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

Welcome to The Glimpse Group Fiscal Year 2024 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 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. Lyron, the floor is yours.

Thank you, everyone, for joining us. I am pleased to welcome you to The Glimpse Group's Fiscal Year 2024 Financial Results Investor Call for year ended June 30, 2024. During this fiscal year we made significant strides in our strategic transition to focus on providing enterprise scale, spatial computing, cloud and AI-driven immersive recurring software solutions, or Spatial Core, as we will refer to it internally, led by our subsidiary company, Brightline Interactive. In August 2024, Brightline's General Manager, Tyler Gates, gave a detailed webinar on Spatial Core. If you are interested in the topic, I strongly recommend that you listen to the webinar, the link of which can be found on our IR website. Some examples of Spatial Core traction include, signed a $4-plus million, 12-month contract with the Department of Defense entity for a Spatial Computing ecosystem, integrating AI workflows and accelerated compute for a variety of defense use cases. We entered into a Cooperative Research and Development Agreement, CRADA, with the U.S. Army Combat Capabilities Development Command, Control, Communications, Computers, Cyber, Intelligence, Surveillance and Reconnaissance Center to develop, assess and improve workflows to create and augment synthetic imagery for use in training and assessing AI and machine learning algorithms. Extended partnership with a Fortune 500 government Systems Integrator for VR training in Digital Twin Environments to a key U.S. government agency with over 44,000 employees on a mid-6-figure contract. Brightline, Cesium and NVIDIA teamed up at the Geospatial Intelligence Symposium 2024 to introduce Brightline's Spatial Core, which uses AI workflows for complex computation on top of real life data sets, enabling powerful real-time massive data-driven digital twin and simulation applications. We successfully completed the Cooperative Research and Development Agreement, CRADA, with the U.S. Naval Surface Warfare Center, Dahlgren Division for the adaptation of immersive technologies. We completed a contract to support a major immersive technology hardware provider to accelerate their computing interfaces into GPU-enabled cloud with streaming and visualization capabilities. We are at an advanced process of securing several additional multimillion dollar special core contracts with multiple government, DoD and large enterprise customers. The short-term aggregate value for these contracts is in the $5 million to $10 million range. While there is no guarantee that some or all of these will come to fruition, we anticipate that subject to government annual budgeting timing, a good portion of this will be signed before year-end 2024, with additional potential contract signings in calendar year 2025. Each of these potential contracts has significant growth elements built into them that could lead to significant annual recurring software revenue once the original contract has been successfully deployed. While Spatial Core is our strategic focus and growth engine, our other Glimpse entities, QReal, Sector 5 Digital, Foretell Reality and Glimpse Learning continue to generate meaningful enterprise revenues and positive momentum. Some recent examples include, Glimpse Learning entered into a 2-year mid-6-figure contract with the College of Staten Island CUNY Technology incubator for the design, deployment and integration of a suite of immersive technologies and its new innovation hub. This is a cross Glimpse project with a significant software license component. Foretell Reality entered into a 6-figure partnership with a large university to develop an AI-driven VR training system, enabling students and trainees to learn various professional skills through conversation centric simulations with an AI-based avatar in different immersive settings. In recent months, QReal has seen an increase in its revenues with Snap for AR 3D models and lenses. Sector 5 Digital entered into a 6-figure engagement with one of the world's largest architectural firms to visualizing AR to new business campus of a multinational retail company. Looking forward, we expect overall revenues to be significantly higher in the coming quarters based on signed contracts and our advanced revenue pipeline. We also expect to be cash flow positive and increase our cash balance between now and year-end 2024 and beyond without the need for a capital raise. These developments, significant traction and our positioning at the intersection of spatial computing, AI and cloud are not currently reflected in our public company valuation, which has come under significant and consistent pressure. As a result of that on September 3, 2024, the company received a letter from NASDAQ notifying the company that it no longer met the minimum bid price requirement for continued listing of the dollar. We have until March 3, 2025, to cure this deficiency and if not cured by then, the company can apply for an additional 180-day extension to cure to approximately September of 2025. In order to regain compliance with NASDAQ, the company may consider various potential measures to resolve the deficiency, such as leveraging its unutilized share buyback pool, insider buying and press releases announcing significant business developments when if those materialize. Such measures, if any are taken, may help cure the deficiency in due time. The company is not considering a reverse stock split at this time, a position that may change in the future. In light of Spatial Core's AI and cloud-driven revenues with large DoD entities, our strong pipeline of revenues and our expectation is to generate positive cash flows going forward. We believe that there is a sharp disconnect between our intrinsic value and our current public company valuation. As such, the Board of Directors of the company is exploring strategic options to maximize shareholder value. 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 and 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 measures, please refer to the MD&A section of our 10-K filings, which you can find on our website under SEC filings. Fiscal year '24 revenue of approximately $8.8 million, a 35% decrease compared to the fiscal year '23 revenue of approximately $13.5 million. Revenue for Q4 fiscal year '24 that's the quarter ending June '24, was approximately $1.7 million, a 41% decrease compared to Q4 fiscal '23 revenue of approximately $2.9 million. The decrease in revenue was primarily driven by: one, our strategic shift to Spatial Core, which led to a turnover in our legacy customer base which was more immersive marketing-oriented. Two, a consolidation and divestiture of some of our entities, and three, a general slowdown in corporate disposable spending in general and in the immersive industry, in particular. Looking forward, we expect, one, revenue for Q1 fiscal year '25 that's the quarter ending September '24, to be significantly higher than fiscal year Q4 fiscal year '24 revenue. And two, revenue for Q2 fiscal year '25, that's the quarter ending December '24, and revenue for Q3 fiscal year '25, that's the quarter ending March '25, will each exceed $3 million per quarter. Gross margin for fiscal year '24 was approximately 67% compared to 68% for fiscal year '23. We expect our gross margins to continue to remain in the 60% to 70% range. Adjusted EBITDA loss for fiscal year '24 was approximately $4.6 million compared to an EBITDA loss of approximately $6.4 million in fiscal year '23. Our current cash operating expense base, pre-revenue, is approximately $1 million per month. Given our projected revenue for Q2 fiscal year '25 and Q3 fiscal year '25, we expect to generate positive cash flow in each of those 2 quarters based on existing contracts only and our current operating cash expense base. As of June 30, 2024, the company had cash and cash equivalents of approximately $1.85 million and an additional $0.7 million in accounts receivable. We do not intend to raise capital in the foreseeable future, especially since we expect our operations to generate positive cash and add to our cash balance between now and year-end '24. The company has no outstanding corporate debt or 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-answer session. Lyron?

Thank you, Maydan. We have executed on the strategic transition plan we outlined in previous quarters and expect increased revenue and cash profitability in the coming quarters. We continue to make strong strides in our Spatial Core business. However, in our view, our stock is extremely undervalued and as such, we are in the process of exploring all potential options to unlock its value. I thank you all for your interest in and support all of The Glimpse Group. And now I'll turn the call back over to the operator to take some questions.

[Operator Instructions] Our first question comes from Casey Ryan with Westpark.

It's very good transition quarter and I think the outlook is fantastic on the revenue front. I want to ask a few questions about spatial computing. I think in terms of pursuing DoD opportunities, I think typically you guys are partnering with some other firms. And I'm just curious if there's one partner that you're leaning on in particular or if you're working with multiple partners to secure different branches and different opportunities and different types of engagements.

So the answer to that is we're working with multiple partners. We actually work directly with the variety of the end customers. And then based on the needs, we bring the partners in to work with us.

I see. And typically, is the agency, whether it be Army, Navy, Air Force or maybe some other government entity, do they have preferences for partners for you to bring in? Or do you guys have a lot of latitude with that, I guess, in terms of recommending things?

Many times, it goes with their preferences. Those are usually partners they've had history working with but sometimes we come with the partner. Sometimes they introduce us to the partner, which obviously opens up a lot of other opportunities that we are pursuing.

Well, yes. So that was really where I was going with the question was does getting these sort of new relationships, I guess, with these contracting partners expand the like top end of your funnel essentially for spatial computing?

Absolutely.

Okay. All right. Terrific. And then one question on the OpEx. I think I sort of missed it. Maydan was explaining it clearly, but I think I was distracted. So the OpEx was roughly $2.8 million, $2.9 million for this quarter is what it looks like. Are you suggesting that, that run rate is going to be similar or kind of even potentially lower per quarter moving forward?

Maydan, do you want to take that?

Yes. Our cash expense operating base is around $3 million a year, sorry not for year, $3 million per quarter.

Per quarter.

We have -- again, there's -- to a large degree, those are variable expenses that we have good control over. But given the growth in the business that we've been experiencing and expect to experience going forward, I think that $3 million base of cash operating expenses per quarter is a good assumption.

Okay. Okay. Terrific. And then the last question. You're talking about strategic maybe alternatives and trying to unlock the value and the shares would certainly agree with you that the shares are not where they should be. But tell me about -- have you had any divestitures that may be meaningful in the future in terms of getting equity interest and things that you've divested or tell me what's been happening with divestitures of sort of noncore pieces of your business?