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TICKERS: NTAR; NEXCF

Augmented Reality Shows Huge Potential for Augmented Gains
Contributed Opinion

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Augmented Reality has been the province of behemoths like Amazon and Apple, but a small-cap firm is finding success bringing AR to smaller businesses.

We've all heard about or experienced virtual reality (VR) through movies, games, sports simulator and holograms. The difference between VR and rapidly emerging augmented reality (AR) is "with virtual reality you are transported to another world. With augmented reality, a digital twin of the object is overlaid into your existing environment," says Evan Gappelberg, president and CEO of NexTech AR Solutions Corp. (NTAR:CSE; NEXCF:OTCQB), a developer of user-friendly, cost-effective AR technology run from the internet, not on an installed app.

The NexTech ARP application is currently deployed, "augmenting" revenue for NexTech-owned e-commerce sites so that NexTech, listed as OTCQB: NEXCF and CSE: NTAR, is currently generating cash flow to fuel the development of its technologies. Factoring in growth, NexTech should generate $8.2 million in revenue in 2019 and about $2 million in EBITDA. At 4X topline revenue NEXCF looks downright cheap for a fast-growing technology growth stock.

"If Nextech achieves its goal of organically reaching $8.2 million on combined e-commerce sales and SaaS revenue in the next 12 months, that alone should up its valuation significantly with virtually NO dilution."

NexTech has identified three multibillion verticals where it is directing the technology: e-commerce, education and training, and video conferencing or live streaming, all running on the same platform.

These are not insignificant marketplaces. According to Statistica, the forecast for augmented (AR) and virtual reality (VR) market size worldwide is expected to grow from US$27 billion in 2018 to $209.2 billion by 2022. And who is NexTech up against in this space? Just your standard giants, such as Amazon, Apple, Ikea and Walmart, among a host of others. But Gappelberg knows these players utilize AR internally and currently there is no solution for your typical small-to-medium sized (SME) business. This is the segment he wants to bring AR to in a simplified platform that's user friendly for the company and its retail customers. Since its founding in 2018, NexTech has developed and licensed new technologies, and established intellectual properties (IP) and patents, already involving $8 million to that end.

NexTech AR

Deployed in SaaS based Model for SME

"NexTech is trying to democratize AR and bring it to the market so it's affordable to the little guy," says Gappelberg. To get away from yet another app for end-users, NexTech has chosen to deploy its AR solution in a cloud-based platform and bill it to its customer in a software as a service (SaaS) model. And the cost? NexTech charges US$79 per month to ARitize™ three objects and then it goes up from there. "Send us your physical object or images and we turn them into a 3D-AR 'shoppable' object. You can send us objects or even CAD files."

NexTech launched its SaaS platform as recently as January, so it is very early in the SaaS stage. The company also acquired two e-commerce businesses. "We thought it prudent to acquire a few e-commerce sites, plug in our technology and get the benefit of the uplift in sales ourselves. So, early this year for 2 million shares we acquired a company that did US$2.65 million in revenue in 2018 and last month, utilizing AR, it did $300,000 in revenue in January alone," Gappelberg notes.

In one week, NexTech's website Vacuumcleanermarket.com dramatically generated $5,000, which is a typical month's worth of revenue on that single product. "That was a vacuum cleaner, which is really one of the most boring products you could ARitize," he adds with a chuckle. He says the pilot worked so well the company is now converting the entire site to an AR-enabled platform selling a vacuum cleaners and bags and parts."

Just this April the company completed another e-commerce acquisition, of Infinite Pet Life, for a cash purchase price of $1,850,000. Infinite Pet Life generated US$2.2 million in revenue and $600,000 in EBITDA in 2018. This brings the top-line run-rate tally to $4.85 million at the end of last year.

Augmenting Online Shopping

While online shopping continues to penetrate global retail markets, the in-store experience still reigns supreme, with 90% of consumer purchases still happening in store. The huge opportunity presented with AR is to allow the customer to experience the object or asset before a purchase: place that new red carpet into your virtual living room, or try on new sunglasses, or bring the educator/presenter into the relevant environment, such as the auto shop or medical lab.

According to Gartner, Inc., augmented reality and virtual reality have the potential to shake up the customer experience by individualizing retailers' offers and enabling customers to visualize products in different settings. By 2020, 100 million consumers will shop in AR online and in-store. A 2018 Gartner survey indicated that, by 2020, 46% of retailers planned to deploy either AR or VR solutions to meet customer service experience requirements.

"Each of the three markets segments we're pursuing all run off of our same back-end platform," says Gappelberg, "You could push 3D-AR content out through e-commerce, then use that same 3D object for learning and education or training, or that same 3D object could be inserted into a live streaming video conference. So, it's an ecosystem that we're creating more than anything else."

AR e-commerce is effective and becoming widespread, and retailers know it.

Social media platforms are jumping into live streaming: Youtube Live, Facebook Live, Snapchat Live Stories, Periscope, Meerkat, Twitter and others. Industry researcher Statistica has identified a number of compelling industry trends: Corporate videos posted to social media increases page engagement by 71%; 90% of shoppers prefer websites that include product videos while 9 out of 10 shoppers interacting with a video related to the item being shopped before adding it to the cart and completing a checkout and sale; 91% of B2B buyers prefer interactive and visual content and interactive video content generates two times more conversions than passive content.

Retailers also now know that consumer adoption for AR is growing quickly. According to Statistica's research, almost three quarters of consumers say they now expect retailers to offer some kind of augmented reality. Utilizing AR, consumers are 11 times more likely to purchase and they spend 2.7X more time in an app; 40% would be willing to pay more for a product if they could experience it through augmented reality; 61% of shoppers prefer to shop at stores that offer augmented reality over ones that don't; 71% of shoppers would shop at retailer more often if they offered augmented reality.

NexTech has developed a web-enabled AR solution that Gappelberg says works across every well-known platform, device and every browser. "Our technology works seamlessly, and it is frictionless," he says. "You send us your 2D object or just a few images and we ARitize it, convert it to a 3D object. We send you back an embedded code—a few lines of code that you cut and paste. You don't need a special programmer to do this onto your website. Within days you now have a 3D shoppable AR 'image' on your site, and from the screen on your phone, computer or laptop, you can place it in a room to see how it looks, see if it fits, decide which color. The NexTech solution is turnkey and becomes a key component of an e-commerce site integrated with other SME tools such Shopify, Magento and WordPress. The company has also implemented the technology to run on Facebook, which opens up room for more widespread B-to-B and B-to-C deployment.

As AR is visual in nature, readers can learn about and view NexTech AR from the following Videos:




The End Game

NexTech's goal is to acquire two or three more e-commerce companies, so that in 2019 the company is targeting in the range of $10 million in revenue and $2 million EBITDA. "That's going to a happen while we're scaling up our SaaS revenue. While we're selling the software to others, we're also using it in-house; we eat our own cooking." The company is now staffing up with a current head count of 30 people. Five are full stack software developers and three sales reps growing to 10; NexTech is moving rapidly from building a product line and software offering to becoming a fast-growing sales and marketing company.

As of late, NexTech has been announcing new and inventive ways to apply AR. First, the company acquired a high-volume 3D scanner for 3D digital asset creation. The new equipment can scan as many as 300 objects per day; previously NexTech was only able to complete 12 object scans per day. The company announced the formation of AR Studios in Hollywood. The studio has created a proprietary entertainment venue for producing immersive content using augmented reality as the primary display platform. Heading up AR Studios is Paul Duffy, inventor of the human hologram and president of NexTech AR Solutions. NexTech recently entered into agreement with Block Scientific, a leading clinical laboratory equipment company, to provide 3D product models through its AR e-Commerce platform. Also in April, as a further endorsement, NexTech has entered into an agreement with Walther Arms Inc, most famous as the manufacturer of James Bond's Walther PPK, to ARitize its entire product line.

Walther PKK

While the above applications are in development, NexTech currently has two core streams of revenue: one from its company-owned e-commerce sites and another through its monthly SaaS revenue. The end game, however, is to eventually convert the company into 100% high-margin SaaS revenue and to spin out the e-commerce sites as potential dividend to shareholders.

Eliminating Dilution Pollution

And what about those shareholders? At this point 33% of the 54 million shares outstanding are held by management, which are restricted under a three-year escrow. According to Gappelberg, close associates hold another 33%. Meanwhile recent insider reports show Gappelberg picking up another 500,000 shares at $0.50 as recent as December 2018. By Gappelberg's rough estimate, there are about 18 million in the actively trading float, trading at an average 160,000 shares per day, which provides decent liquidity.

NEXCF is trading in the range of US$0.54 at the time of writing, giving it a US$23 million valuation (CA$0.75 on the CSE, giving a market cap of CA$32 million). With the two acquisitions the company is at a run rate of just under $5 million in revenue and $1 million in EBITDA using 2018 numbers. Now the top line multiple is only 6X the e-commerce revenue, assuming no growth.

If NexTech achieves its goal of organically reaching $8.2 million on combined e-commerce sales and SaaS revenue in the next 12 months, that alone should up its valuation significantly with virtually NO dilution. Meanwhile a small raise of few million to acquire one or two more e-commerce sites could be leveraged by purchasing more cash flow to fuel the sales and marketing efforts toward the transition to 100% SaaS revenue. Profit margins on this kind of software alone jumps to the 80% plus range…now that's what I call "Augmented Reality."

Knox Henderson is a journalist and capital markets communications consultant. He has advised for a broad range of small cap companies in the resource, life sciences and technology sectors for more than 25 years.

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Disclosure:
1) Knox Henderson: I, or members of my immediate household or family, do not own shares of the following companies mentioned in this article: Nextech, Youtube, Google, Facebook, Snapchat, Twitter, Periscope, Apple, Ikea, Walmart, Gartner. I personally am, or members of my immediate household or family are, paid by the following companies mentioned in this article: NexTech. My company has a financial relationship with the following companies mentioned in this article: None. I determined which companies would be included in this article based on my research and understanding of the sector.
2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: NexTech AR Solutions. Click here for important disclosures about sponsor fees. As of the date of this article, an affiliate of Streetwise Reports has a consulting relationship with NexTech AR Solutions. Please click here for more information. An affiliate of Streetwise Reports is conducting a digital media marketing campaign for this article on behalf of NexTech AR Solutions. Please click here for more information. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
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