December 29, 2021 -- InvestorsHub NewsWire -- via Atlas
Advisors, LLC --
NexTech AR
Solutions
(OTCQB:
NEXCF) OUTLOOK
NexTech
Adds to its AR Solutions With the Acquisition of ARWAY to Pursue
the Metaverse
NexTech AR
is a technology start-up and a unique public company pure play
investment in Augmented Reality. It does not produce hardware, but
rather uses AR to improve eCommerce results for customers as well
as its company-owned sites. Its LiveX platform allows remote
learning, virtual trade shows, and high-end conferencing features
integrated with augment reality and is garnering traction. Its AR
ad network and hologram technology should begin to contribute to
revenues later this year. As one of the first movers in a
multi-billion dollar market growing at almost 300% per year,
NexTech should be able to grow rapidly as this nascent market
explodes.
Based on a
peer blended average EV to estimated EV/sales multiple of 9.4xs, we
believe NexTech stock could be worth $14.76 per
share.
Current
Price (12/28/21)
Valuation
SUMMARY
DATA
US$1.60
US$14.76
WHAT’S NEW
NexTech to Buy Spatial Computing Pioneer
ARWAY
By the end
of the month NexTech should close on the acquisition of UK- based
spatial computing company ARWAY in a US$1 million all-stock
transaction (approximately 625,000 shares.) Its key founders Baran
Korkmaz and Nikhil Sawlani will join NexTech. This acquisition will
provide NexTech with a spatial mapping platform critical to
building the Metaverse. ARway provides an Augmented Reality
Software Kit (SDK) to frame the digital world in just a few
minutes. This is achieved using Unity and AI to recognize
surroundings for hyper-accurate location
mapping,
NexTech
will offer this capability to brands and organizations that want to
create mini-metaverses like museums, corporate headquarters, theme
parks, sports stadiums, campuses and more. It can be used for
applications such as navigation, guided tours, and even treasure
hunts. ARWAY’s no-code platform has been used by over 1000
developers in 60 countries, and includes enterprise customers such
as British Telecom, Bosch, Air Asia, The City of London, the
Guildhall School of Music and Drama, HCG Hospital, and
Nomtek.
The product
is sold as SaaS with a freemium model and priced by usage amount.
NexTech is working to integrate all its AR capabilities and making
them available to all its customers through one
login.
Investors
can see how ARWAY works in a video through the following
link: Source: NexTech AR https://www.youtube.com/watch?v=VAn83Dvyx9s
NexTech will offer this capability to brands and
organizations that want to create mini-metaverses like museums,
corporate headquarters, theme parks, sports stadiums, campuses and
more. It can be used for applications such as navigation, guided
tours, and even treasure hunts. ARWAY’s no-code platform has been
used by over 1000 developers in 60 countries, and includes
enterprise customers such as British Telecom, Bosch, Air Asia, The
City of London, the Guildhall School of Music and Drama, HCG
Hospital, and Nomtek.
The product is sold as SaaS with a freemium model
and priced by usage amount. NexTech is working to integrate all its
AR capabilities and making them available to all its customers
through one login.
Investors can see how ARWAY works in a video
through the following link: Source: NexTech AR https://www.youtube.com/watch?v=VAn83Dvyx9s
Q2 Showed Weakness in eCommerce But AR Revenues
Continue to Grow
NexTech is going through a reassessment of it
business model and one of the decisions to be made is how to treat
the eCommerce business. Initially it was contributing positive cash
flow subsidizing the AR business, but in an effort to grow, it
became a cash drain. The company is taking a closer look at
returning that business back to profitability at the expense of
growth and its results may be difficult to forecast until a plan
emerges. In conjunction with a reevaluation NexTech took action in
Q2 to right size the business and expects to cut operating cost by
$6 million a year as it moves to the LiveX platform and adds the
automation capabilities of Threedy. Once the platform offers
self-serve to clients, operating costs should start to plummet.
This is expected to happen by the end of Q4. In Q3 we expect to see
a reduction of $1.5 million primarily payroll, and the benefit
should be seen across expense lines as well as gross margin. The
company has $15 million in the bank and plans to get the cash burn
to under $1.5 million a month. We expect Q3 to show sequential
revenue improvement combined with improved profitability looked at
without the one-time gain of Q2.
Q2 2021 Results
NexTech reported a down sequential quarter, but
still up 73% year over year. ECommerce reported revenues of $4.4
million, up from $3.1 million in Q2 2020 or 43%. ECommerce cut back
its discounting and is focusing on more profitable sales in
order to return to contributing to the company’s cash
generation. By comparison, eCommerce generated $1.6 million in
fewer sales in Q2 than Q1, but that $1.6 million only contributed
$88,000 in profits.
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The technology services plus renewable software
licenses revenues were essentially flat sequentially at $1.7
million, but up from $431,000 last year. In addition to a
seasonally slow summer, the hope of a return to in- person events
shifted some plans from virtual. But that trend has reversed as
certain geographies have put stricter measures in place. Jolokia
was bought April 30, 2020 so next quarter will be the first with a
full quarter of revenues in 2020 to which to
compare.
Backlog was up $249,000 sequentially to $2.3
million, while bookings were down to $1.7 million from $2.2 million
in Q1 2021.
Gross margin was 37.6% of revenues or $2.3 million
compared to 61.5% and $2.2 million a year ago and 42.9% or $3.3
million in Q1 2021. The decline in margin was due to product
discounts in eCommerce as well as compensation associated with
virtual events.
Operating expenses were $8.1 million compared to
$4.2 million last year. Of this, $1.5 million was a one-time gain
on reevaluation of contingent consideration on the purchase of
Jolokia upon its anniversary. Without that operating expenses would
have been $9.6 million, still a reduction from the $13.0 million in
Q1 2021. The company is working to reduce expenses going forward
through staff reduction, and we hope to see a full quarter of
savings by Q4 2021.
The operating loss was $5.8 million compared to
$2.0 million a year ago and $9.7 million in Q1 2021. Without the
one-time gain it was a loss of $7.3 million. The net loss was $5.9
million versus $2.0 million and EPS loss was $0.07 compared to
$0.02 a year ago. Non-IFRS loss was $6.8 million compared to $1.4
million last year. Non-IFRS loss per share was $0.08 versus
$0.02.
Primary shares outstanding were 82.3 million for
the period, up 25%. The share count as of August 11th was 85.6
million.
The company showed an operating cash flow and free
cash flow loss of $6.6 million for the quarter. The company is
working to reduce its burn.
Balance Sheet
Update
NexTech ended the June quarter with $15.4 million
in cash, working capital of $17.6 million, and no debt or
convertible debentures. On April 8, 2021, NexTech issued 2,801,500
units at $5.00 per unit and 100,000 warrants at a price of $0.5429
per warrant for gross proceeds of $14,061,790 and net of
$12,844,837. Each unit is one share of common and one-half of one
common share purchase warrant. Warrants are exercisable at $6.00
for a period of two years, subject to accelerated expiry
provisions. The Threedy acquisition,
which
th
closed on June 25 , added 3,877,551 more
shares.
During Q2
On June 25, 2021, NexTech acquired Threedy.ai, for
US$9.5 million in stock. Threedy’s proprietary AI will allow
the production of 3D models at a much quicker
pace.
Paul Duffy was appointed Chairman of the Board,
Chris Burton, Executive Vice President Head of Global Sales, and
Andrew Chan Chief Financial
Officer.
NexTech released the “LiveX” Digital
Experience Platform that enables Augmented Digital Experiences, AR
E-Commerce, AR Advertising, and AR
Products.
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KEY POINTS
- NexTech AR is a
startup based in Toronto that was formed to provide services for,
and invest in, businesses using Augmented Reality (AR) and hologram
technologies. These technologies are used to improve sales and
profits for eCommerce sites, and other verticals such as
entertainment and education. This technology converts
two-dimensional images of real objects and people into three
dimensions. Using AR is a proven way to boost sales and reduce
returns in eCommerce, and provides an engaging, economic way to
provide information in the education and training
space.
- Augmented Reality (AR)
is just beginning to make its way into mainstream use and the
market is exploding. NexTech AR is the only public pure play we
know of that is providing services to allow companies to use AR in
marketing and advertising their goods. At a small price to vendors
per month per SKU, adoption of just a tiny percent of the trillions
of products sold worldwide will create a massive revenue stream for
NexTech AR.
- The company is
currently has four sources of
revenue:
o Its largest revenue generator is an
eCommerce business that is used as a test lab and is driven by the
use of AR and holograms in its marketing. Its main web site sells
vacuum cleaners and accessories. It recently has started to expand
the number of brands it carries. It uses these web sites primarily
for in house testing, and cash flow generation but we could see the
company ultimately reselling them or spinning them off later at
higher valuations.
o ItprovidestheplatformLiveX,thatallowsremotemeetingsintegratedwithaugmentedrealitywith
more security and features than available from mainstream video
conferencing platforms, but will work with them
seamlessly.
o It also has a SaaS offering to businesses
that places AR renderings created by NexTech AR, or by the customer
themselves, for use on their shopping websites and mobile apps, or
in ad campaigns. ECommerce customers are charged a monthly fee
based on the number of SKUs.
o In the future it will start to generate
revenues from its new AR ad network, which allow customers to place
their AR content in advertisements with one stop shopping,
holograms and spatial mapping.
With a nascent market projected to increase
by 289% per year over the next five years, NexTech as a unique
public pure play that could deserve a higher valuation. It
currently trades at an enterprise value of approximately US $122
million or 4.7xs projected 2021 calendar sales of US$26
million.
VALUATION
Since our last report, the valuation of NexTech
comps have come down, as have most of the tech names, particularly
those that benefited from work at home. We have taken a group of
companies involved in augmented reality as well as companies that
provide conferencing. At current valuations we get an average of
17.0 times EV/2021 Sales. So using US$26 million for 2021 estimated
sales, and a 17.0 multiple, NexTech could be worth an enterprise
value as high as US$425 million or a market value of $440 million.
Dividing by the current fully diluted shares of approximately 87
million, this would be a market value of US$5.07 per share. Even if
we were to split out the eCommerce revenues and give it a separate
lower
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multiple we still get a blended multiple of 5.9
times or a stock price of US$1.95. By next year that could be $4.76
using revenues of $44 million and 9.4 times with a 50/50
split.
Company
Calendar Calendar
Ticker Revenue Revenue EBIDTA Enterprise Value / Sales
Included
2022E 2021E LTM Margin 2022E 2021E LTM in
Average?
FLWS AMZN
NA 2,233 581,180
490,270
2,050 443,300
9% NA 1.0 13% 2.9 3.5 8% 0.9 1.0 3% 0.8 0.9 3% 0.4
0.4 13% NA 1.6 0% 3.6 4.4
1.5 1.8
1.1 y 3.8 y 1.1 y 0.9 y 0.4 y 1.7 y 5.1
y
LE 1,760 OSTK 3,190 CNXN
2,870
1,640 1,530 2,840 2,900 2,770
2,670
PETS CHWY
NA 295 10,830 8,950
292 7,660
PRTS 614 532 539 1% W 19,040 15,840 14,850
5%
1.7 1.7 y 2.1 2.2 y
1-800 Flowers Amazon
Land's End Overstock.com PC Connection PetMed Express
Chewy
US Auto Parts Network
Wayfair
Average
Company
Ticker
Calendar Calendar Revenue
Revenue
6.2% 1.3 1.8 2.0
EBIDTA Enterprise Value /
Sales
Included
in Average?
y y y y
Enterprise Value
2,160 1,700,000 1,610 2,480 1,150 485 39,370 909
33,320
197,943
Enterprise Value
229,000 122,000 334
103,100
90,918
2022E 2021E LTM Margin
2022E
2021E LTM
8.8 10.2 31.2 36.5 2.2 2.8 26.0
31.4
17.0 20.3
Salesforce CRM 31,070 26,000 22,350 16% 7.4 Snap
SNAP 5,760 3,910 3,340 -20% 21.2 WiMi Hologram Cloud WIMI 194 153
118 -17% 1.7 Zoom ZM 4,000 3,970 3,280 30%
25.8
Average 14.0
RISKS
- NexTech is a start-up
with limited operating history. There is no assurance its will
evolve into a sustainable, profitable going
concern.
- The company is
operating at a loss and may continue to need to raise capital until
it reaches cash flow break even which could result in dilution of
current shareholders.
- To date, NexTech has
depended heavily on funding from senior
management.
- AR usage is just
beginning to be used by early adopters and it is hard to predict
how fast or even if AR will be put into use by mainstream eCommerce
sites. The company’s business with AR customers is still
very small and has yet to garner meaningful
traction.
- This industry will
attract many larger companies with much greater resources who could
compete with NexTech in the
future.
- The company has just
launched new product lines, which make take more resources and time
than expected and may not be
successful.
- With the return to
normal business operations, the need for InfernoAR’s remote
capabilities may wane.
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