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

Welcome to The Glimpse Group Fiscal Year 2023 Financial Results Webinar. [Operator Instructions] As a reminder, this conference is being recorded. The earnings release that accompanies this call is available on the Investors section of the company's website at https;//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 ask also -- and we would also refer you to the company's website for more supporting industry information. I would now like to hand the call over to Lyron Bentovim, President and CEO of The Glimpse Group. The floor is yours.

Thank you, John, and thank you, everyone, for joining us. I am pleased to welcome you to The Glimpse Group's Fiscal Year 2023 Financial Results Investor Call for year ended June 30, 2023. Glimpse's fiscal year was highlighted by strong revenue growth year-over-year, combined with significant cost reductions and a strategic repositioning towards providing immersive enterprise software and services that are driven by spatial computing, cloud and AI. Our 2023 revenue of approximately $13.5 million, an 85% increase compared to 2022 revenue of approximately $7.3 million primarily driven by the acquisition of Brightline Interactive and Sector 5 Digital. Since the company's IPO in July 2021, our annual revenues have increased by approximately 4x from an IPO base of approximately $3.4 million. While the immersive industry has evolved significantly over the past few years, it has yet to reach high adoption levels on either the enterprise or the consumer side. Over the last few months, we have seen a change in the market. Organizations are no longer just looking for onetime proof-of-concept projects to test out immersive technologies. They are looking to fully integrate immersive technology strategically into many aspects of their business. The good news is that this change is a sign of the beginning of the maturation period for the industry and will eventually lead to a more stable recurring revenue model. But in the short term, this has led to a significant increase in sales cycle and may impact short-term revenues. In recent months, we've seen a few significant developments in the industry. Apple announced its first immersive headset, the Vision Pro, and Meta announced yesterday its next-generation headset, the Oculus 3 both with enhanced spatial capabilities, blending the physical and virtual worlds. Other large players are introducing advanced headsets as well. These are expected to push the industry forward a step further. However, in our view, for the immersive industry to be truly unleashed and reach its vast potential, it has to first be untethered from the computing limitation in current immersive technologies hardware, VR headsets, tablets and phones. When the processing and compute of immersive experiences are done at the cloud level, and then transmitted to a headset or device. The impact could be revolutionary. Powerful immersive experiences with endless use cases throughout industries driven by cutting-edge spatial AI capabilities delivered over true 5G networks to devices with a far smaller and lighter form factor. Recent development in spatial computing, cloud and I combined with our internal capabilities and relationships on these fronts have driven us to the strategic decision to focus on developing immersive software products and services that are anchored in scalable cloud computing and AI software platforms. By doing so, Glimpse can greatly expand the immersive capabilities and solutions, it offers its enterprise customers provide those in scale, potentially leading to significant revenue growth driven by recurring software license and SaaS revenues. Our immersive cloud-based development is powered by and is being done in collaboration with industry leaders such as NVIDIA, Microsoft, AT&T and the U.S. military. In order to facilitate this process, we are streamlining our operations down to focus on 3 primary subsidiary companies, Brightline Interactive, QReal and Sector 5 Digital. In parallel, we will explore various strategic alternatives for our subsidiary companies, including raising capital into them, spinning them out, selling them or consolidating them into our main 3 subsidiaries. This is not a straightforward transition, and it will require Glimpse to restructure internally, invest in developing these new technologies while continuing to cut legacy costs. The short-term impact may include the decline in revenues as we transition from predominantly project-based revenues and a consolidation of some of our subsidiary companies. However, we view this as an essential move if we are to become a dominant software player in this larger scale industry. While further development and investment will be required to bring our vision to fruition, we have already begun to see adoption in the market. Recent examples include: Brightline alongside client prime contractor BCI Solutions and subcontractor Purdue University was awarded a low 7-figure direct to Phase II contract with the U.S. Air Force. The overall solution utilizes Brightline's spatial computing platform combined with AI and machine learning elements to teach and operate robots using human tracking and immersive simulation environment in industrial settings. Brightline also entered into a Cooperative Research and Development Agreement, CRADA, with the U.S. Naval Surface Warfare Center, Dahlgren Division to adopt new technologies in end-to-end immersive hyperscale environment and simulator systems. Brightline was recently selected to support a major immersive technology hardware provider to accelerate their computing interface into GPU-enabled clouds with streaming and visualization capabilities. PulpoAR, a subsidiary of QReal entered into a software license with Yves Rocher, a global skin care, cosmetics and perfume company to provide AI-powered skin analysis and real-time visual product recommendations. QReal also completed a paid engagement to create an immersive experience to complement the launch of Sabrina Carpenter's real world fragrance, Sweet Tooth on Walmart.com via a virtual store and NFT experience in Decentraland. SpearXR, now part of S5D entered into initial agreement for 2 webAR experiences with 1 of the world's largest consumer packaged goods companies, which is expected to be deployed in commercial environment and accessed by consumers on mobile phones and tablets without a need to download an app potentially leading to additional webAR experiences and widespread implementation. As Maydan will detail later in his prepared remarks, we have taken significant steps to reduce our operating expense base and continue to maintain a clean capital structure. In parallel, we decided to raise capital today in a claim structure, and we are currently well capitalized to pursue this opportunity. 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 summary review of our financial results. A full breakdown is available in our 10-K in the press release that were filed after market close today. Please note that I'll refer to adjusted EBITDA and other non-GAAP measures. For the calculation of adjusted EBITDA and other noncash -- sorry, non-GAAP measures, please refer to the MD&A section of our 10-K filing, which you can find on our website under SEC filings. Total revenue for the year ended June 30, 2023, was approximately $13.5 million compared to approximately $7.3 million for the year ended June 30, 2022, an increase of approximately 85%. The increase reflects the addition of subsidiary companies through acquisitions and new customers. Fiscal year -- Q4 fiscal year '23 -- that's the April 23 to June 23 quarter, revenue of approximately $2.9 million, a 16% increase compared to Q4 fiscal year '22 revenue of approximately $2.5 million. Gross profit was approximately 68% for the year ended June 30, 2023, compared to approximately 83% for the year ended June 20, 2022. The decrease was driven by the addition of BLI and S5D lower-margin project revenue. Adjusted EBITDA loss for fiscal year '23 was approximately $6.45 million compared to EBITDA loss of approximately $3.97 million for fiscal year '22. During the fiscal year and in recent months thereafter, we decreased the company's annual operating expense base by approximately $5 million in aggregate or approximately 25%. We expect to continue to significantly reduce our operating expense base as we realign our operations. Our target is to reach cash flow profitability from our subsidiary companies' operations potentially as soon as Q2 fiscal year 24 October to December 23 period, excluding any growth investments. As Lyron discussed, S5D is an active operating entity of the company and is expected to remain 1 of our 3 core subsidiary companies going forward. Due to a slowdown in S5D's business relative to the assumptions made during this acquisition, it was determined that it would be appropriate to write down its goodwill and intangible assets totaling approximately $15 million. This was a key noncash driver in our net loss. We ended fiscal year '23 with approximately $5.6 million in cash and equivalents. Today, September 28, 2023, we entered into an agreement with 2 institutional investors to raise $3.3 million, approximately $3 million net of all fees and expenses via a registered direct offering at $1.75 per share, utilizing the company's S3 registration that comes out to about 1.8 million common shares that will be issued. There are no warrants, there are no other derivatives in the transaction. It's straight common stock. The transaction is expected to close during the first week of October 2023. Post closing, the company will have approximately $7 million of cash on hand. We have no outstanding corporate debt, no convertible debt and no preferred equity obligations. I'd now like to pass it back to Lyron for some closing remarks, after which we will begin our question and an answer session.

Thank you, Maydan. As we continue to reiterate, we are still in the early days of the immersive technology cycle. I think the immersive industry has reached the next step in its evolution and The Glimpse Group has a unique opportunity to customize on. With the knowledge, IP and Tier 1 customer and partner relationships we have accumulated over the past 7-plus years as 1 of the largest independent software and services company in the segment. We have an opportunity to be a key part of this fundamental transformation of the immersive industry. Thank you all for your interest and support of The Glimpse Group. And now I'll turn the call back over to the operator to take some questions. John?

[Operator Instructions] Now our first question comes from Casey Ryan with WestPark Capital.

There's a lot to process here. But 1 of the important things going forward, I guess, is have you thought about what's the right with the new 3 divisions and sort of the business focusing maybe more around projects. Broadly, have you thought about what like target gross margin ranges might be, like maybe if it was all software, we would think 80s, but if it's projects would you feel comfortable thinking sort of in that 60% to 70% range would be an expectation that might be reasonable? Or what are your thoughts around gross margins as you move forward post realignment?

Casey. So first of all, kind of the reverse. We're actually focusing more on software rather than projects. So that's the exact reverse of the transition we're going through. So if you look at kind of where we are, kind of we have basically got a hybrid mix of probably 30% software licenses and 70% projects right now. So we're going to try and morph that on its head over the coming quarters and years. But I would look at margin of probably 60% to 70% over the next few quarters and then growing from there.

Okay. And then this is a question for the future. But with these 3 distinct units that we're laying out in the call today, do you believe that you might start providing percentage of revenue contributions from each just because I presume that like 1 of them or 2 of them may be bigger than might be other. But would you guys consider doing that kind of reporting moving forward just to add some sort of depth to be a revenue breakdown outlook, I guess?

So overall, kind of we haven't disclosed and broken down revenues by subsidiaries for a variety of reasons. But the 3 big ones we're focusing on are pretty balanced in terms of kind of between themselves when you can have, obviously, those different fluctuations on a quarterly basis based on what is recognized in each period. But overall, there are 3 legs of our stool. So they're all 3 pretty sizable and balanced subsidiaries.

Okay. Okay, good. And then as you think about strategically evaluating the other pieces of the business, maybe pieces that don't fit cleanly into this new structure. Do you have any expectation of what those structures might look like? Like are you focused on making them cash transactions? Or is it possible to do equity compensation or other royalty type of structures? Or would you be focused on generating cash from selling off assets potentially?

So we're looking at kind of basically how do we maximize value of pieces that we are not seeing as strategic to our business. And we're open to a variety of structures: one, spending them out and holding a piece to it, to selling them out for either cash or some future royalties; two, integrating them into some of the bigger pieces we're keeping. So we're exploring all of the options, and there's quite a few active discussions that we're undertaking right now. But it's not something that's going to drive the business in a big way. So it's more about allowing us to really focus our efforts and resources on the areas where we've seen significant traction, and we think there is a very big opportunities down the road.