NexTech (OTC:NEXCF) has pulled out all the stops to ramp growth and claim market share in this nascent business of augmented reality. It has hired rapidly, mostly in commissioned sales, and is building an infrastructure for a much larger company. Its goal is $50 million in sales in 2021 through a combination or internal growth and strategic acquisitions. Internal growth is driven by R&D as well as marketing as the company works to produce products and features for which its customers are asking. It is prepared to invest in the business short term to reap long-term benefits. While our estimate is not as high as that $50 million yet, we await future acquisitions to occur that will push our number higher. This would prove impressive growth coming from revenues of approximately $18 million in 2020.
The management of NexTech AR claims, “We are not the cheapest, but we are the most technologically advanced” as its platform InfernoAR is now proving to have successfully penetrated the realm of virtual conferences and trade shows. While there are many solutions to hosting a virtual conference NexTech’s InfernoAR platform is the only one to integrate augmented reality into the event. This has proven a boon to sales as event managers seek to replace live shows with something better (and more secure) than a Zoom call. Trade shows and product launches can use three-dimensional viewing with holograms like no other solutions. Walking around the booth can be supplemented with put the product in your living room (or driveway in the case of car shows) and walk around the back. NexTech can sell product not only to the event itself, but all the brands and companies with virtual booths at these events. This creates its own stickiness and reference selling. For example, once Toyota creates its booth for one car show, it can recommend InfernoAR to the next car show so it can reuse its booth. Even in a normal world we believe the market for virtual events will still have a place. Not only do the virtual events provide analyzable data on participants, they expand the number of those that can attend the event to a worldwide audience. This surely will persist in many applications.
Revenues Doubled In Q3 as Virtual Conferences and Trade Shows Take Off
For the third quarter, NexTech announced revenues of $4.7 million, up 199% over last year and 32.1% sequentially. Q3 bookings were $6.6 million compared to a Q2 number of $3.6 million. The company projects bookings of $8 million in Q4. In the quarter, $953,887 of revenues came from Jolokia and $7,000 in profit according to its SEDAR filing. This was 20.5% of sales compared to 9.8% of total sales in Q2 2020 with only a partial quarter’s contribution. Looking at cost of goods, which is attributed to the eCommerce business, we see that it was up 90% year over year and 25% sequentially, leading us to believe that the eCommerce business probably doubled from last year’s quarter. Most significant is that the company has expanded the brands it sells from just Miele products to include those from brands such as Dyson, Philips, Norelco, Cuisinart, Mr. Coffee, and Vitamix. With these new lines we expect an exceptionally strong ramp in the Q4 Christmas quarter.
Gross margins were 63.4% of revenues or $3.0 million compared to 42.6% and $666,000 a year ago and 61.5% or $2.2 million in Q2 2020 due to product mix. AR revenues contribute much higher margins than the eCommerce businesses.
Operating expenses ballooned to $7.7 million compared to $1.3 million last year. This is an increase of $5.4 million year over year. Fortunately $2.9 million of the expense in the 2020 quarter (versus $307,000 in 2019) was stock-based compensation, preserving cash. By category, the biggest increase was in sales and marketing, which increased $2.3 million sequentially as staffing ramped and Jolokia costs were added, followed by R&D, which increased $2.1 million sequentially. G&A actually declined $1 million sequentially as costs were recategorized. The company doubled the employee count from Q2 to Q3 adding 70 people in the quarter; it now has 175 employees. It expects to add more to reach 200 by year-end. It added experienced worldwide talent to be able to become a large global company quickly while the industry is still in its infancy. The operating loss and net loss were both $4.7 million compared to $1.6 million a year ago and $2.0 million in Q2 2020.
Primary shares outstanding were 72.0 million for the period, up 30%, but now stand at 74.4 million. The fully diluted share count using the treasury stock method is now approximately 81.2 million shares.
The company showed an operating cash loss of $1.5 million for the quarter and free cash usage of $2.3 million, which included the acquisition of Next Level Ninja for $720,000. With $18 million in the bank, the company has plenty of runway at this cash burn level. The company has no intention of becoming cash positive for the foreseeable future.
Balance Sheet Update
NexTech ended the September quarter with $16.4 million in cash, working capital of $16.9 million, and no debt or convertible debentures. As of November 12, 2020 the company had 74,376,499 primary shares outstanding.
DISCLOSURE: Zacks SCR has received compensation from the issuer directly, from an investment manager, or from an investor relations consulting firm, engaged by the issuer, for providing research coverage for a period of no less than one year. Research articles, as seen here, are part of the service Zacks provides and Zacks receives quarterly payments totaling a maximum fee of $40,000 annually for these services. Full Disclaimer HERE.