The Glimpse Group, Inc. (NASDAQ:VRAR)
Q4 2022 Earnings Conference Call
September 28, 2022 4:30 PM ET
Company Participants
Lyron Bentovim – President and CEO
Maydan Rothblum – CFO and COO
Mark Schwalenberg – IR, MZ Group
Conference Call Participants
Austin Vetterick – Roth Capital
Ignacio Bernaldez – EF Hutton
Presentation
Operator
Welcome to The Glimpse Group Fiscal Year 2022 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. A 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, [Sherry] (ph), and thank you everyone for joining us. I’m pleased to welcome you to The Glimpse Group’s fiscal year 2022 financial results investor Call for our year ended June 30, 2022. Glimpse’s fiscal year 2022 was a transformational year, commencing with our NASDAQ IPO, ending with the addition of Brightline Interactive and highlighted by consecutive record revenue quarters, high gross margins, strong organic growth and several accretive acquisitions.
As it relates to revenue, we have revenue — record revenue for fiscal year 2022 of approximately $7.3 million, representing a 2.1 times growth compared to the fiscal year 2021 revenues of approximately $3.4 million. This includes five months on Sector 5 Digital, S5D acquisition which closed on February 2, 2022. On a full as if fiscal year basis with full year of S5D revenues would have been approximately $9.8 million, almost 3 times increase compared to fiscal year ’21.
Our acquisitions of Brightline Interactive closed on August 1, 2022. Brightline generated over $5 million in fiscal year 2022. On a combined basis, we are at $15 million trailing annual revenue run rate. In other words, in about a year’s time, we have grown our revenue base by 4.4 times. We also continue to [send] (ph) record revenue on a quarterly basis with Q4 fiscal year 2022 revenue of $2.5 million, 2.5 times growth compared to approximately $1 million for the same quarter last year and sequentially breaking out a third quarter fiscal year 2022 record revenue of approximately $2 million.
Importantly, our core software and services revenue, which excludes project revenue, grew by about 2.5 times for the fiscal year, while our gross margins were over 80%. Cash flow and balance sheet. [indiscernible] detail later in his prepared remarks, we remain well capitalized and have a clean capital structure. Our expense structure is highly variable amongst approximately 80% of expenses are labor related and we have a controlled annual net cash burn of approximately $4 million expected for calendar year ’21, which is well below our cash balance.
That being said, we continue to be mindful of macroeconomic developments and their potential impact on our customers, our revenue pipeline and our operations and we maintain the flexibility to adjust our expense and organizational structure if needed. As our subsidiaries grow and in combination with the continued development of the immersive technology industry, we have begun an internal evaluation of potential consolidations of some of our subsidiary companies in order to optimize operations, maximize go to market synergies, reduce overlaps, creates stronger branding and increase scale within our ecosystem.
Organic growth and acquisitions. We continue to see traction and revenue growth across industries and we have an impressive roster of Tier 1customers, which have significantly expanded with the addition of S5D and Brightline. While we’re not always in a position to name these in press releases, you can review the customer and relationship slides in the corporate presentation on our IR website for a select list. In parallel to our organic growth, we continue to explore acquisitions and are in discussions with several potential targets that would lead to accretive acquisitions. As per all of our post IPO acquisitions, to protect our shareholders we remain committed to not issuing equity at below IPO price of $7 a share as floor issuance. In addition, we will continue to strive to structure acquisitions intelligently. Primarily performance based and accretive. While there is no guarantee that this will materialize, we do expect to complete additional acquisitions during this calendar year.
IP. We continue to expand our intellectual property assets with four recently patent issuances. Our seventh and eighth U.S. patents were for a virtual reality system cross platform along with simultaneous interaction across viewing platforms and a marker based positioning of simulated reality, relating to the system for presenting a simulated reality relative to user’s position. Our ninth and tenth U.S. patents were transferred at the close of Brightline Interactive transaction and are for an immersive ecosystem and system and method for generating an augmented reality experience. We have several more patents in process and view our patent as forward-looking strategically positioned with significant potential and importance when the immersive industry matures.
With the addition of S5D and Brightline Interactive and our organic growth, we have achieved critical scale in an industry which solely lacks that. We are now on a trailing — $15 million annual revenue run rate without further growth or acquisitions, have over 200 immersive industry developers, engineers and 3D artists, own 10 patents and an impressive roster of Tier 1 customers and partners across industries and geographies.
With these, we are one of the largest independent VR and AR software and services companies. While the immersive industry remains an early stage industry, there has been a tremendous level of progress with many of the leading companies in the world across industries, making initial forays with increasing enterprise adoption of ROI based solutions. While we are operating in an increasingly challenging global economic environment, Glimpse is built for the long run. As the balance sheet and operating structure to withstand macroeconomic headwinds and is well positioned to capitalize on the immense growth opportunities ahead of us.
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. For the calculation of adjusted EBITDA and other 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. I’ll quickly note that the fiscal year 2022 financials do not include the recent addition of Brightline Interactive, which closed on August 1, 2022. Brightline or BLI generated approximately $5 million of revenues in calendar year 2021 with 65% gross margins and positive net income.
While I will focus my remarks on our fiscal year, I will mention that we achieved record quarterly revenue of approximately $2.5 million for Q4 fiscal year ’22, a 149% increase compared to Q4 of fiscal year 2021 revenue of approximately $1 million and a 22% increase compared to our previous revenue record achieved in Q3 fiscal year ’22. That’s the January to March ’22 quarter of $2.1 million.
Total revenue for the year ended June 30, 2022 was approximately $7.27 million compared to approximately $3.42 million for the year ended June 30, 2021, an increase of approximately 113%. At the high range of our initial estimate of approximately $7.15 million to $7.25 million preannounced in July 2022. For the year ended June 30, 2022, core software and services revenue, which excludes project revenue was approximately $4.18 million compared to approximately $1.72 million for the year ended June 30, 2021, an increase of approximately 143%. For the year ended June 30, 2022, non-project revenue accounted for approximately 58% of total revenue compared to approximately 50% for the year ended June 30, 2021.
For the year ended June 30, 2022, software license revenue was approximately $0.55 million compared to approximately $0.34 million for the year ended June 30, 2021, an increase of approximately 62%. As the VR and AR industries continue to mature, we expect our software license revenue to continue to grow on an absolute basis and as an overall percentage of total revenue.
Gross profit was approximately 83% for fiscal year ‘22 compared to approximately 57% for fiscal year ’21. The increase in gross profit margin was primarily due to an increase in non-project revenue, improved project management and expanded utilization of our Turkey based staff. On a go-forward basis, we expect overall gross margins to decrease to the 60% to 70% range due to the additions of BLI and S5D. Operating expenses for the year ended June 30, 2022 were approximately $12.37 million, compared to $7.91 million for the year ended June 30, 2021, an increase of approximately 56%. These increases are driven by four acquisitions in fiscal year 2002, associated infrastructure to support a greater revenue base and the increased expenses attributable to operations of a public company commencing from our IPO in July 1 2021.
Net loss for the year ended June 30, 2022 was $5.96 million compared to a net loss of $6.09 million for the period — for the prior 2021 period, an improvement of 2%, primarily driven by increases in revenue, gross profit and other income expense, outpacing growth in operating expenses. Net cash used in operating activities was $4.94 million for the year ended June 30, 2022 compared to $1.21 million for the year ended June 30, 2021. This is primarily driven by operating expenses outpacing revenue and gross profit driven by four acquisitions made in fiscal year 2022, associated infrastructure to support a greater revenue base and increased expenses attributable to operations as a public company.
Adjusted EBITDA loss of $3.97 million for the year ended June 30, 2022 increased by $2.5 million as compared to $1.47 million loss — EBITDA loss for the year ended June 30, 2021. Recap, we ended the fiscal year with a strong balance sheet of approximately $16.2 million in cash, and additional $2 million held in escrow for potential future performance payments related to the S5D acquisition. Cash balances decrease in of fiscal year ‘23, that’s the September — the July to September quarter primarily to account for the cash portion of the Brightline acquisition, approximately $3.5 million in cash, including fees and expenses, which closed on August 1, 2012. We have no material cash liabilities, no preferred equity outstanding, no convertible debt obligations and no debt. As Lyron mentioned, we have a highly variable expense structure, we watch every dollar closely and are highly cognizant of the macroeconomic environment.
Insiders continue to own a substantial portion of the company, approximately 40%, which we believe aligns us very well with the shareholder base at large. In this regard, I would like to note that in conjunction with our earnings report we also filed a Form S8 with SEC to register an executive founders and Board of Directors stock options and founder shares. As a reminder, a Form S8 registering the company’s employee stock options was filed with the SEC approximately one year ago. The Founder, Executive and Board have not sold a single share in the company’s history, nor is there any intention to sell in the foreseeable future. In fact, the Group has been a purchaser of common shares on the open market, despite already having a large position in the company. As the largest shareholders in the company we have a strong long commitment to success and all the growth is in front of us. We view this registration as a technicality and a natural step in our development as a public company.
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 Bentovim
Thank you, Maydan. We are very proud of our achievements during our first year as a publicly traded company and establishing Glimpse as one of the largest independent VR and AR software and services company. This is a very exciting time in the lifecycle of the immersive technology sector in general and Glimpse in particular. The industry is coming together, hardware, software telecom infrastructure, market awareness and enterprise adoption are all making significant strides in sync. Glimpse continues to demonstrate successful operational execution against its long-term growth strategy and is building scale through select accretive acquisitions, new customer attraction, partnership engagement, recognition by industry leaders and advancement of IP.
Looking ahead, we expect to continue on our strong growth path during fiscal 2023, both organically and via our accretive acquisitions. On numerous fronts we are well positioned to capitalize on the many industry opportunities and further strengthened our leading market position.
I thank you all for your interest in and support of the Glimpse Group. And now I’ll turn the call back to the operator to take some questions.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] Our first question is a phone question from Darren Aftahi with Roth Capital. Please proceed.
Austin Vetterick
Thank you. This is Austin on for Darren. I just have two. So one, I’m curious how you think about long term trajectory of more recurring revenue versus project-based revenue? And how you’re positioning your salesforce versus engineering teams with respect to driving more recurring revenues? And also relating to that, I was just curious what the gross margin variation is between project based versus non-project based revenue if any? Thanks.
Lyron Bentovim
Sure. So I’ll take a stab at the first question and then I’ll pass it to Maydan to answer the second question. So as we look at our revenue long term, we expect to have a very large significant portion of those being recurring software revenue. The industry is not there yet. All of the organizations and enterprises are looking at this, they want customization and a lot of our project revenue is basically taking our technology, our software and customizing it to specific needs of these organizations that they start in.
If you look at the last year, our recurring revenue element grew pretty significantly over the year before, but we expect that to continue to grow as we move into future years, putting aside on an organic basis, obviously, as we add acquisitions sometimes they will kind of more recurring revenue base and that will kind of cause the revenue mix to go higher, sometimes they would add in more project-base and that will cause it to go lower. But overall, the trend is that, the recurring software revenue is growing and will continue to grow as we move and the industry matures. Maydan do you want to take the second question.
Maydan Rothblum
Yeah. Let me just add to the first one. I mean, as I mentioned in my comments, not far from 60% of our revenues were software and services versus project. Last year it was about 50%. So we’re definitely making progress on that end. We have a rule of thumb that a project needs to be at least 50% gross margin. But we’ve historically achieved higher rates than that. So let’s just say somewhere between 50% and 60% gross margin on the project side and on the software — the pure software, obviously, it can be very, very high, north of 90%. And services tend to be somewhere between 70% and 90% depending on the type of service or maintenance.
Austin Vetterick
I appreciate that. And just one last quick one from me. I’m curious as time goes on you do more projects. I know you guys own the underlying IP, are there any learnings that you do, a new project that would then carry over to the next that could come in the form of cost savings, thereby maybe improving gross margins over time?
Lyron Bentovim
Always, so again kind of to make sure, kind of, we are very clear, we do not do work for hire, kind of all of our projects are basically enhancing our solutions and our technology and there is always a learning that comes with it. But many times an improvements to our software and products that comes from that. So that’s kind of the strategy has always been to grow our products by investing efforts into our projects.
Austin Vetterick
Great. Well, I appreciate you taking my questions.
Lyron Bentovim
Thank you.
Maydan Rothblum
Thank you.
Operator
[Operator Instructions] Our next question is from Benjamin Piggott with EF Hutton. Please proceed.
Ignacio Bernaldez
Good afternoon, this is Ignacio Bernaldez, who is calling on behalf of Benjamin Piggott [indiscernible]. First of all, thank you for your time and congratulations on another great year. You mentioned that Glimpse began an internal evaluation of potential consolidation opportunities, can you just give a little bit more color on that? I mean, what that looks like?
Lyron Bentovim
Sure. And thank you for taking the time to join our call. So, as we look at kind of the industry growing and our company’s growing, as they grow sometimes there is overlap. It could be a technological overlap, it could be a go to market overlap. And as we are constantly striving to build scale within our companies we’re looking at our company’s understanding how they fit vis-a-vis each other, and when we see kind of situations where there is a clear overlap for this, economies of scale in terms of building kind of taking the same technology and using it for multiple use cases or kind of taking the same go-to-market approach and using it across a couple of products, we are looking at consolidation, which allows our companies to be more efficient. So that’s the process we are undergoing right now internally and if and when we achieve kind of results, obviously, we will share that with the market. But at this point, it’s an internal process that we’re evaluating.
Ignacio Bernaldez
That’s great. Thank you so much.
Operator
Thank you. Now I would like to turn the conference back over to Mark Schwalenberg with MZ Group for our questions online.
Mark Schwalenberg
Thank you, Sherry. So just one rating question guys, but the question is a good one. Are there any plans to acquire further companies that would add to the portfolio within the next quarter or two or anything you can add on color on regarding that?
Lyron Bentovim
Sure. Thank you, Mark. It is a good question and that’s something that we’re spending a lot of time on. We have a very, very strong pipeline of the companies that are interested in joining Glimpse and have solutions that’s kind of would enhance the Glimpse portfolio. So we are in active conversations with quite a few of them across geographies, across kind of different use cases within the technology and we are kind of in the process of evaluating their feet into Glimpse and our ability to make them better as they make us better. And obviously, kind of we will only do transactions that are accretive to shareholders. But I do expect, again, no promises since kind of we don’t know what deals [indiscernible] done that we will have additional transactions to report over the next couple of quarters.
Mark Schwalenberg
Okay, great. And with that, Lyron, I will turn it back to you for some closing remarks.
End of Q&A
Lyron Bentovim
Thank you, Mark. 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 progress and growth. If we are unable to answer any of your questions, please reach out to us directly or through our IR firm, MZ Group.
Operator
Thank you. This does conclude today’s webinar. Thank you for your participation and have a wonderful day.
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