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

Welcome to The Glimpse Group's Second Quarter Fiscal Year 2025 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 ir.theglimpsegroup.com. That's 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, Jenny, and thank you, everyone, for joining us. I'm pleased to welcome you to The Glimpse Group's Q2 Fiscal Year 2025 Financial Results Investor Call for quarter ended December 31, 2024. I am very proud to announce that in addition to continued strong revenue growth, this quarter, we achieved positive EBITDA, positive cash flow and positive net income. This is the first time we've achieved positive EBITDA in our history as a public company and is a direct result of our strategic and operational restructuring over the past several quarters. With our strategic transition to focus on SpatialCore mostly complete and with the increasing incorporation of enabling AI elements across our product base, we are well positioned to capture the vast potential in the immersive technology space over the coming years as the immersive technology cycle gets closer to mass adoption. There are tremendous opportunities in front of us and to facilitate, in late December, we raised $6.8 million in net proceeds from one investor in registered direct equity offering. We currently have approximately $8.5 million in cash and a very clean capital structure. During the quarter, our subsidiary company, Brightline Interactive, delivered the second phase of its large DoD contract, an achievement of significant performance and technological milestone. BLI entered into an initial contract with the U.S. Navy for an immersive AI-Driven Simulator System to be delivered in the coming months, setting the ground for potential follow-on contracts in 2025 and beyond. BLI delivered a scalable immersive solution to a global government service integrator, positioning itself as a leading middleware for processing and visualizing complex information in 3D space and setting what we believe has the potential to become an industry standard. The Continuing Resolution and the [indiscernible] for 2025 has delayed the potential awarding of multiple government and DoD opportunities. We hope this will be resolved promptly in March 2025 when the current Continuing Resolution [indiscernible] and with a new administration and Congress now in place. Led by our subsidiary, Foretell Reality, we continue to make strong progress on commercializing our AI-driven immersive training product and have experienced encouraging initial traction with our customers and partners. We have a strong long-term revenue pipeline and expected contracts. But putting these aside, we already have a reasonable visibility as to the remainder of fiscal year 2025 ending in June 30, 2025. Driven by the timing of existing contracts, revenue recognition for Q3 FY '25, we expect a decline in revenue and negative adjusted EBITDA to be more than offset by a very strong Q4 FY '25 with significant revenue growth, positive adjusted EBITDA and profitability. For the full fiscal year '25 ending June 30, 2025, we expect aggregate revenue to significantly exceed our FY '24 revenue and to be about EBITDA breakeven for the full fiscal year versus a significant adjusted EBITDA loss in the prior fiscal year. 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-Q and press release that were filed before market opened today. Please note that I'll refer to adjusted EBITDA and other non-GAAP measures. For the calculation of adjusted EBITDA and other non-GAAP measures, please refer to the MD&A section of our 10-Q filing, which you can find on our website under SEC Filings. Q2 fiscal year '25 revenue of approximately $3.17 million, reflecting: a, 52% increase compared to Q2 fiscal year '24, which ended December 31, 2023, revenue of approximately $2.8 million; and b, a 30% increase compared to Q1 fiscal year '25 of the quarter that ended September 30, 2024, revenue of approximately $2.44 million. The increase in both comparative periods was primarily driven by an increase in SpatialCore revenues as well as growth in our other businesses. Gross margin for Q2 fiscal year '25 was approximately 64% compared to 68% for Q2 fiscal year '24. The decrease was driven by revenue mix, which tends to oscillate a bit between the quarters. On average, we expect our going-forward gross margins to continue to be in the 60% to 70% range. Q2 fiscal year '25 positive adjusted EBITDA of approximately $0.28 million compared to an adjusted EBITDA loss of approximately negative $1.33 million for Q2 fiscal year '24. Net operating cash provided from operations for Q2 fiscal year '25 was approximately $0.17 million compared to a net operating cash loss of approximately negative $1.68 million for Q2 fiscal year '24. Importantly, as Lyron mentioned, this is the first profitable EBITDA quarter in the company's history as a publicly traded company, reflecting our significant restructuring efforts over the past few quarters, combined with revenue growth. Some specifics regarding the visibility Lyron mentioned. For Q3 fiscal year '25, we expect a decline in revenue to a range of $1.5 million to $2 million with negative adjusted EBITDA to be more than offset by a strong Q4 fiscal year '25 with expected revenue range of between $3.3 million and $4 million and positive adjusted EBITDA. For our fiscal year '25 ending June 30, 2025, we expect aggregate revenues to exceed $11 million compared to $8.8 million for fiscal year '24, a 25%-plus increase in annual revenue and break-even adjusted EBITDA for the fiscal year versus significant adjusted EBITDA loss in the prior fiscal year. Our current cash operating expense base fee revenue is now less than $0.9 million per month. Given our contracted and projected revenue cash-in going forward, we expect to generate positive cash flow in each of the remaining quarters for fiscal year '25. The company's cash and equivalent position as of December 31, 2024, was approximately $8.5 million with an additional $1.4 million in accounts receivable. The increase in our cash position was primarily a result of our December '24 registered direct equity financing in which we raised $7.3 million in gross cash proceeds from one investor in a clean structure. We continue to maintain a clean capital structure with no debt, no convertible debt and no preferred equity. Lastly, on December 24, 2024, we received a written notice from Nasdaq informing the company that it had regained compliance with Nasdaq listing, which requires listing securities to maintain a minimum bid price of $1 per share. This closes the matter that originated on September 3, 2024. I'd now like to pass it back to Lyron for some closing remarks, after which we will begin our Q&A session.

Thank you, Maydan. As we guided in previous quarters, we continue to make progress in our strategic plan and have achieved strategic and operational restructuring, revenue growth, profitable operations, major contracts and key technological developments in the area of AI, special computing, cloud and immersive technologies. In parallel, we have bolstered [indiscernible] and are well positioned to execute on our growth strategy and the huge opportunities in front of us. 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. Jenny?

[Operator Instructions] Now our first audio question is coming in from Casey Ryan of WestPark Capital.

Great quarter, gentlemen. It looks really good. I had a couple of questions. Just high level, would you care to frame for everybody or for me, I guess, what the revenue split looks like between commercial and government and what you think the shape of that looks like moving forward? It feels like there's a lot of positive activity, obviously, around the DoD and government opportunities. But I'm just wondering if you can give us some sense of the split for revenues.

Casey, thank you. At this point, we're probably around 40%-ish government and 60% commercial.

And what do you imagine as you look forward, maybe just for the remainder of this fiscal year? Does that feel like it will stay steady? Or do you think that will change in some meaningful way as we go forward?

I think for the remainder of our fiscal year, we will be kind of around that range. And then as we look into 2025, we're hoping to increase the government percent of this as kind of some of that business comes in.

Yes. Okay. All right. Terrific. And then tell me what your perspective is. It feels like there's a lot of very clear use cases now being talked about around DoD and maybe other government but military applications specifically for your solutions. What's the development at the end customer, I guess, commercial versus government? Do you feel like the commercial opportunities are -- or use cases are as clearly defined, I guess, for the commercial space?

Yes. No, I think the kind of the applications on the kind of military defense side are going to lead to even further kind of -- and larger opportunities on the commercial side. So we're definitely levering work we're doing on the kind of defense side to then put solutions in front. [ But it will definitely ] take time to kind of [indiscernible] commercial side, but those will be very significant applications on the same technologies.

Okay. Terrific. And then my third question is just around the operating expense line. I think there was a lot of progress or a big reduction there in the OpEx line versus last year, but even versus the prior quarter. Maydan, I think you had mentioned $900,000 per month as sort of an OpEx run rate, but correct me if I misheard that. Are we thinking that OpEx will be in the same range per quarter moving forward? And I think my math is sort of $1.9 million type of number per quarter. Or do we think that those levels will start to rise a little bit as we move into the end of the year?

Yes. Casey, yes, that estimate is correct. I think it will be stable going forward for certainly the remainder of the year. We'll see what happens going forward. We do have some capacity runway under that. It really depends on the timing of some of these larger contracts that may hit in the coming months. So we'll wait and see. But at the current level of revenue, this is the expected operating base going forward.

Okay. All right. Terrific. And then just to sort of round out on things that we talked about in the past, I guess, have there been anything -- any meaningful, and maybe there haven't been because you didn't include them in the press release, but opportunities in terms of divestitures? And then, I guess, on the other side of the coin, are there any opportunities that you see to potentially acquire important or new assets out there that you guys are maybe working on in terms of business development?

The answer to both is yes. So we see kind of opportunities to monetize and divest pieces of our business that we see as less critical for what we're doing, and kind of we're exploring some of those avenues. And on the same time, we're seeing a lot of interesting opportunities on the outside. And we're always looking to see how we can structure deals that are accretive to the company and then productive in our kind of path forward. So there's opportunities on both sides, but we're not going to rush into anything that doesn't make sense for shareholders.

Okay. But not putting any timing, it's something that like we should continue to pay attention to as being potentially positive both ways in terms of monetizing assets and potentially acquiring new assets as we move forward?

Yes. That's definitely something to pay attention to.

Your next question is coming from Jack Rubinstein of DICA Partners.