For those of you that don’t know, AITX has now started releasing a video recording of its monthly internal town hall meeting for its employees. The first one was released on December 18th, 2021 and was filmed on December 16th, 2021. I wanted to start off an article series recapping some of the key points, in my opinion, and doing some more brief analysis. I look forward to doing many more of these!
Today’s recap will focus mostly on this figure below. Per Steve on Discord, the comparison periods are as of 12/1/2020 to 12/1/2021.
Monthly recurring revenue, as presented above, is up 419% over the period. Per the 10Q for the period ended 11/30/2020, three months of recurring revenue was 84,600. If we broadly extrapolate that into a monthly figure, let’s say that’s 84,600/3 = 28,200. So, a 419% increase would be monthly recurring revenue moving into December 2021 of 146,358.
That is some great progress obviously; 400% revenue growth period over period is an awesome achievement. However, as you all know I like to say, that’s still nowhere near enough. For example, extrapolating that 146k per month into a full year number (assuming no growth), that’s 1.75m. Operating expenses alone will likely be above 15m for the next twelve months. They still have many more sales to make before we even start sniffing profitability.
However, if we were extra bullish and assumed another 400% level of growth from December 2021 to December 2022, that’s 759k recurring monthly or 9.1m annually. Now we’d be starting to get somewhere! More on FY 2023 to come…
Cash on Hand
This is up 1206% which is also as a direct result of the S-3 offering. Cash on hand in December 2020 was about 250k, so right now that means AITX is around 3.2m in cash. To be honest, while this number is much more than before, it’s not enough. Which is why Steve has said they are still raising more funding for cash via the S-3.
AITX’s burn rate of cash is somewhere around 3m every three months, so about 1m a month. With 3.2m on-hand, conventional logic would lead us to think the business can only operate for three more months before getting more funding.
This is very over-simplified for two reasons. One, sales are up, so theoretically they are burning less S-3 cash than before. Two, it looks like in Q1 and Q2 FY 2022, the company built up a stock of inventory, prepaid expenses, etc. So that may have overstated cash burn.
It is quite clear, though to nobody’s surprise, that AITX remains reliant on the S-3 to fund growth and will be for some time.
FY 2023 Targets (Year Ended 2/28/2023)
Steve made some bold predictions around number of units deployed that I’d like to discuss. See below a roadmap of goals AITX has set for themselves:
First, they will not meet the original target of 500 deployments by the end of FY 2022. That has been communicated before, but it’s obviously disappointing. I think they will land around 300 deployments by 2/28/2022, but hopefully more.
However, Steve wants the company to not only pass the 500 deployments mark in FY 2023, but he also wants to hit 1,000 units! To put that into perspective, as a very rough mathematical example…
Assume at a weighted average bill rate across all unit types (ROAMEO, ROSA, AVA, etc.), they reach about a $1.50 per hour bill rate. At 500 units, that’s 500*1.5*24*365=6.57m in revenue on an annual basis. Still well below being profitable, but extreme growth from where they are now. Even at 1,000 units that’s about 12m in revenue, also not enough to make them profitable.
So given that, let’s dispel any notions that AITX will be profitable in the next 12-15 months even under the best of outcomes, or likely even in the next two years. However, if they can continue to achieve these staggering levels of growth through FY 2023 and onwards, they would be profitable in the next three years or so. Those are very exciting prospects, but nothing is guaranteed. That’s why I think FY 2023 will be a make-or-break year, leading me to…
FY 2023 – Make or Break Year
If you combine the three topics above into one singular conclusion, you should be thinking, “wow Sam, this next fiscal year is incredibly important!”. And it is.
From a cash perspective, the company is totally reliant on outside investors via the S-3 to keep functioning and growing. The only way the S-3 investors will continue to finance AITX is if they can show the staggering levels of growth that AITX is challenging itself to achieve. If by Q3 / Q4 FY 2023 we are seeing low or stagnant growth, I think the wheels may start to fall off of AITX. Investors may not be lining up to finance as they are now and/or the investors that do want to finance will only accept terms unfavorable to current shareholders.
So that means revenue and deployments are really the two key metrics for the next FY 2023. While I just sounded like Captain Obvious, it’s true. As an investor, you really need to cut out the noise of the stock ticker, FUD, etc. and really zero in on AITX’s sales and deployment performance.
For sales, AITX needs to meet the goals Steve set out to be viable for more than two plus years at their current cash burn rate. From a deployment perspective, we need to pay attention to how quickly AITX is deploying devices after a sale is completed, which I’m sure is a metric they track very closely. You can’t have one without the other either. A strong sales team and poor manufacturing/deployment won’t cut it, neither will lightning-fast deployments of devices they can barely sell.
All of this being said, it makes me feel better that Steve is actually setting goals that ensure the company’s success and that he is demanding a lot out of himself and the company. If he went into that town hall and was saying things like “Oh darn we didn’t hit 500 units this fiscal year, let’s just try for 500 next fiscal year” I would be very concerned. But he came out with a clear plan of what they need to do to not only survive, but flourish as a company.
In a growth stage company like this spending a ton of money on R&D, sales, etc. you need to expect extreme levels of growth. In this case, he is calling for more than quadrupling their deployment count by the end of FY 2023. And based on the customer feedback he posted during the town hall, clearly their products are working. It’s just a matter of continuous innovation and pushing products through the sales pipeline.
All in all, I felt excited about AITX after watching the town hall. However, they have A LOT of work to do this year on all fronts. As an investor, you have to now think to yourself, is this the team and the business I want to gamble on.
For further reading and AITX analysis, check out all of my articles HERE as well as in the sidebar.
DISCLAIMER – I CURRENTLY HOLD A LONG POSITION IN $AITX. THIS ARTICLE IS NOT FINANCIAL ADVICE AND IS INTENDED ONLY FOR EDUCATIONAL PURPOSES.