The Glimpse Group, Inc. (NASDAQ:VRAR) Q3 2023 Earnings Call Transcript May 15, 2023

Operator: Welcome to The Glimpse Group Fiscal Third Quarter 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 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.

Lyron Bentovim: Thank you, Max, and thank you, everyone, for joining us. I am pleased to welcome you to The Glimpse Group’s fiscal third quarter 2023 financial results investor call for our quarter ended March 31, 2023. Glimpse’s fiscal third quarter was highlighted by continued revenue growth, combined with significant cost reductions as we drive towards our goal of achieving cash neutrality from operations in calendar year 2023 and the initial stages of a strategic repositioning towards providing immersive enterprise software and services that are driven by cloud computing and AI. For our fiscal third quarter 2023, we generated revenue of approximately $3.7 million, the second largest revenue quarter in the company history and representing 79% growth compared to third quarter 2022 revenues of approximately $2 million.

For the first 9 months of fiscal year 2023, we generated record revenue of approximately $10.6 million, representing 122% growth or 2.2x compared to the $4.8 million for the same period last year. Our substantiated revenue pipeline is the largest in the company’s history. While we are generally encountering a slower sales cycle in the translation of these into signed contracts, a general indicator of a macroeconomic environment in our view, this pipeline could lead to significant revenue growth in the coming quarters. To illustrate this point, during the quarter, we announced new contracts with the U.S. Naval Surface Warfare Center, Dahlgren Division; Denny’s; the University of Maryland’s Robert H. Smith School of Business; and one of the largest telecom service providers, to name a few.

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. We remain committed to reaching cash flow neutrality from our operations in calendar year 2023 and expect to achieve that through a mix of revenue growth and, if needed, additional cost cuts. In parallel to driving key technology initiatives around AI, computer vision and NFT blockchain integration into our various immersive technology software platforms and solutions, we recently initiated a Glimpse-wide strategic initiative to develop and provide cloud-based scalable immersive technology software enterprise platforms. We believe that in order to unleash the power of immersive technologies and realize their full potential, they must be run on far larger computing power and on networks that can deliver various immersive experiences.

In essence, the immersive industry needs to untether itself from hardware-centric platforms to cloud-driven platforms. While tremendous progress has been made in recent years, immersive computing has been done on individual devices like phones and headsets. This has inhibited the power of the application that can be developed, delivered and utilized by enterprises. As we look to the near future, we clearly see that a major shift in compute is already underway. With that in mind, we believe that the future of all immersive technology platforms and products lies in hyperscale, which means computing and delivering complex spatial data or immersive content in real time all the time to all devices in all locations. To illustrate one example, utilizing our digital twin portal technology, entities in big data segments such as government, defense and large enterprise can effectively create and consistently access and interact with complex immersive environments that accurately digitally replicate their actual facilities and engineering footprint, also known as digital twins.

The potential applications are robust from corporate training, to military and industrial simulations, to security, to facilities planning, to global collaboration and data analysis and much more. Backed by world-renowned technology partners, such as NVIDIA, Microsoft and AT&T, we have commenced the process of bringing hyperscale cloud, advanced networks and unprecedentedly immersive interactions to commercial, public and private sector customers around the world, and it is not fiction. It is happening right now. In fact, today, we were selected to support a major immersive technology hardware provider to accelerate their computing interfaces into GPU-enabled cloud with streaming and visualization capabilities. We expect to collaboratively develop cloud-native tools that will provide enhanced systems of interactions for their user base.

With this transition, Glimpse is positioning itself as a leader in accelerated cloud computing, advanced telecommunication networks and major scale deliveries of immersive technology, products and services. We use cloud-based universal technologies, which are not tied to any specific field, to solve major problems across all sectors. We serve as a connector and knowledge center between large cloud service providers, network designers, artificial intelligence researchers, creators of open standards and immersive technologies. This is not a trivial task. However, Glimpse is uniquely positioned to deliver on this vision. Specifically, since our ecosystem has produced what we believe is one of the highest concentration of immersive technology talent and industry relationships anywhere in the world, this gives us significant first-mover advantage.

We will continue to explore the filing of additional patents beyond our 10 issued patents and several others previously filed patents, in particular, ones revolving around immersive technologies, AI and/or cloud computing. During this quarter, the company moved forward with the previously discussed long-term incentive plan and issued stock options to three executive founders of the company. Divesting of these stock options shall occur over 4 years from issuance and is primarily based upon the company’s achievement of significant annual revenues between $30 million and $100 million and stock prices between $20 a share to $60 a share, growth targets with a fixed exercise price of $7 a share. In addition, and unrelated to this plan, the executives reduced their cash salaries by 20% to 25% and have never sold a share of the company since its inception.

These are all strong indicators of our belief in the company and its long-term potential. With that, I will now turn it over to Maydan Rothblum, Glimpse’s CFO and COO, to review the financial results. Maydan?

Maydan Rothblum: Thanks, Lyron. I limit my portion to a summary review of our financial results. A full breakdown is available in our 10-Q and 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 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. Total revenues for the 3 months ended March 31, 2023, was approximately $3.67 million compared to approximately $2.05 million for the 3 months ended March 31, 2022, an increase of 79% in the second half quarter in the company’s history. Total revenue for the 9 months ended March 31, 2023, was approximately $10.57 million compared to approximately $4.77 million for the 9 months ended March 31, 2022, an increase of approximately 122% and the highest for a 9-month period in the company’s history.

The increase for both periods reflects the addition of several subsidiary companies through acquisitions and new customers. Gross margin was approximately 67%, which is within the 60% to 70% range of gross profit we expect to continue to see going forward now that we are past the full integration of Sector 5 Digital and the Brightline acquisitions. Adjusted EBITDA loss for Q3 fiscal year 2023 was approximately $1.1 million, flat compared to the comparable 2022 period despite a significant increase in head count due to several acquisitions. In addition, this quarter’s adjusted EBITDA was approximately $1.5 million lower than the prior quarter ended December 31, 2022, which was negative $2.6 million. Cash flow used in operating activities was approximately $1.1 million for Q3 fiscal year 2023 compared to approximately $3.4 million in the prior quarter ended December 31, 2022, and $3.1 million in the quarter ended September 30, 2022.

This is a significant improvement, as seen in both our adjusted EBITDA and cash flow from operations, reflects the cost-cutting measures we initiated, including workforce reduction of approximately 10%, cash salary reductions ranging from 20% to 25% for executives and 10% to 20% for several higher-salaried employees, replaced by common stock of the company or stock options, reduction in leased office space and reduction in outsourced services. We will continue to take the steps required to meet our goal of achieving cash flow neutrality from existing operations in calendar year 2023. To recap, we ended the quarter with approximately $8.3 million in cash and equivalents, including $2 million cash held in escrow for potential future performance payments related to the S5D acquisition.

We have no material cash liabilities, no preferred equity outstandings and no convertible debt obligations. With that, I’d like to pass it back to Lyron for some closing remarks. After which, we will begin our Q&A session.

Lyron Bentovim: Thank you, Maydan. This is a very exciting time for the immersive industry in general and Glimpse in particular. Developments in cloud computing, AI and blockchain represent strong potential catalysts for our business. And the potential announcement in a few weeks by Apple of a new XR headset could lead to significant momentum for the industry. Meta’s Oculus headsets revolutionized the industry, enabling enterprise-level VR. Apple’s potential headsets could push it to the next level in terms of enterprise capabilities on both the VR and AR fronts as well as be a meaningful step towards larger consumer adoption. To recap, we ended the quarter with approximately $8.3 million in cash and equivalents, including $2 million cash held in escrow for potential future performance payments related to the S5D acquisition.

We have no material cash liabilities, no preferred equity outstandings and no convertible debt obligations. With that, I would like to pass it back to Lyron for some closing remarks. After which, we will begin our Q&A session.

Lyron Bentovim: Thank you, Maydan. This is a very exciting time for the immersive industry in general and Glimpse in particular. Developments in cloud computing, AI and blockchain represents strong potential catalysts for our business. And the potential announcement in a few weeks by Apple of a new XR headset could lead to significant momentum for the industry. Meta’s Oculus headsets revolutionized the industry, enabling enterprise-level VR. Apple’s potential headsets could push it to the next level in terms of enterprise capabilities on both the VR and AR fronts as well as be a meaningful step towards larger consumer adoption. Our strategic hyperscale initiative is a game changer. We plan to lever the years of development by Glimpse subsidiaries, our know-how, our IP and our relationships to position Glimpse as a leader in the movement to cloud-based immersive technology solutions.

As we continue to reiterate, we are part of a long-term game. However, significant progress is constantly making – being made and we are at the forefront from capabilities, scale and customer base perspectives. I thank you all for your interest in and support of The Glimpse Group. And now I will turn the call back over to the operator to take some questions.

Operator: [Operator Instructions] We do not have any current questions in the phone queue at this time. Are there any questions in the chat box that you would like to be addressed?

Operator: This concludes today’s webinar. Thank you for your participation and have a wonderful day.