Nextech3D.AI Corporation (NEXCF) Earnings Call Transcript & Summary

Hello, everyone. My name is Richard Hantke. I'm with Zacks Small-Cap Research. We are a division of Zacks Investment Research. And what we do is fundamental research on small and micro-cap companies and with a team of 10 seasoned analysts. Right now, we've got 95 companies under coverage. Our role is to create broad awareness, deep understanding and generate significant interest in our covered companies. And what we, small-cap research, bring to the table are the qualification of those analysts, the quality of the research that they write and the breadth of the distribution. So if you got any questions on our program or any other coverage ideas, contact me at [email protected] or call me at (312) 265-9448. Today, we've got another in a new series of fireside chats by Zacks Small-Cap Research. So with me today is Evan Gappelberg, who is the Founder and CEO of Nextech AR Solutions, and -- which trades in the U.S. on the OTCQB; in Canada on the CSE. And also is Lisa Thompson, our senior technology analyst, who's had Nextech under coverage since October of 2019. And in her latest report, she -- which you can find on our website at scr.zacks.com among a multitude of other places, she has a USD 0.98 price target on Nextech. And in that report, in our website, you can get Lisa's contact information, and you can see her other company -- covered companies under coverage. So with that said, hello, Evan, Lisa. Lisa, I'm going to turn it over to you.

Thanks, Richard.

Good morning, Evan. Glad to have you here.

Hi, Lisa. Great to be here.

You've got a lot of exciting things going on. I think we'll just jump right into them. People that don't know Nextech is evolving shortly into a pure play in augmented reality but not as some theoretical concept, something that's actually applied to e-commerce that helps advertisers and marketers sell product. So it's not some nebulous crazy idea of gaming and cartoon characters walking around rooms. So it's exciting to see it being put to use as a real application. Anyway, so I think we should go through what's going on at Nextech, the base company that does 3D advertising and marketing as well as the spin-off of ARway, which was coming shortly in the next few weeks.

Yes.

And also talking about Toggle 3D. So let's start with your press release of the 7,500 models that were just ordered.

Yes. Thanks, Lisa. It really was a watershed moment for Nextech. As you know, following us for 3 years, we've been beating the battle drums for 3 years about the 3D model industry and e-commerce and how it's going to be a big deal. Well, now it is. Amazon has stepped into the 3D modeling market in a big way. We're now supplying them with 3D models at scale. The 7,500-piece order is really just the tip of the iceberg. And there's a lot of other e-comm players that are also now looking for large quantities of 3D models. And the reason, Lisa, is simple. When I first started, I believed that 3D models were game changer, but I didn't have any actual data because it was all new.

Right.

Right? And you kept asking me. Like what does it do for these retailers? Like why do they want 3D models? And I was like, Lisa, 3D models, it's so much better. You get to see it in your space, and you're like, "Yes, I get that. But, like, what does that mean?" And so now after 3 years of testing, testing, testing, the numbers have shown up, and the ROI is off the charts. And that's why everybody is lining up. Shopify, this isn't Nextech, has come out and said, future of e-commerce is 3D. You get a 93% uptick in click-through rates with 3D models, up to 250% increase in conversions, which is huge if you think about it, and up to a 40% decreases in return. So the ROI, ROI, ROI, is what's driving this. It's cute -- like you talked about the games, that's entertainment. This is a return on your dollar. If you're an e-comm retailer and you're trying to make money online, you need 3D models because it's just a better way for consumers to shop with more confidence. And ultimately, they don't return the product, which is a big problem, because it's exactly what they saw in 3D or in AR. So that's really why the business has taken off is that -- in any new industry, you got to go through the test, test, test. And if the ROI doesn't work, it's almost like a drug in clinical trials. If it doesn't work, you're not going to get FDA approved and it's over, right?

I'm curious as the people that have been using it now, what -- have they gone through exactly what dollar amount is saving them the most money? Is it like, I don't know how much returns are, how much a cost for returning at it? Or is it just people buying instead of looking?

So it's a combo of all those things. So returns are huge in the furniture market, and -- meaning a huge cost, right?

Right, right.

If you [ buy ] a couch that's the wrong size, you send it back, right? It doesn't fit. That's the big problem. And to leave it to me or to you to go to the store and measure, and they come back and try and see, does it fit, it's risky. And so I've personally had situations where I order product and if it's the wrong color, it wasn't in 3D. It's the wrong size, I can call up and I'm like, "I want to return it," and they just say, keep it, because it costs too much money to return it, and they give me a full refund.

I've had that happen in Amazon where they said just keep it.

Yes. So that just tells you -- that speaks volumes, right? And so back to Amazon, if you think about Amazon, they're $1 trillion technology company, very sophisticated -- very, very sophisticated company. I mean, I think they have -- what do they have? Drones, EVs, electric vehicles. The Ring, right? They have the Home. They just bought iRobot. I mean this is a full-on integrated technology company. They've been testing 3D models. They've told me for 10 years they've been working at this. Can you believe that?

That long.

It's that long. And what's going to happen in Q4 of this year is they're going to open the floodgates. Right now, it's still just a couple of companies like Nextech supplying them with 3D models. And that's going to change in a big way. And when that happens, Lisa, next we're told, that we will be a preferred partner. And that they will be referring us business. So whatever they're buying, that Amazon is buying from us, like I said, it's the tip of the iceberg, meaning they're going to be the smallest player in their ecosystem. So this -- the opportunity is just massive. And from Nextech's standpoint, our core goal was to just get in front of the tidal wave, wait for the tidal wave, wait for it to hit and then ride it for the next decade. And that's exactly what's happening.

So one thing I'm curious about is they say that you order models and you deliver models. Where -- when do we get to the point where they go make their own damn models on your platform and you just collect the check?

That's a good question. So I wish it was that simple.

You want it to be that simple.

I want it to be that simple. So we actually are -- they do make their own models, but they can't make enough for them. They can't make them fast enough.

Okay, so you're saying they're outsourcing.

Yes, they've outsourced. But ultimately, they don't want to be in the 3D model business. Believe it or not, we even don't necessarily want to be in the 3D model business long term. Long term, we want to be a software suite for the 3D model industry. Just like Adobe is for -- Adobe Illustrator is for the design industry. We want to be the 3D model platform for the e-comm industry. And even manufacturing, as we've mentioned, we have the CAD to POLY conversion, and I think we're going to talk about Toggle 3D because that's a big, big deal.

Yes, if you want to talk about Toggle, I'm fascinated with that. Because like my first job in life after graduating as an engineer was working in a nuclear power plant, designing one. And there was literally a model shop where these -- and this is obviously back in the '70s. But there was a model shop. And I was told that, that model, they would spend $1 million on the model. And these guys took little plastic pipes and little plastic people, and they've built what the plan said just to check for interferences on the pipings and everything because everything is so tight. And you have like somebody in plumbing, running one thing here and somebody in rad waste running another line. $1 million in the '70s just for that. And your system, which just take all those plans and turn it into the 3D image, and they wouldn't have to do that.

Yes, that's exactly it. So I mean, nuclear power plants are probably not our target market.

My point is like they actually spent that kind of money to do that, to make a 3D.

Yes. So Toggle 3D, which we're about to release and announce -- actually, it's on our website. You can go to our website. There's a tab there, you can kind of see how it works. But it's really an end-to-end 3D modeling suite where you can import models from other suppliers. In other words, we don't have to be the ones making you the 3D models. You could buy them on Sketchfab or TurboSquid, or Nextech can make them for you. So the idea is that you import them into this platform. It could be a CAD file also. The platform will have preloaded colors and meshes. So you can essentially have a model that you buy or make, imported in, change the color, change the fabric, change the texture to anything. It could go from wood to metal or metal to plastic for prototyping. You could have -- it basically allows you to take a single model and make unlimited variations of it. And that's one functionality of it. Then it's a photo studio. So it has virtual photography built in. Then you have a decorator where you could have a picture of your room or a stock photo, and you could drag and drop and move around 3D assets to create a space. You can operate as a decorator, a configurator. We mentioned that's changing color. So it's really this end-to-end suite. It's a SaaS platform. So our goal...

It's all self-serve, right?

All self-serve. All self-serve.

And you just collect the check. Okay.

You just collect the check, like you said. That's our ultimate goal.

I like that one.

Yes, I like that one, too. That's been my goal. But to get there, we have to build 3D models, right? And so we have to ultimately eat our own cooking. We got to -- remember, we even started out, we had -- we were selling vacuum cleaners. And that was...

[ Bizarre ].

No, we're not. We're not [ going to visit ]. That was basic leaving the bridge to get -- no, we have some legacy numbers that are showing. They're showing up, but they're going to be gone in a minute.

All right. All right. So I guess, let's talk about ARway because that's the big thing that's very near term.

It is.

And the record date is going to be, what, in the middle of October? Or is it the [ 15th ]?

It will be in the middle of October. I'm getting word from my counsel that we should have everything approved on or around October 20. So the trade date will be really right around that. So I figured that by the last week in October, ARway will be trading on the CSC. We already have a conditional approval. The symbol is already approved, ARWY. And in parallel, I'm now working with OTC market to get the dual listing, so that we will be dual-listed in the U.S. as soon as possible. We have to go through a process there as well.

Okay. So after -- in the filing, you're going to raise $1.5 million to put into that company.

Yes.

And so after that's raised, you'll have, what, 26 million?

26 million shares outstanding, yes.

And then, Nextech will own half that.

Correct, around 13 million, yes.

And the shareholders will have...

4 million will be dividend-ed out to Nextech shareholders. So if you own shares in Nextech when we -- on the record date, you will get 3 shares that will magically show up in your brokerage account in ARway, which is a very, very exciting business. We're getting an enormous amount of interest in that business, and we have not even spent $0.01 on marketing yet. It's all just organic. For some reason, don't ask me why, we just happen to be in the right place at the right time with indoor navigation, with augmented reality.

Right.

And so -- and all of this actually ends up blending together, Lisa, where the way-finding is really a metaverse experience. And all these 3D models to be imported, they're actually going to be able to be visible inside the way-finding experience. And it's just a really nice synergistic ecosystem that we've created, that is about to kind of get switched on.

It's amazing that the indoors is almost more useful than the outdoor. I was walking around Boston this weekend. And I turned on, on Google Maps, the directional thing with the augmented reality. And it's saying, go straight, whatever. I'm like squinting, it's in the sunlight. I can't read the screen. I think you want me to go to the right. I don't know when I'm there. And I was like, I can't even see this thing. This thing is stupid. I get into the Prudential Center, and I'm like, where am I? Where are the stores? Where is the food? I can see my screen because there's no sun glaring in it. And I was like this is perfect. This is like where Nextech needs to be helping me.

Exactly, and we will be. We're actually going to be doing malls. We're actually in a test right now with a mall in Dubai. Believe it or not, airports -- travel is huge. Just navigating your way around a cruise ship, which are like floating cities. Malls are huge. Hospitals actually are also a big target market. It really is endless. We're actually going to do a pilot on a university campus. We have a call with a major museum, I think, tomorrow. And so there's a tremendous amount of demand for this. And all it comes down to now, and this is -- what we're doing, is we're setting the stage for a marketing blitz, which is going to be happening as in October, as we're going -- getting closer to going public. We have actually enhanced the technology. When we first started, it was point cloud based, right? Now it's QR-code triggered. There's no point cloud. Which means you walk into the mall, the Prudential Mall, there'll be a kiosk, a sign. You scan the QR code and the map will open it up, you'll have an augmented reality overlay of arrows on your phone, you'll be able to have a menu where do you want to go. You just point and click, I want to go to Sephora or wherever, and the arrows all of a sudden start telling you how to find your way. It's really that simple. And then along the way, if the mall chooses to, they can insert advertising in augmented reality and on and on.

Sounds good. Well, I just want to make one comment because you're complaining about my valuation of Nextech. And a lot of it also hinges on the valuation of ARway. I'm going to tell you a short story. Back -- years ago, I used to do research on private companies. So somehow, I was told to call Waze. So I call Waze. And some guy talks to me for a long time, explaining the whole thing and it's this and it's maps. I said, but you have no revenues. Like how are you going to get revenues? And they were like, "well, I don't worry about those. It's all self-serve. We got the maps. We've got the whole thing". And I'm like I don't get it. I get a walk -- sure enough, like 3 weeks later, it gets sold to Google for $1 billion. So I'm like complete idiot, complete idiot. Here, I am looking for a business model. So I'm going to say, ARway could be the same thing where it's just worth a bunch of money. And don't even worry about it.

We do have a business model, though, unlike Waze.

You do. No, I know. But I'm like, forget that. So if you want to be like 15x revenues of no revenues, it would -- there's no way to value that.

Yes, yes. We do have a business model. Luckily with the ARway, there are -- so there's companies out there that use beacon technology for indoor way-finding. So we know what the business model is. Our tech, we believe, just kind of leapfrogs over them because: A, it's augmented reality, so it's more immersive; but B, there's no CapEx.

Yes, the beacons are kooky.

Exactly. So -- and I agree with you, Lisa. I do think we're undervalued. And I do think -- the part of the reason -- or the main driver of the spin-off, the main driver, is to unlock the value that is trapped inside Nextech with ARway, so that it's a pure play, so that an analyst like yourself can look at it as a company, similar to Waze, and say like, okay, this is a singular technology, a singular business model. It's not like Nextech makes 3D models, plus they do way-finding, plus they have this full event business. That's a lot harder for you, I would think, to come up with a valuation on, am I right?

Yes. Definitely. The simpler the better. People like to know what they're investing in.

Yes.

I think we're out of time because this is a short one. But thank you so much for coming and talking about all the near-term things that are making everything super exciting over there.