The Glimpse Group, Inc.

Greetings, and welcome to the Glimpse Group Fiscal Year 2021 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. 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 Leron Bentivim, President and CEO of the Glimpse Group. Leron, the floor is yours.

Thank you, Operator, and thank you, everyone, for joining us. I'm pleased to welcome you to the Glimpse Group's fiscal year 2021 financial results for year-ending June 30, 2021 conference call. Since this is our first public earnings call, I want to take this opportunity to provide a quick overview of the Glimpse Group to anyone who is new to our story. The Glimpse Group is a diversified virtual reality and augmented reality platform company comprised of multiple wholly-owned integrated VR and AR enterprise-focused software and services subsidiary companies, providing investors an opportunity to invest directly into this emerging VR and AR industry via a diversified platform. We created Glymphs with the vision of cultivating companies in the emerging VR AR industry, simplifying the challenges they face, creating a robust ecosystem capturing wide IP, while creating scale and cost efficiencies rarely seen in early stage industries and mitigating risk for the investors and the entrepreneurs. Fiscal year 2021 was our fifth year of operation and a pivotal year for the Glimpse Group, highlighted by several achievements as we look to continue to establish our unique business model and strengthen our market position in the rapidly growing immersive technology space. We successfully completed a $14.1 million initial public offering and the listing of Glimpse common shares on the NASDAQ Stock Exchange, establishing ourselves as the first pure-play, NASDAQ-listed, diversified, virtual and augmented reality software and services company. Although our fiscal 2021 was impacted by the pandemic, we still saw continued strong top-line revenue growth, 76% year-over-year, This growth was fully organic and a result of new customer engagement and existing customer follow-on engagement, including several multi-year commitments. Our software license SaaS revenue grew by approximately 100% year-over-year. Our pure software and related service revenues, which does not include our VR and AR projects, grew by approximately 240% year-over-year and now comprise approximately 50% of our total revenue. During fiscal 2021, both our EBITDA loss and cash loss for operations improved significantly year over year as we continue to manage our growth efficiently. In conjunction with continued organic growth, select accretive acquisitions are a core part of our growth strategy. As an example, last month we acquired our 10th subsidiary company, OGGD, a provider of augmented reality software and services. This acquisition expanded Glymphs into a new vertical in the architecture, engineering, and construction AEC segment and allowed us to establish our footprint in Australia. We expect to close on additional acquisitions of various sizes in the coming months. We also added to our intellectual property portfolio with the issuance of our fourth patent. We have an additional nine patents previously filed and in the process with the Patent Office. We're striving to capture very wide and far-reaching concepts with significant potential when the industry matures. We improved the composition of our board by expanding the number of directors and adding new independent directors with significant industry expertise. With a clean capital structure, approximately $13 million of cash, and no material liabilities, we have the ability to capitalize on the significant growth opportunities in this emerging market and are well positioned for further organic and inorganic growth. After the recent acquisition of OGGD, The Glimpse Group has 10 subsidiary companies that are serving a diverse set of industries ranging from healthcare to corporate training, from financial services to therapy and support, from media and entertainment to education. We are constantly looking to add high quality companies that will expand us into new industry segments, increase our scale, further diversify and deepen the Glymph ecosystem, or enhance and strengthen our positioning in existing markets. We are very proud of the caliber and diversity of the partners and customers we are working with, and we look forward to continuing to expand these relationships and add new ones as we continue to grow. The diversity of our subsidiaries and of our customer base is evident from some of the recent announcements we've made over the last few months. Our learning and corporate training subsidiary company, AdeptXR, announced a multi-year partnership with higher education disruptor Edstudia to integrate its VR platform, elevate into Edstudia's curriculum, and build a unique, immersive virtual campus that would be the heart of Edstudia's educational activities. In July, we announced an innovative AR collaboration with Swiss Chalet, a recipe company which is one of Canada's largest full-service restaurant companies. to gamify the experience of the takeout shopper and connect them with the brand and the restaurant experience. Early adopter, our K-12 education subsidiary company announced the extension of its multi-year relationship with Avenues World School to bring a new dimension to the experience of its students, teachers, and parents using our Common Realm product, which allows students to present their work in augmented reality. Our subsidiary company, Fortel Reality, announced a multi-year license with Northstar Care to integrate its virtual reality support group solution with NSC's innovative addiction telehealth treatment. Our subsidiary company, Pagoni VR, announced its third year of working with Temple University to use its patent-pending Chimera platform to broadcast live interactive classes to students around the world. And our subsidiary company, Curio, announced its status as a preferred augmented reality partner of Snap, working in partnership with the Snap team to use Curio's lifelike AR content to bring dozens of brands to life on Snap lenses. These are just a few examples, and we hope to share more of the work of our subsidiaries and their partners with you over the coming months.

Overall opportunities in the immersive world

can be categorized into four distinct buckets. The first one that is gaining significant early traction is marketing. Brands are seeing great success using augmented and virtual reality to connect with the younger demographic of shoppers, building brand awareness, engagement, and immersive connection. Immersive technology is a natural medium for learning and education. Although early, we can see success in the full spectrum of learning from K-12 through higher education to corporate training for both soft and hard skills, as well as medical professional training. One of the advantages of the XR technology is that it allows us to visualize anything and everything, from buildings that have not yet been built to products we don't have in our hands, all the way to visualizing complex data in new, insightful ways. But the end game for immersive technologies is the metaverse. While in infancy, the metaverse has the potential to bring into life a new dimension, dramatically changing the way we work and play. In time, the metaverse will open up a new 3D digital world, enabling us to work in virtual offices, travel to virtual worlds, learn in virtual schools, and shop in virtual stores. We believe that Glymphs is positioned to play an enabling role in the development of the metaverse as it evolves from its concept to a business reality. And as other emerging technologies, AI, computer vision, blockchain, potentially coalesce together with VR and AR over time. With that, I will now turn it over to Meydan Rothblum, Glimpse's CFO and COO, to review the financial results for our fiscal 2021. Meydan? Thanks, Liron.

I will limit my portion to a succinct review of our financial results. A full breakdown is available in our 10K in the press release across the wire 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. Total revenue grew 76% to $3.42 million for the year ended June 30, 2021, as compared to $1.95 million in the previous fiscal year. The increased revenue is primarily driven by the addition of new customers and increased business with existing customers. Our software services revenue category, comprised of AR projects and software-related services, $0.08 million for fiscal year 2021 compared to $1.78 million for the year ended 2020, an increase of approximately 73%. Our software license and SAS revenue were approximately $0.34 million in 2021 and $0.17 million in 2020, an increase of approximately 100%. As the VR and AR industries continue to mature, we expect our software license and SaaS revenue to continue to grow on an absolute basis and as an overall percentage of total revenue. With the year ended June 30, 2021, VR, AR, software, and related services revenues, not including VR, AR projects, was 1.73 million compared to 0.51 million for the prior year, an increase of approximately 239%. For fiscal year 2021, non-project revenue accounted for approximately 50.4% of total revenues as compared to 26.1 in the previous fiscal year. Gross profit increased to $1.96 million or 57.3 percent of revenue in fiscal year 2021 as compared to a gross profit of $0.81 million or 41.5 percent of revenue in fiscal year 2020. The increase was primarily due to an increase in our software license and stats revenue, improved software services project management, in higher utilization of our internal staff. Our cash-based gross profit margin, excluding stock option-based cost of revenue expenses, was approximately 74% for the year ended June 30, 2021, compared to approximately 53% for the year ended June 30, 2020. Operating expenses for the year ended June 30, 2021 were 6.67 million compared to 5.73 million in the prior year. This was primarily due to increases in research and development and G&A expenses partially offset by decrease in sales and marketing expense. For the year ended June 30, 2021, net loss from operations was 4.71 million compared to a net loss from operations of 4.92 million for fiscal year 2020, an improvement of approximately 4% period to period, primarily driven by increases in revenues and profit margins, which outpaced an increase in operating expenses. Net loss for the year ended June 30th, 2021 was 6.09 million, an increase of 22% compared to a net loss of approximately 4.99 million for the year ended June 30th, 2020. primarily driven by an increase in other expenses, which were one time in their nature relating to the July IPO. As it relates to cash flow, we look at two main parameters. Net cash used in operating expenses for the year-ended June 30, 2021 was approximately $1.21 million, compared to approximately $2.02 million for the year-ended June 30, 2020, an improvement of approximately 40%. Fiscal year 2021 adjusted EBITDA loss, a non-GAAP measure, improved by 0.47 million to 1.51 million, an improvement of 24% from 1.98 million in fiscal year 2020. We have net operating loss carry-forwards, NOLs, of approximately 11.3 million. We ended our fiscal year with a strong balance sheet of $13 million in cash after our July IPO with no material cash liabilities, no preferred equity outstanding, and no convertible debt. Financially, our company is in a strong position. We have a strong balance sheet, a low cost structure relative to a growth tech company, and the fundamentals of our operations are very positive. We remain well positioned for future growth. With that, I'd like to pass it back to Liron to offer some closing remarks, after which we will begin our Q&A session.

Thank you, Maidan. Looking ahead, we are well-positioned to create long-term value for our shareholders with the immense opportunity presented in the developing AR and VR industries through the prudent management of an integrated group of diverse subsidiary companies. Our team is committed and focused on the steady execution of our growth strategy as we look to solidify our leadership position as the only pure-play, NASDAQ-listed, diversified, enterprise-focused VR, AR, software, and services company. I look forward to providing our shareholders with further updates in the near term as we continue to diversify our platform and build economies of scale. I thank you all for calling in, and now I would like to handle the call over to the operator to begin our question and answer session. Operator?

Thank you, Leron. Thank you, Leron. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question comes from the line of Daryl Vounce, a private investor. You may proceed with your question.

Hello, gentlemen. Lerone, Maidan, congratulations on a wonderful year, and may we have many in the future. I wanted to start with recurring revenues, which I didn't see broken down in the press release. What percent was recurring revenues as opposed to new?

So, Daryl, we, as far as my comments and in the press release, we view the software services and the, or the non-profit software services and the software license FAS revenues as our recurring revenues. And so they're about 50% of our revenues in this fiscal year compared to approximately 25% in the year prior. And the expectation is that that will grow over time on an absolute level and as a percentage of revenue.

Okay. I wanted to know a little bit more about your sales cycle regarding projects. from, let's say, inception to actually completion, especially considering about 50% with projects? How does this work?

So there's a large variability in the sales cycle. The sales cycle of a new project varies between three months and 12 months between kind of initial kind of relationship and signing of an SOW. And then usually the execution piece varies between three months and six months. So that kind of gives you a full cover. So sometimes you will have projects that kind of take three months to book and then three months to execute on. That's the fastest you can probably do for a project. And sometimes it can take a long time to get them done through the system. Again, we work with mostly large organizations. that have a long internal process to closing new projects.

Okay. Specifically, I'm curious about the VR campus. How long do you think it takes to actually create this, or how far have we gotten so far?

So, the VR campus is actually finished. and we delivered it to EdStudio actually this month. So that's the good news, and they're planning on using the VR campus in their first fall semester in October.

Now, is this considered a project, and now they have the campus and that's all the revenue, or is there a maintenance fee, an improvement fee? How does that work?

Yeah, so this is actually not a project, but a license. So we've delivered a license for them. They actually licensed both our campus software as well as Elevate, which is the software that AdeptXR, our learning company, has to integrate within learning opportunities. And they will continue to pay for those as they grow. They will pay more and more licenses based on the utilization. In addition to that, there's projects that relates to additional features that they wanted that are not part of the platform that those were separately kind of captured as projects.

Great. Do we have a handle on backlog? Are you able to release that information?

So as of the end of June, our backlog, which for us are projects or licenses that we've either delivered or will deliver in the coming months, and we expect to collect on those. So that, you know, the general range of that tends to be somewhere between $1.5 and $2 million. Okay.

Your margins improved nicely. Are we going to see a continued improvement in margins? Is there a goal for what kind of profit margins we're expecting?

So at heart, our companies are software companies with software business models, whether it's a license or a SaaS. Again, everything has to be taken in the context of an early stage industry. So it's going to take some time before, as I like to say, you know, the million or $2 million staff contract comes around. So in the long term, you know, we should be seeing software type of margins, whether it's 70 or 80, you know, whatever that ends up being. But that's longer term. We're building towards that, and that's why we're seeing our gross margins improve year to year because, again, an increasing portion of our revenues are software and services, and we're managing the projects better.

Great. Okay, that's all I got for now. Once again, thank you for taking my questions, and congratulations on the year.

Thank you, Daryl.

Thank you. Our next question comes from Kevin Dede with HC Wainwright. You may proceed with your question.

Thank you. It's Kevin Deedy. Leron, I think the overarching issue is, one, a synergy, and I was just wondering if you could walk us through how you see bolting together now with your 10th acquisition developing synergies throughout the organization.

That's actually a very good question, Kevin, and thanks for joining us. So when we brought AUGD in, obviously kind of that's like bringing a new member to the family, immediately they started kind of working with some of our companies. They are cooperating with Post Reality, one of our other augmented reality companies, on trying to connect their back end, for example, and getting the best features that AUGD had in their back end combined with the features that Post Reality has in their back end to try and benefit both companies. They're working with Curio, another of our augmented reality companies, to kind of benefit both companies. So Curio specializes in creating lifelike assets, and they're already in multiple discussions working, supporting the org team, and working together to kind of deal with customer needs that both teams have expertise in. So that's just kind of with one month of them being integrated into Glimpse. And that's the type of opportunities. I'll give another kind of byline is one of the GMs had a business contact that has nothing to do with their business that they've already introduced the GM of OVD to, and they're exploring a business opportunity. So as you can see, the synergies are quickly captured by us once we bring a new company in.

And in the past, we've talked about this. You've commented on part of the power of amalgamating all these separate companies in developing a software platform. Can you speak to where you are in that development? How far along you think you'll need to go before, I mean, in terms of time, before you'll be able to attract you know, external entities and how you think that will correlate with the development of sort of a commercial, actually, pardon me, a consumer VR, AR market.

So, what you're referring to is what we call the chassis. which is the platform that we're building that takes all of the basic building blocks that a VR solution needs that were developed by four of our VR companies and combining them into one platform that initially is serving those four internal glimpse subsidiaries. But the thought is as we move forward and in terms of timeline, that's probably a kind of a 2022 timeline, opening those up to, VR companies that want to produce and build their VR solutions on top of our chassis platform. One of the things we're actually in discussions, we're talking with a large technology company that services the VR space to see how we can connect the chassis directly to their software and therefore kind of creating this solution that creates a win-win for us and for them.

Awesome. Okay. Thanks so much, Laurent.

And thanks for entertaining my questions.

All right.

Hi, this is Mark Schwallenberg.

It looks like the operator's having some issues. So we'll take a few write-in questions for you guys. Got a couple here. What's your plan in terms of medical and legal VR and AR interactions? And can you comment on just what you see and how far along in this path you are?

So on the medical side, obviously kind of Immersive Health Group, IHG, our subsidiary, is working and developing and selling kind of solutions for training in medical space. So that's active and happening and is definitely part of what we're doing. On the legal side, we've looked at working with both law firms and universities. but we have not found yet a winning use case that makes sense given where they are right now, but we're constantly in discussions about exploring those.

Okay, great. Thanks.

And I've got another one here. Are you planning on developing a VR and AR NFT, or are you planning on partnering with someone in that domain?

We put out a press release a few weeks ago about some of the efforts that we're doing on the NFT side. We think we have a collection of unique technologies across multiple of our subsidiaries that will enable to bring NFTs into the VR and AR space. What we're doing is we're looking and we're in active discussions on partnering with a variety of players that are already playing in the space that are needing our VR and AR technology to try and work with them to create a solution that will allow people that are in the NFT space to visualize and manage their NFTs.

Okay, great. Thanks, Laurent.

And I guess one more here. Are you looking into proof of view blockchain technology with your VR and AR?

I am not sure. DJ Smith, our chief creative officer, is leading the charge on that. So I assume he is, but I'm not sure. Okay.

No, that's helpful.

So, Lerone, it looks like our operator is still having some technical issues. So with that, John, are you there?

Yes, I'm here. Can you hear me?

Okay. Do you want to proceed with the dial-in Q&A?

Yes. Apologies on the technical difficulties. Our next question comes from Christopher Grosvenor with New York Life. You may proceed with your question.

Hey, guys. Congratulations on the quarter and the year. My question is about the low-hanging fruit. I'm kind of wondering if your install base, your existing customers, What's the opportunity for kind of being more value-added for them? So maybe you're going from trial to license or software to service.

What's kind of the opportunity there? Christopher, thank you for joining us and for asking. That is a great opportunity, and that is definitely a major driver of our organic growth. As we go into existing customers, initially almost all of the initial introduction is some kind of proof of content. and usually that comes with some project element and some minimal license element. As our relationship grows, the thought is, and we've done this with many, many of our customers to date, and we're continuing to go along that path with others, the licenses become larger as they expand the base of the users, and there's more projects as they continue to dwell into additional use cases across their company. So that's definitely a major part of our organic growth strategy.

And just to add to that, in almost every case, project or not project, we own the underlying technologies. And so once there's growth and traction with a certain company, that could lead to similar type of situations with other companies in that industry or other tangents, not necessarily. in that industry utilizing similar technologies.

Thanks. That's helpful, guys. And good luck executing the next quarter and year.

Thank you, Christopher.

As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we re-poll for questions. Our next question comes from the line of Jeff Kobalars with Diamond Bridge Capital. You may proceed with your question. Hi, guys. Congrats on a good year.

Just curious about... Maiden, about you said the recurring revenue, when I look at the license revenue, it's roughly 10% of your total. So I think you said it was higher than that. Can you clarify?

Yes. So there's two elements to our current services. One is the pure software, software licenses and SaaS. And other are services related to that software or recurring services agreements. And so when you lump together the software license slash SAS and you add on top of that the recurring services, that's how you get to that 50% number. What you were alluding to is just the software and services, sorry, the software license slash SAS directly without the services.

Okay, great. All right, thanks for that clarification. And then also about gross margin, you say in your press release that excluding stock options, your gross margin was 74%. And you said you expected your gross margins to eventually get to 70% to 80%. So that 70% to 80%, is that comparable to the 57%? this last year or is it?

As we have an increasing level of revenues from direct software or some of these services, then those require less, you know, human intervention, right? So just by that, we're going to get to a number that's higher than where we are today. Certainly, when you take out the equity, then we'll get to a level that's similar. I mean, if long-term we can get to gross margins that are 70, 80 percent, and we don't have to cut out or exclude the equity portion, because equity portion doesn't really exist on those revenues because there's not that human element in it, then we'll be better off. But right now, while those are equity costs, they're still costs. And so, you know, the true, true gross margin is closer to that, you know, 55, 60%. But we thought it was important to carve out the portion that impacts the actual cash of the business.

Sure. Okay.

That makes sense. As far as your your patents and as more patents are filed, does that unleash much greater potential for you to then go to the market and say, hey, we've got this technology, you know, let us do some projects for you or are the patents more just kind of incremental protection of the work that's done in the background and it doesn't necessarily open up a lot of white space for you to generate a lot of revenue?

So we look at patents as more of capturing a piece of the future. So when we look at our patent strategy, we're not trying to patent today and definitely not trying to patent yesterday because the industry is moving forward quickly. We're trying to position ourselves so when this industry gets to scale, we've captured some significant junctures that will allow us to monetize those patents. So they don't have short-term impact on our business, but I think they can have pretty significant long-term impact on our business.

Okay.

And then also about your cash and your acquisition appetite, is there any guidance you could say to investors about how much you will be spending using your cash to make acquisitions?

Historically, we have not made acquisitions with cash. Everything was equity-based and earn-out-based, and it's been highly accretive. As we go forward, there will be a mix of more of the type of acquisition, some of the acquisition types that we made in the past. meaning smaller companies that have a significant growth potential, but also larger companies, or at least larger relative to the industry, where we expect there will be some cash component to that position. So, it's hard to say at this point exactly what that mix will be. which will utilize cash and which will not. What I can tell you for certain is that, you know, we're large owners in the company. We have to be very careful with how, you know, who we bring in and how we bring in and how we structure these things. So everything needs to be accretive. We tend to, you know, work with earn out. The company has to, you know, as they perform, they get paid. Yes, there's some upfront payments. And so we're very careful with our acquisition strategy.

Got it. All right. Thanks very much for your help.

At this time, we have reached the end of the question and answer session.

I'll have to turn it back over to Leron for any closing remarks.

Thank you, Operator. 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 were unable to answer any of your questions, please reach out to our IR firm, MZ Group. We'll be more than happy to assist.

Thank you, and have a nice evening. Thank you, everyone. Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.