The Glimpse Group, Inc. (NASDAQ:VRAR) Q1 2023 Earnings Conference Call November 14, 2022 4:30 PM ET
Company Participants
Lyron Bentovim – President, CEO
Maydan Rothblum – CFO and COO
Conference Call Participants
Ignacio Bernaldez – EF Hutton
Austin Vetterick – ROTH Capital Partners
Operator
Welcome to The Glimpse Group First Quarter Fiscal Year 2023 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. The earnings press release that accompanies this call was issued at the close of 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 would like remind everybody 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 like to 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 sections.
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. And thank you everyone for joining us. I’m pleased to welcome you The Glimpse Group’s fiscal first quarter 2023 financial results investor call for a 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 of 2023 of approximately $4 million representing 287% growth for 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 have our prior record quarterly revenue of approximately $2.5 million.
The quarter’s financials included two 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% of 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 just this quarter alone.
Balance sheet, as Maydan will detail later in his prepared remarks, we remain well capitalized and have a clean capital structure. With the core S5D and bright line acquisitions 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 seven-door share IPO price minimum for any equity issuance, whether it be acquisition related or employee’s stock options or other.
Operating cost structure remains predominantly variable. Through continued revenue growth combined with expense controls, we are committed to reaching cashflow neutrality from our operations in calendar year 2023. Just as Glimpse as achieved critical scaling 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 completed by year-end 2022.
At the end of this process, we expect to have six to eight larger remaining subsidiary companies, which will allow us to maximize go to market and branding synergies, optimize operations and reduce overlaps. The 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-six figure contract for the development of a 3D interactive gamified experience and MSPs for partner events held by a Fortune 60 global technology companies. S5D also entered into a mid-six figure agreement with a global pharmaceutical company to continue development of its award winning interactive anatomy training platform.
Our subsidiary company XR Terra entered into a six figure agreement with one of the largest telecommunications companies for the training in VR skills of several hundred K to 12 Teachers. Interactive is partnering with AT&T for collaborative immersive technologies 5G demonstration to be deployed at ASIC, the larger largest training and simulation tradeshow in the U.S.
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 caveats I mentioned before no cost consideration and equity within seven-door for sure floor.
During the quarter price, and since U.S. patents were transferred at the close of the Brightline Interactive transaction, and they are for an immersive ecosystem, and system and methods 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?
Maydan Rothblum
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 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. 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 revenue for the three months ended September 30, 2022 were approximately $4 million compared to approximately $1 million for the three 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 three months ended September 30, 2022 software service revenue was approximately $3.9 million compared to approximately $0.8 million for the three 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 three months ended September 30, 2022, software license revenue was approximately $0.09 million compared to approximately $0.22 million for the three months ended September 30 2021, reflecting a difference in timing of renewals. For the three months ended September 30, 2022, core software and services revenue, i.e. VR and AR software and services revenue excluding projects was approximately $1.3 million, compared to approximately $0.86 million for the three months ended September 30, 2021, an increase of approximately 49%.
For the three months ended September 30, 2022 core software and services revenue accounted for approximately 32% of total revenues, compared to approximately 84% for the three months ended September 30, 2021, reflecting the additions of Brightline and Sector 5. For the three months ended September 30, 2022 gross profit margin was approximately 69% compared to a gross profit margin of approximately 85% for the three months ended September 30, 2021. The decrease was driven by the addition of Brightline and Sector five, 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 or Brightline and Sector 5.
Operating expenses for the three months ended September 30, 2022 of approximately $8.2 million compared to $2.3 million for the three months ended September 30 2021, an increase of approximately 260%. 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 on our contingent consideration due to fluctuations in our stock price.
We sustained a net loss for three months ended September 30, 2022 of $5.4 million, compared to a net loss of approximately $1.7 million for three 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 configuration. The balance primarily represents operating expense growth, outpacing revenue and related gross profit. This reflects current 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 three months ended September 30 2022, was approximately $3.1 million, compared to approximately $1.1 million for three 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 three 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 three 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. The 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 goes 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 Lyron stated, getting to cash flow breakeven and beyond from operations in calendar year 2023 is a key strategic objective.
I’d now like to pass it back from Lyron for some closing remarks, after which we will begin our question-and-answer session.
Lyron Bentovim
Thank you, Maydan. In a challenging environment we maintain strong momentum, finalize the integration of our three recent acquisitions, and achieved the record revenue result well above our previous records. It’s been can be 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 its early stages of development, and we are cognizant of the macro trends. Therefore, as a strategic goal, we are determined and committed to reach cashflow 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 Glympse group. And now I’ll turn the call back over to the operator to take some questions.
Question-and-Answer Session
Operator
Ladies and gentlemen, the floor is now open for questions. [Operator Instructions] Ignacio Bernaldez at EF Hutton
Ignacio Bernaldez
Hey, good afternoon, and congratulations on the quarter. A lot of really good stuff here, I guess 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. And is there are any new developments in the recent month. Thank you.
Lyron Bentovim
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’re 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 kind of constantly kind of incoming opportunities into us. And we were — we start the process, we talked to them, we see their face, we see the cultural fit. And if we find something that is a creative to our shareholders, that makes a lot of sense, we will proceed and do it.
Maydan Rothblum
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 are basically our size, if not a bit larger 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 any acquisition that we make.
Ignacio Bernaldez
That’s helpful. Thank you both.
Operator
[Operator Instructions] Your next question for today is coming from Darren Aftahi at ROTH Capital.
Austin Vetterick
Hi. Thanks for taking my questions. This is Austin on for Darren. First question. I’m just curious. I think you’ve mentioned on the on the last call cash burn target for calendar ’22 is about $4 million and correct me if I’m wrong. But my question is, does that target continue to seem attainable?
And what measures are you taking to reach breakeven by ’23? And additionally, how do — how you think about balancing that goal with reinvestments in two current portfolio companies? And acquisitions, but all, I know you mentioned you wouldn’t be using any cash for acquisition. So I am curious if you’re, if you’d be looking more like all stock versus taking on any debt to do that.
Lyron Bentovim
So I will start kind of addressing the latter part of your question, Austin, and thank you for asking, and then Maydan will comment on the cashflow kind of currently and kind of some of the measures we’re taking.
So as we look at structuring acquisitions, historically, we’ve done most of the acquisitions in stock, and all of it kind of performance based with the floor of Seven Doors IPO price, as we talked about, and some cash elements. In the current environment, we have — basically kind of taken the cash elements off and we’ve basically converted to all stock.
We have no desire to take on any debts kind of either pre-existing debt in our in companies or that we will take on to do those acquisitions. So there will be stock only with a $7 floor or else kind of 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 cashflow self-sustain, meaning that we will have enough — generate enough cash flow from operations to sustain R&D investments. And given the current environment, we think that’s the prudent decision to go with. And therefore, that’s what we’d like to 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 planner, I’ll let Maydan to add more comments and more color.
Maydan Rothblum
Yeah. So our EBITDA of about negative $1 million right remains on track with what we stated before with the $4 million which you mentioned as well. This quarter was a little bit skewed because of Brightline and the deferred revenue issue. So that took our cash balance, or increased our actual cash outlay a bit more than expected. But if you neutralize that as a onetime event, because that’s not going to happen going forward, then we’re back at that $1 million or so EBITDA or negative EBITDA range per quarter. And again, we have to stay within that and get improve on that, in order to get to the goal that I think we pretty strongly stated on this call.
Austin Vetterick
Got it. That’s great. It’s very helpful. And just one more for me, and I’ll pass it on. I am curious what part of the VR/AR ecosystem that you’re not currently involved in that, that could be attracted to enter into in the near term, especially within the next year, given how many companies are looking to save cash right now. Are there any areas of the ecosystem in particular that might be more attractive than others to customers from a cost savings perspective?
Lyron Bentovim
So kind of as I look at kind of the industry as a whole. Kind of post our acquisition of Brightline, which really added the defense element to our business that we were looking for. We have our hands in almost every business. So most of the companies we’re looking at would at this point would add to areas we’re already playing in and just strengthen our positioning, both in terms of technology in terms of IP, in terms of talented individuals that could help us achieve significant success in it.
Regarding your question in terms of, in this environment, as people look to cut costs, where would they find opportunities? I think a strong area is in corporate training. And I think there is opportunities for companies to significantly streamline their processes and achieve strong ROI by converting some of their in-person kind of training mechanisms or ones that they do on digital into more immersive use of the technology.
Austin Vetterick
Got it. Appreciate all the all the all the color and congrats on the quarter.
Lyron Bentovim
Thank you, Austin.
Maydan Rothblum
Thank you.
Operator
Your next question for today is coming from Christopher Krostinor [ph], a private investor.
Unidentified Analyst
Hi, guys, congrats on the quarter. Just a question here with the recent acquisitions, and kind of wondering how that changes the mix and how to think about the current leading use cases now.
Lyron Bentovim
Christopher, thank you for joining the call and for your question. So as we look at the, I guess, transitioning opportunity base for Glimpse based on our recent acquisitions, I would say one area that we would look to grow significantly in 2023 based on the new mix of technologies we have is defense.
Brightline and Sector 5, both of our kind of two recent acquisitions have a lot of opportunities that are tied to that area. And I think that area would be a strong sustainable investment. And kind of investment leads to significant revenue in the next year, even if we face a potentially kind of weak economy as a whole.
Unidentified Analyst
Okay, so are there specific areas within defense, which is kind of defense broadly, how do I think about that?
Lyron Bentovim
Kind of some of these I actually can’t talk about not because I am kind of — we’re in a public company on a call just because some of those foregrounds are kind of very kind of specific for the military arm that’s using them and we can’t go into details. But we are talking with a variety of arms of the governments around opportunities with immersive technologies, both virtual reality and augmented reality.
Unidentified Analyst
All right. Thanks for taking my questions and keep up the good work, guys. Those were my questions.
Lyron Bentovim
Thank you, Christopher.
Maydan Rothblum
Thank you.
Operator
There are no further questions in queue. I would like to turn the floor over to Lyron for any closing remarks.
Lyron Bentovim
Thank you. I would like to thank each and every one of you for joining our earnings conference call. We look forward to continuing to update you on our ongoing process and growth. If we aren’t able to answer any of your questions, please reach out to us directly or through our IR firm MZ Group.
Operator
This concludes today’s webinar. Thank you for your participation. And have a wonderful day.
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