The Guitammer Co. (OTCBB: GTMM) surpassed two key operational milestones and reported several financial improvements during the third quarter. 4D Sports powered by ButtKicker®, the Company's patented tactile broadcasting technology, went live on the National Hot Rod Association (NHRA) telecasts on ESPN2 and set the stage for long-term recurring revenues. In the meantime, several large cinema orders were received during the third quarter and began shipping this quarter. Management was also successful in improving the company's overall financial position.
In this article, we'll take a look at the company's third quarter performance and discuss why investors may want to consider taking a position in the stock.
NHRA Telecasts on ESPN2 Go Live
The Guitammer Co.'s approval from The Walt Disney Company's (NYSE: DIS) ESPN2 network to tactilely enhance the NHRA telecasts marks a significant milestone in its corporate development. While the current agreement is limited to NHRA telecasts, it sets a precedent for future agreements and validates the patented broadcast technology as ESPN2 is available nationally via all means of transmission (satellite, cable, FiOS) and reaches approximately 100 million US households. Success with the NHRA could lead to implementation across a wide variety of other live sporting events with other broadcasters and transmission partners.
According to its third quarter 10-Q filing:
"[The company spent] considerable time and effort implementing and commercializing its patented tactile broadcast technology for the ESPN2 broadcasts of the National Hot Rod Association (NHRA). On July 12th, 2013 the Company and the NHRA executed the "Broadcast Technology and Promotional Rights Agreement" between NHRA and The Guitammer Company. During July, August and September the Company spent considerable personnel time and resources implementing this Agreement and was rewarded with the approval of ESPN to tactically enhance the NHRA broadcasts on a live national basis beginning with the September 14th, 2013 NHRA telecast and all subsequent broadcasts through the date of this filing."
"4D Sports powered by ButtKicker" enables the company to accelerate both its hardware sales and build a recurring revenue stream. The recurring revenue would come from broadcasters or transmission partners that license the technology to encode broadcasts, and accelerated hardware sales could follow as consumers take advantage of the new features. This circular feedback loop has the potential to generate significant long-term shareholder value as new agreements are signed.
Expanding Theater Footprint
The Guitammer Co. received several large purchase orders toward the end of the third quarter, according to its 10-Q filing. Since these orders will not ship until the fourth quarter, they aren't included in the company's third quarter results, which means investors could see a strong finish to the year in the fourth quarter. The expanding theater footprint continues to drive its near-term revenues while exposing a greater number of people to the technology.
According to comments in its 10-Q filing:
"Several larger purchase orders in excess of $260,000 [were] received at the end of the third quarter of 2013, but will not ship until the fourth quarter … the Company intends to increase its advertising and marketing expenses by advertising directly to customers who experience its products in ButtKicker equipped cinemas."
The upcoming winter holiday shopping season could further enhance its fourth quarter sales, which should already come in above expectations given these recent purchase orders for 18 auditoriums totaling 3,100 seats. Consumers also remain very happy with the company's product lines, which regularly attract five-star reviews on Amazon.com Inc.'s (NASDAQ: AMZN) ubiquitous retail website and other outlets.
Potential Investment Opportunity
The Guitammer Co. represents an attractive investment opportunity at its current levels. With a market capitalization of just $13.6 million, shareholders could see significant stock price appreciation as management executes its licensing business model for its broadcast technology. In the meantime, theater installations and hardware sales should continue to grow as the company works to unlock long-term shareholder value.
Management sums up this potential nicely toward the end of its 10-Q filing:
"We believe the combination of the Company's recent success in tactically enhancing the NHRA on ESPN2, increased advertising and marketing spending and the addition of one or more sales people will drive demand for our products and will increase revenue and cash flow."
Management has also been successful in lowering interest expense by 37.4%, raising over $1 million to bolster its balance sheet, and ultimately reducing its shareholders' deficit by 13.2%. If the $260,000-plus in cinema orders had been included in its third quarter results, the company would have also reported a 10% improvement in revenues for the quarter year over year.
As a result, investors in the home entertainment space, including companies like Dolby Laboratories Inc. (NYSE: DLB) or Sony Corporation (NYSE: SNE), may want to take a closer look at the company given these upcoming catalysts and financial improvements.