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Earnings call: The Glimpse Group reports mixed Q1 results, optimistic outlook

EditorAhmed Abdulazez Abdulkadir
Published 11/15/2024, 06:35 AM
VRAR
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The Glimpse Group, Inc. (NASDAQ: VRAR), a diversified Virtual Reality and Augmented Reality platform company, reported its fiscal Q1 2025 earnings with mixed results but showed optimism for the future. President and CEO Lyron Bentovim highlighted the completion of the first phase of a significant Department of Defense contract and progress on multimillion-dollar contracts in spatial computing and AI-driven immersive software.

Q1 revenue reached approximately $2.44 million, a 44% increase from the previous quarter, yet a 21% decrease year-over-year. The company anticipates average quarterly revenues to exceed $3 million and total revenues for FY 2025 to be between $11 million and $12 million.

The gross margin stood at 79%, with an adjusted EBITDA loss of $0.46 million, showing improvement from the previous year's loss of $1.29 million. The Glimpse Group also announced the divestiture of its subsidiary, QReal, which is expected to simplify operations and improve cash flow.

Key Takeaways

  • The Glimpse Group reported a 44% sequential increase in Q1 revenue to $2.44 million but a 21% decrease from the same quarter last year.
  • Significant contracts in spatial computing and AI are expected to bring in $5 million to $10 million, with confirmations due by early 2025.
  • The company secured multiple mid-six figure contracts in various sectors, including water infrastructure and education.
  • QReal, a subsidiary of The Glimpse Group, saw revenue growth due to increased demand for AR lenses and 3D models.
  • The Glimpse Group forecasts average quarterly revenues to exceed $3 million and total FY 2025 revenues between $11 million and $12 million.
  • Gross margin for Q1 was approximately 79%, and the adjusted EBITDA loss improved to $0.46 million.
  • The company expects to achieve positive cash flow in the upcoming quarters and has divested QReal to streamline operations.
  • The Board of Directors is exploring strategic options to enhance growth and correct the perceived undervaluation in the market.

Company Outlook

  • Expected confirmation of multimillion-dollar contracts in December 2024 and early 2025.
  • Anticipated average quarterly revenues exceeding $3 million, with total FY 2025 revenues between $11 million and $12 million.
  • Positive cash flow expected in the upcoming quarters without the need for additional capital.
  • The strategic realignment and divestiture of QReal are aimed at simplifying operations and improving financials.

Bearish Highlights

  • Q1 revenue fell by 21% year-over-year, primarily due to strategic realignment.
  • The intrinsic value of the company is not reflected in the current market valuation.

Bullish Highlights

  • The company delivered the first phase of a significant DoD contract.
  • Secured multiple mid-six figure contracts across various sectors.
  • QReal experienced growth due to increased demand for AR lenses and 3D models.
  • Software (ETR:SOWGn) license revenue doubled to approximately $200,000 for the quarter.

Misses

  • Despite overall growth, there was a notable year-over-year decrease in Q1 revenue.
  • Adjusted EBITDA remained in the loss, although improved from the previous year.

Q&A Highlights

  • Executives expressed optimism about the company's diverse revenue streams and growing market opportunities.
  • The software license revenue is expected to be a sustainable quarterly run rate, driven by potential follow-on contracts.
  • Government contracts are awaiting the finalization of the federal budget for fiscal year 2025, expected by March 2025.
  • Positive sentiment about QReal's potential and contribution to the company's growth trajectory.

InvestingPro Insights

The Glimpse Group's (NASDAQ: VRAR) recent financial results and strategic moves align with several key insights from InvestingPro. The company's market capitalization stands at a modest $12.72 million, reflecting its current position in the emerging VR and AR space.

InvestingPro data shows that VRAR's revenue for the last twelve months as of Q4 2024 was $8.8 million, with a concerning revenue growth decline of -34.7% over the same period. This aligns with the company's reported 21% year-over-year decrease in Q1 revenue. However, the company's projection of average quarterly revenues exceeding $3 million suggests a potential turnaround in this trend.

An InvestingPro Tip highlights that VRAR holds more cash than debt on its balance sheet, which is crucial for a company in a growth phase, especially as it navigates through strategic realignments and explores new contracts. This financial cushion supports the company's assertion that it can achieve positive cash flow in upcoming quarters without additional capital needs.

Another relevant InvestingPro Tip indicates that analysts anticipate sales growth in the current year. This expectation aligns with The Glimpse Group's optimistic outlook on multimillion-dollar contracts and increased average quarterly revenues.

It's worth noting that InvestingPro offers 7 additional tips for VRAR, providing a more comprehensive analysis for investors interested in deeper insights into the company's financial health and market position.

The company's gross profit margin of 66.59% for the last twelve months as of Q4 2024, as reported by InvestingPro, is consistent with the 79% gross margin reported for Q1 2025. This high margin reflects the company's focus on high-value contracts and software licensing, which could be key to future profitability.

Full transcript - Glimpse Group Inc (VRAR) Q1 2025:

Operator: Welcome to The Glimpse Group’s First Quarter Fiscal Year 2025 Financial Results Webinar. At this time all participants are in a listen-only mode. [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 would 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 Lyron Bentovim, President and CEO of The Glimpse Group. Lyron, the floor is yours.

Lyron Bentovim: Thank you, Kelly, and thank you, everyone, for joining us. I am pleased to welcome you to The Glimpse Group’s Q1 fiscal year 2025 financial results investor call for quarter ended September 30, 2024. During the quarter, we delivered the first phase of our large DoD contract and have made significant progress towards securing several multimillion-dollar enterprise scale spatial computing cloud and AI-driven immersive software solutions, Spatial Core contracts with multiple government DoD and large enterprise customers. The short-term aggregate value for those contracts is in the $5 million to $10 million range. We expect to get confirmation on one of these contracts in December 2024, and to receive additional confirmations in early 2025 due to budgetary delays. In parallel to Spatial Core, our other immersive businesses continued their positive momentum from the previous quarter. Some recent examples: we entered into a mid-six figure contract with a large global water and hygiene infrastructure company for an augmented reality solution. We entered into a mid-six figure contract with a global energy company for immersive content. We entered into a multiyear mid-six figure contract with a state district for immersive education. Our subsidiary, QReal saw a significant increase in revenue, driven by demand from its largest customer for AR lenses and 3D models. While the immersive industry and Glimpse as a significant participant in it has faced challenging headwinds in the past two years, we have successfully transplanted and stabilized our business and are now seeing and experiencing concrete positive growth indicators. As such, we expect revenues to continue to increase in the coming quarters based on signed contracts and our advanced revenue pipeline. We also expect to be cash flow positive in the current quarter and the quarters after, which will result in an increased cash balance without the need for capital raise. However, the transformation and positive development achieved in recent months has not been reflected in our stock price, creating what we believe is a significant disconnect between our intrinsic value and our public company valuation. To illustrate, we’re a company with immersive technology, AI and cloud-driven revenues, large enterprise and DoD customers, strong pipeline of revenues, positive cash flow going forward and a clean balance sheet, yet has a ridiculously low market cap, nominal trading volume and consistent selling pressure even when we put out very positive news. This valuation disconnected has had and continues to have a substantial negative effect on our ability to execute on our growth strategy. As such, the Board of Directors of the company is exploring various aggressive strategic options to enable the business to be in a position to invest in its growth while unlocking the value inherent in our business and/or assets and may pursue such options during the fiscal year. As part of this strategic review process and our previously announced strategic realignment and divestiture of non-core assets, effective on October 1, 2024, we divested the business of QReal and its related Turkey-based operating entity. Some of the key elements of this divestiture include: QReal was one of the original Glimpse businesses acquired upon our inception in 2016. We believe that QReal’s virtual try-on business has a greater growth and success potential as an independently-funded entity outside of Glimpse, potentially creating significant equity value for Glimpse’s shareholders in excess of QReal’s current equity value within Glimpse. The divestiture creates approximately $4 million of expected net cash value to Glimpse over the next two years, inclusive of $1.2 million to $1.5 million in annual cash savings excluding the upside potential from our equity position in the divested entity and/or from the repayment of our senior notes. The divestiture simplifies and streamlines Glimpse’s operations, approximately 60 less employees and eliminates the Turkey country risk. No material change is expected for our revenues for fiscal year 2025 and 2026 as Glimpse retains the revenues from QReal’s largest customer in full until such time that Glimpse has collected and retained at least $1.35 million in net cash in aggregate after taking into account all related operating expenses and fees. After satisfaction of the milestone, Glimpse will receive a monthly cash revenue share for an additional period of 18 months in relation to any revenues generated from this same customer. Glimpse was issued a $1.56 million senior secured convertible note in a new and independent entity, Newco, that will operate QReal’s virtual try-on business. Senior note principal payback is tied directly to revenue collected by the Newco, separate from the milestone referenced above. Newco has raised outside capital, and Glimpse was issued a minority equity stake in the company. 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-Q and press release that were filed after market closed 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. Q1 fiscal year 2025 revenue of approximately $2.44 million reflecting, a, 44% increase compared to Q4 fiscal year 2024, that’s the quarter ended June 30, 2024, revenue of approximately $1.7 million. The quarter-over-quarter increase was primarily driven by an increase in Spatial Core revenues; and b, a 21 decrease – a 21% decrease in revenue compared to Q1 fiscal year 2024, that’s the quarter ended September 30, 2023, revenue of approximately $3.1 million. The year-over-year decrease was primarily driven by our strategic alignment over the last nine months, which led to a turnover in our legacy customer base and consolidation and divestiture of some of our businesses. We expect revenue in the next three upcoming quarters to exceed $3 million on average per quarter and aggregate revenue for fiscal year 2025 ending June 30, 2025, to be in the $11 million to $12 million range compared to $8.8 million for fiscal year 2024, which is the year that ended on June 30, 2024, representing a 25% to 35% increase in annual revenue. This expected growth will be primarily driven by an increase in Spatial Core revenues as well as potential growth in our other businesses. Gross margin for Q1 fiscal year 2025 was approximately 79% compared to 62% for Q1 fiscal year 2024. The increase in gross margin was driven by an increase in Spatial Core revenues and higher software license revenues this quarter. On average, we expect our going forward gross margin to be in the 60% to 70% range. Adjusted EBITDA loss for Q1 fiscal year 2025 was approximately $0.46 million compared to an adjusted EBITDA loss of approximately $1.29 million for Q1 fiscal year 2024. Our current cash operating expense base pre revenue is now less than $1 million per month. Given our projected revenues going forward, we expect to generate positive cash flow in each of the three remaining quarters of fiscal year 2025. The company’s cash and equivalent position as of September 30, 2024, was approximately $1.4 million with an additional $0.9 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 flow and grow our cash balance. We continue to maintain a clean capital structure with no debt, no convertible debt and no preferred equity. I’d now 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. We have made major strides over the past year in repositioning and restructuring the company strategically and operationally. We are positioned as a provider of AI and cloud-based enterprise immersive software and services and poised for revenue growth and cash profitability. However, this is yet to be reflected in our stock price to the great determinants of our growth potential and shareholders. Going forward, we are going to continue to focus on profitable growth and in parallel, aggressively explore all strategic options with the goal of unlocking the value of our business and our underlying assets. 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.

Operator: Thank you, Lyron. [Operator Instructions] Your first question is coming from Casey Ryan with WestPark Capital. Please post your question. Your line is live.

Casey Ryan: Good afternoon gentlemen. Exciting quarter with the QReal news. Before we talk about that, can we talk a little bit about your discussion around the operating expense level, which I think you said was going to be $1 million or a little less per quarter. Does that include the cost savings, I guess, related to QReal? I was trying to understand how to marry Q3’s OpEx versus what’s going forward? Is it basically just saying taking 400,000 out and then saying it’s roughly $1 million?

Maydan Rothblum: Yes. So kind of – so if you look forward based on where we are right now, and obviously, kind of – it’s always a moving target as we add and subtract based on what we need. Right now, we are run rating at under $1 million of monthly costs.

Casey Ryan: Okay. Okay. Good terrific. Thank you for that clarification. That’s good. And so a lot of the new customer opportunities are pretty exciting. One thing I’m noting is it’s pretty diversified. You’re looking at sort of water infrastructure and government DoD work and other areas. How are you finding customer opportunities? I’m curious if people are coming to you or if you have some channel help outside of your direct sales efforts. But I’m impressed by the revenue – or by the industry diversity in terms of winning opportunities.

Lyron Bentovim: Yes. So a few things we’ve been doing this for kind of eight plus years of Glimpse and some of our subsidiaries have been doing for a couple of years longer than that. So we’ve got kind of a good network of relationships with customers and channel partners. Many of the customers are actually coming to us with needs and obviously, kind of our – kind of leaders and people are constantly talking to customers, understanding where they are, what they need and how our solution is going to address what those are.

Casey Ryan: Okay. Good. And – so given that structure, is that there’s some inbound, it sort of suggests that there’s potentially upside as we go forward as people continue to evaluate and adopt kind of your core technologies.

Lyron Bentovim: We certainly hope so.

Casey Ryan: Yes, that’s right. Well, we’ll just sort of go ahead and expect that. So last question, software license, that revenue segment. I know it’s not the bulk of the business, but it doubled in the quarter, and I’m just curious if that’s sort of a one-time event? Or is that sort of a more durable $200,000 is kind of a durable quarterly run rate for us to think about moving forward?

Lyron Bentovim: Maydan, do you want to take that?

Maydan Rothblum: Hey. Yes, I think that is more or less a reasonable number to expect going forward based on some of the things that we have on spatial core, which, if those come to fruition, there are significant follow-on activities for follow-on contracts that are – have a stronger recurring nature in them of software licenses, but also some of the stuff that we mentioned with other businesses. So I do expect that’s a reasonable number going forward.

Casey Ryan: Okay. And so it sounds like we should expect that to grow maybe in line with like the overall business growing because it sounds like that sort of piece of the revenue line gets pulled in as the contracts get bigger and there’s recurring work to be done and sort of customer help to be provided. So...

Lyron Bentovim: There’s definitely growth that’s in hurt in it. So again, kind of on a quarterly basis, it can fluctuate, but kind of the trend is up.

Casey Ryan: Okay. Good. All right. Well, terrific. And then just on the government contracts that you mentioned, were those part of the fiscal year – I guess, fiscal year 2025 for the federal government, so tied to the last budgetary process? Or is there some new budgetary work that those contracts are tied to.

Lyron Bentovim: So kind of, as you know, the government has basically decided to kind of converse enough to approve budgets for 2025 just yet. So kind of – and given the results of the election, it feels like kind of we will have to wait until the new Congress is in for them to, I assume, very quickly put together our budget. So I expect that to happen early in 2025. I think, by law, they have to do it by March. And once that happens, kind of things take a lot to trickle down from the budget being approved to us hearing about certain things, but that will start flowing in that direction.

Casey Ryan: Yes. Okay. So we’re actually still on that continuing resolution is what you’re telling me. So I should pick up the politics section of the newspaper and can get caught up on that. But listen, I think – Listen, overall, very exciting. I think it’s terrific to get the upside and the optionality on QReal. So that feels like a real asset for the business that like doesn’t absorb current resources and your management focus. So overall, it looks like a very good quarter. So we look forward to what’s coming next. So, thank you for taking my questions.

Lyron Bentovim: You’re welcome.

Operator: At this time, we’ll turn over to some writing questions. [Operator Instructions] I am not seeing any questions. Lyron, did you have any e-mailed questions that you would like to ask?

Lyron Bentovim: No. There are no e-mailed questions. Thank you to each one of you.

Maydan Rothblum: Go ahead, Kelly.

Operator: I’d just like to turn the call back over to you for any closing remarks.

Lyron Bentovim: I would like to thank each and every one of you for joining our earnings conference – forward to continued [Technical Difficulty] feel free to reach out to us directly.

Operator: Thank you, everyone. This does conclude today’s webinar. Thank you for your participation, and have a wonderful day.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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