ability to not only structure these correctly, but find the right fit and be able to integrate these smoothly, which we've done is something that's critical. And obviously, we're going to look for that going forward in the acquisition that we make.

[Operator Instructions] Your next question for today is coming from [ Darren Asti at ROTH Capital ].

This is [ Austin ] on for Darren. First question, I'm just curious, I think you mentioned on the last call, cash burn target for calendar '22 is about [ $4 billion ], and correct me if I'm wrong. But my question, does that target continue to seem obtainable? And what measures are you taking to reach breakeven by '23? And additionally, how do you think about balancing that goal with reinvestments into current portfolio companies and acquisitions, but all -- I know you mentioned you wouldn't be using any cash for acquisitions. So I am curious if you'd be looking more like old stock versus taking on any debt to do that.

Well, I will start addressing the latter part of your question, Austin, and thank you for asking. And then Maydan will comment on the cash flow currently and some of the measures we are taking. So as we look at structuring acquisitions, historically, we have done most of the acquisitions in stock and all of it performance-based with the floor of $7 IPO prices we talked about and some cash elements. In the current environment, we have basically taken the cash element of and we basically converted to all stock. We have no desire to take on any debt, either pre-existing debt companies or debt that we will take on to do those acquisitions. So they will be stock only with a $7 floor or else we just won't do them. So that's just to clarify that. As we're looking in 2023, I think we can get to a scale position where we can cash flow self-sustain, meaning that we will have enough to generate amount of cash flow from operations to sustain our R&D investments. And given the current environment, we think that's the prudent decision to go with. And therefore, that's where we will align our financials to do. And that's what we're going to do. As we mentioned in the press release and in our opening remarks, we're going to do it by continuing to grow revenue, but also by taking steps to minimize our expenses to fit within our revenue platform. Regarding the cash flow plan, I'll let Maydan add more comments and more color.