READ THE FULL NEXCF RESEARCH REPORT
2022 is expected to be a transition year for NexTech AR (OTC:NEXCF). After taking advantage of the market for virtual events in 2021, the company is transitioning to be a 3D model factory with a unique recurring revenue model. We expect sales to transition to being a supplier of 3D models and eCommerce is finally embracing them after years of ignoring 3D. In 2022 NexTech will integrate with more platforms and make access to its products easier with a single interface. The company reported revenues for the 2021 year of $25.9 million, up 47%. Its eCommerce business grew 38%, its Technology Services (mostly virtual events) grew 55% and most importantly its Renewable Software License revenues grew 316% to $1.4 million. Going forward this is the category where AR models are booked and we expect the most growth in 2022. Here also are where the gross margins are the highest (ranging from 50-70%).
The company has taken recent steps to considerably lower its cash breakeven point and expenses could be as much as $1 million lower already in Q1 as it cut staff and moved to more variable costs in Q4 2021. With about $20 million in cash on hand, NexTech has a stash as it moves to reach its goal of less than a million a month in cash burn.
In January, NexTech launched on Shopify which opened up its technology up to 3 million merchants on the Shopify platform. It also launched a holoX app for IOS. This app lets users record a video that can be transformed to a hologram that can be access via a QR code. In Q1 2022, the company also launched ARitize 3D into beta and had a public launch ARitize maps. It also introduced ARitize Swirl and ARitize Social Swirl in February.
In April expect ARitize Metaverse Studio and the CAD to POLY SaaS product to launch. ARitize 3D is about to be integrated into BigCommerce this month. It should also be integrated into both WooCommerce and Magento in May. So far the company has created 10,000 models of which 7,000 were created in Q4 and 3,000 are currently in backlog.
The company is continuing to pursue an uplisting to NASDAQ and its new auditors, Marcum LLP ought to help achieve that goal.
The company currently trades at an enterprise value of approximately US $87 million or 2.6xs projected 2023 sales of US$33.6 million.
Q4 2021 Financial Results
NexTech reported revenues of $6.4 million versus $7.0 million a year ago, down 9%, but up 23% sequentially. ECommerce reported revenues of $4.2 million, up from a restated $4.6 million in Q4 2020 or down 8%, and down sequentially from $4.6 million in Q3. Part of the reason for this is supply chain issues of getting goods to sell and increased logistics costs and the other part is the focus on profitability rather than revenue growth. Going forward we expect to maintain this business as a lab and keep it earning money. We do not expect much growth as it is not the focus.
The technology services revenues declined year over year to $1.6 million from $2.2 million in Q4 2020, but was up sequentially. Summer is seasonally weak for conferences and we expect that seasonality to continue. We believe the Jolokia conferencing business is also losing its COVID induced boost and the company has redirected sales efforts toward more profitable AR modelling.
Gross margin was 38.1% of revenues or $2.4 million compared to 48.2% and $3.4 million a year ago and 31.4% or $1.8 million in Q3 2021. Gross margin for eCommerce was 36% versus 41% last year. eCommerce had supply chain and logistic issues increasing costs. Technology services had an even bigger decline in gross margin from 62% to 42%. This is primarily because cost of sales related to technology services was not measured in all prior quarters in 2020, thus the annual 2020 cost of sales is not fully represented in the above table. Margins declined at fixed costs for salaries were spread over less revenue in virtual event delivery. Margins should increase in this business as staff was rightsized near the end of 2021 based on forecasted demand and salaries are now a variable cost in that segment. Overall NexTech has decreased headcount to 140 down 50% from its peak in mid-2021.
Operating expenses were virtually flat with last year at $8.4 million. The pretax loss was $9.0 million compared to $8.1 million a year ago and $8.2 million in Q3 2021. The net loss was $8.8 million versus $8.1 million and EPS loss was $0.10 compared to $0.11 a year ago. Non-IFRS loss was $6.4 million compared to $5.3 million last year. Non-IFRS loss per share was $0.07 flat with last year.
Primary shares outstanding were 90.1 million for the period, up 21%. The company showed an operating cash flow and free cash flow loss of $5.2 million for the quarter down from $7.9 million in Q3 2021.
Balance Sheet Update
NexTech ended the December quarter with $7.2 million in cash, working capital of $9.2 million, and $90,000 in debt. Its January capital raise added $10 million in cash. In the fourth quarter the company has negative cash flow and free cash flow of $5.2 million. The company is working to reduce its cash burn to $1 million a month or less.
The primary share count as of March 22nd was 99.6 million.
After the Quarter Ended
On January 25, 2022 NexTech sold C$10 million worth of common shares and warrants in a PIPE deal with a single institutional investor. For $1.23 per share and warrant, the investor bought 8,130,082 shares with warrants exercisable at C$1.54. The warrants expire in three years.
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