READ THE FULL NEXCF RESEARCH REPORT
Q2 showed further progress in Nextech's (OTC:NEXCF) journey to become a pure play in Augmented Reality, 3D Modeling and the Metaverse. It major revenue provider, eCommerce sales, continued its decline with the company vowing to wind down the operation by year end and taking a write off this quarter for goodwill and intangibles.
Nextech is working to build a SaaS business with high recurring revenue. As of June 30th its subscription revenue for all existing contracts as of June 30th, excluding non-recurring fees, and with a subscription term of one-year or longer, annualized to the amount of $991,000. This was a 29% sequential increase from Q1 2022.
With the wind down of the eCommerce business, Nextech will be a pure play in 3D and Web3.0 with the added kicker of a dividend of its Metaverse mapping business ARway scheduled for this fall. A record date has not as of yet been determined. Although investors are disappointed that SaaS sales are not ramping faster and the cash burn continues, the company is making great progress in conserving cash and signing new customers. It believes in the future of AR and 3D in marketing and sales as customers claim a 40% reduction in returns, 93% higher click-through rates and up to a 250% increase in conversions to sales.
It has landed Amazon as a customer and expects to book its first revenues from it in Q3 with increasing sales going forward. It has a number of other large customers and expects that next year, this business will provide more in revenues than eCommerce did. It also plans new offerings in virtual product photography which can replace traditional photography. An example of this is populating pictures of an empty house with virtual furniture to show buyers on a real estate web site rather than hiring stagers and filling rooms with actual furniture. Other technologies Nextech has to exploit are its CAD files to 3D model capability that has a more industrial bent as blueprints can displayed at 3D images whether it be a building or a boat. With the hard R&D work done, all Nextech has to do is convert its capabilities into revenues.
Nextech should be considered a startup heavy with technology and promise rather than focusing on near term revenues. While numbers will look ugly as eCommerce winds down, the remaining company will be focused on the future and capitalizing on the industry shift to 3D and Web3.0.
The company continues to reduce cash burn with $1.5 million in cash payment being converted to stock payments going forward, the spinoff of ARway reducing expenses about $100,000 per month and another $4.8 million coming out of annual costs when eCommerce shuts down completely. As a result, the company believes it has 12 months of runway.
Despite declining year over year revenue due to the wind down of eCommerce, investors should look to the ramping services revenue and the potential for the company and its spin off ARway based on where the industry is heading. Using US$17 million for 2023 estimated sales, and a 5.4 multiple based on average peers, Nextech could be worth an enterprise value as high as US$92 million, a market value of US$99 million, or $0.98 per share. The spinoff of ARway should add incremental value to investors.
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